Uncertainty is omnipresent today and we live in a world full of uncertainties around us. We never know what will happen in the next hour or day! We need to be prepared for the best and the worst. One unfortunate event happening can cripple the entire family and wipe out years of financial savings. Insurance is an important tool in protecting a family’s financial well-being. You and your family need insurance for proper coverage and financial support against all risks relating to your life, health, and property having financial implications. Insurance is considered as a safety net that protects you from financial troubles on rainy days.
Let us see some examples to understand this:
- Siddesh dies young leaving his dependent wife and kids without financial support.
- Sindhu’s car met with an accident and requires a large sum for repairs.
- Mohit suffers from arthritis and has to spend a large sum each month on physiotherapy.
In all the above situations, there is either a loss or a large expense that has to be met out of available income. In order to avoid such situations, it is necessary to opt for suitable insurance policies that provide cover against any disruption in income and the financial situation of an individual. Adequate coverage for the D’s of life - death, disease, disability and damage is a must for everyone.
If Siddesh had a life insurance policy for a sum adequate to meet his family’s financial needs and goals, then he would have protected them from the financial shock of his death. Similarly, a motor insurance policy would have covered the cost of repairs to Sindhu’s car and her savings would not have been affected. A health insurance policy would have easily covered the cost of physiotherapy.
Insurance, as a product, is the key to your wealth or financial protection. Here are some reasons which make insurance a vital constitution of one’s financial planning and financial well-being.
1. Financial Security
No matter how much you are earning or how much you have saved; your financial position can be dented by an unexpected event in a moment. So, the best way to become financially secure is to cover yourself, your family, and your assets with insurance. Insurance provides financial support and reduces uncertainties that individuals face at every step of their life cycles. It enables you to continue living with minimal worry, especially when large financial burdens like medical bills, mortgage, debts and others would easily change the financial status of your family. For instance, with medical inflation growing at approximately 15% per annum, even simple medical procedures cost enough to disturb a family’s well-calculated budget, but a Health Insurance would ensure financial security for the family.
2. Continuity of Life Goals
By minimizing the financial impact of unfortunate events, we are not just safeguarding the present but also protecting the future for everyone. We can reasonably expect that our life continues as it should to the best extent possible even in the worst scenario provided we have the adequate protection with the right cover. Thus, critical life goals like buying a home, education for children, marriage for children, retirement for spouse, regular income, etc. ideally should not be compromised. We have also seen tragedies push back With the financial support from claim proceeds of insurance policies, one can even help avoid and pay-off debt.
3. Peace of mind
There are different types of insurance plans to cover the different types of risks that you might face. You can, thus, choose different policies based on the risks that you face and create a 360-degree layer of financial protection. Having adequate and broad insurance coverage will give you peace of mind and no amount of money can replace this. With insurance, you are assured that you and your family members are financially secure against any unforeseen events in life. It also ensures that in case of any emergency, you are in a position to handle the same. For e.g., if you have a medical emergency, with adequate health cover available, you will be able to get the required medical attention/treatment. With life insurance, you are assured that your family will not suffer financially in your absence. Access to financial support ensures that you can get the best treatment possible and make good on any losses.
4. Tax Benefits
Life and health insurance policies also offer additional benefits as tax saving instruments under 80C & 80D. Furthermore, under life insurance plans, the maturity and death benefits received are also exempt from taxation as per Section 10(10D) of the Income Tax Act. Tax benefits however should not be considered as the primary objective of any insurance decision but as a by-product benefit.
5. Saving and Investment
In addition to the primary objective of protection against financial risks, there are products offered by insurers which also provide in-built savings /investment plans. Savings plans are protection-cum-investment policies that are designed to aid in disciplined and periodic savings in addition to giving basic insurance coverage. Products like endowment savings, money-back, ULIPs or unit-linked insurance plans and annuity plans are available in the market. Although such products are popular in the industry, we believe that such products cater to a very specific kind of customer and it is always recommended to check on the suitability of such products for your needs with the help of your insurance advisor /agent.
The Bottom Line
The best-laid plans can go haywire. Life has a tendency to throw surprises at you. Thus, the need for a contingency plan to absorb the financial shocks of such surprises. A proper, full insurance need assessment would probably be the starting point for understanding your needs. A comprehensive cover may cost you a bit today but will surely save you on a rainy day.