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Evaluate the type of insurance cover you need before buying a policy

Over insurance may lead to higher costs than what one needs to incur, while being underinsured may leave income open to risk

Rakesh Goyal | New Delhi |

One of the important aspects of an individual’s financial stability and security is insurance. However, while selecting the type of insurance cover one needs to consider his or her present and future requirements.

For instance, Riya has just passed out from the college and started working. At this stage, she has no financial commitments. However, she is very calculative in investing in various instruments and has recently heard about the importance of insurance for financial stability. Riya is now planning to invest in a life insurance policy along with her regular monthly savings. Let us see what aspects she should consider before making this decision.

The primary requirement for Riya at this age is protection against loss of income or a large unexpected expense that could disrupt her savings and income. Since she has no dependents at this phase, opting for a life insurance may not be necessary at this time in her life. However, she must consider buying an insurance cover or more that are more relevant for her.

Riya might need to commute from her place to the office and vice-versa, which may involve a high risk of accidents while travelling. So, she can choose personal accident insurance which will cover the loss of income in case an accident leads to temporary disability or inability to work. In this case, Riya will receive an income according to the terms of the policy till the time she is able to go back to work. Unlike personal accident insurance, life insurance provides protection to income only in case of death. It may have riders linked to them which offer the accident cover. However, it will result in a higher deal to pay the premium for the life insurance policy as well as for the rider which she does not really require.

Health is a major concern today. Owing to the increasing number of lifestyle health issues, Riya must consider an optimum health insurance plan at this stage of life. In addition to this, opting for a health cover at an early age is a wise decision as premiums cost less. Additionally, Riya should consider renewing her policy from time-to-time in order to set up a record of the continuous cover so that she can have access to this health covers at low cost even at a later stage. Also, a comprehensive motor insurance policy is essential if she owns a vehicle as it covers all the theft and damage caused to it.

The bottom line is, it is very important for Riya to access the cost while choosing the type of income and the amount of cover which she requires. Another essential factor that Riya must keep in mind is that she should neither be over insured nor under insured. Since being over insured may lead to higher costs than what she actually needs to incur and being underinsured might leave her income open to risk.

(Rakesh Goyal is Director, Probus Insurance Broker Ltd.)