Financial Risks need to be managed and you can have different approaches in managing these. As a preferred approach, understand your Risk tolerance and then prioritize your overall insurance starting with Health Insurance then life insurance and then others. Try to limit insurance costs to 10% of your take home income & space out premium payments throughout the year.
So let us see how one should go about addressing the overall insurance needs. Well, there are several ways one can do this. One good way that we recommend is to take a stock of your overall finances and as a part of that address the insurance requirement. The reason is that even before you take insurance, you may have to first save money for your emergency corpus, as an example.
Now let us see how one should look at Insurance in detail. It may be helpful to start with your risk profiling. You can do this by using risk assessment tests available on personal finance portals. This will give you an idea of your risk tolerance capacity. As an example, on an aggressive side, you may be OK with an under insurance scenario with an assumption that in your absence your family will cut down on lifestyle and goals and manage with lesser corpus. On a conservative side, you may like to ensure that you are fully covered so that your family does not go through any hassles when you are not around. Please keep in mind that this approach is subjective in nature.
- As a broad guideline, you should try & not spend more than 10% of your annual take home income in annual premiums for all insurances.
- Your present medical situation may demand different covers or different approach.
- Is this your primary health cover that you will be buying or you already have a primary health cover from your Employer and this will be a secondary health cover? For secondary health cover, you can invest in say Rs. 5 Lakhs cover and opt for policies that will give you good no claim bonuses. If it’s your primary cover, then we recommend you go for Rs. 10 Lakhs cover.
- Review comparison available on various personal finance portals to select a right health cover for you.
We recommend that you first address your health insurance and then address your life insurance. The reason is that probability of hospitalization is higher than the death. With increasing age, your health status may not allow you to get a good health cover. That said, keep in mind that with increasing age, you will have to pay more premium for your term (life) cover. So once you address your health insurance needs, you should not delay taking the life cover.
We believe that Life & Health cover form the part of your core insurance cover. Once you have taken these, you can then focus on taking other covers like Personal Accident, Critical Illness, Hospital Cash and Employment insurance.
Take different covers in different month. So that your premium payments are spaced out across the year. This will avoid liquidity crunch in a given month. In many covers, health insurance as an example, if you take two years cover together, you will get about 10% discount. This is a good idea, if anyway your money will be staying in a saving account that earns you only about 4%. That said, avoid going in for a very long term commitment as more and more innovative products are likely to come, given the entry of new private players in the insurance space.
- This article has been originally written for Dainik Bhaskar and published on 6-Dec-2013. A copy of the published article is available here.
- There can be differences in both the versions due to translation