Yogi Zone

Useful articles for your finance management by our team of experts

Are you adequately insured?

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 “Insurance is subject matter of solicitation.”

How many of you actually understand the meaning of this statement shown frequently during TV advertisements of insurance products!

In simple words, this statement means that the person who requires insurance is supposed to request the insurance cover from the insurance company.

However, all of us know very well, that insurance is ‘SOLD’ in most of the cases not purchased.

Insurance actually is an unavoidable need for any individual who has a family to support. It is not meant to be an investment or tax saving instrument, but it is a risk cover to protect your family financially in case of any mis-happening. I’ll not take you into technical details of how insurance industry works, however I strongly believe that you should understand the basic concept of insurance and use this amazing tool effectively.

None of us will deny that we live in a risky world, any moment; any incident might cause something undesirable to you. I know many of you will hate me for saying this, but life of your beloved ones will not stop after you. Of course, the emotional grief will be there, however if financial crisis also arises, that will make the situation unbearable. I am sure you would not want that to happen to your family after you. Insurance can help you to prevent this kind of a situation for your loved ones. I hope now you understand the criticality to have an insurance cover.

The questions now arises is how much insurance you should buy and what type of cover?

Let us discuss about that now.

There are to approaches to calculate the required insurance cover:

1) HLV – Human life value

2) Need Based Method

Under HLV, the required insurance cover is calculated based on income of an individual. In other words the insurance cover, according to this approach, should be equal to the present value of the cash flows, which the individual is supposed to earn during his remaining earning life span.

On the other hand, the need-based approach, takes into account the living expenses of dependants to calculate the required insurance cover. According to this approach, your insurance cover should be an amount, which is sufficient to meet the expenses of your dependants throughout their lives.

You can opt for any of the two methods to know how much risk cover you need to buy.

What type of cover?

Don’t let thousands of policies available in the market confuse you. Be very clear about your objective behind buying insurance cover.

Here are a few ideas, which might help you take a decision for buying the right cover:

1) Try to buy insurance cover at an early age. You will be able to get a very good deal.

2) If you are in your 30’s and starting a family, ideal insurance for you would be a term insurance plan. For a very less amount of premium, you’ll be able to buy sufficient cover for your family.

3) Do not ever get into traps of insurance agents. Always go with the plan that fits your needs in the best possible manner.

4) Do not mix insurance with investments. Insurance has a specific and unique purpose of protecting your family. Let it be that way.

5) If you are approaching towards your retirement, make sure you have a medical insurance. This will give you a protection against increased medical expenses during your retirement years.

Hope from now on, you will look at insurance with the right perspective and use it effectively the way it should be used.

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