5 must have insurance covers

"Only when we are no longer afraid do we begin to live." So said Dorothy Thompson, famous American journalist.

The fear of death is big, but it is not palpable. The fear of losing your hard-earned assets, such as a car or a house, is bigger.

And, the fear of how your loved ones would provide for themselves if something happens to you is even bigger. The uncertainties of everyday life -- increasing incidence of diseases, terrorist attacks and road accidents -- add to the anxieties.

Insurance could at least minimise, if not banish, these pressing fears from our lives. We list five insurance covers that you must have at all times -- term, health, accident, motor and home.

1. Term Insurance

The cheapest and the most basic, this is a no-frills life cover that should be one of your first financial instruments. Being a pure insurance cover, it does not return your money if you survive the policy term.

If you don't, the sum assured is paid to your dependants. So, buy only if you have financial dependants, or you expect to have dependants in the future. If you expect to have dependants till a later stage of your life, look for a plan that has a high maturity age.

Most term plans provide cover till 60-65 years of age. Few even offer plans till age 75.

As there is no surrender or maturity value in these, you should settle for the one with the lowest premium and the longest term.

Since they are simple, term plans can be easily compared on the basis of price and the cover period. Search for a quote from at least four to five companies before buying one.

Recently, a few variants have been introduced in term insurance.

ING Vysya Life Insurance has launched limited premium paying term (PPT) plans. In these, you have to pay a higher premium in the initial years to cover the premiums for the entire term, after which you stop paying altogether. If you think, you can afford higher premiums only for a few years, this plan will make sense for you.

However, it has its drawbacks. In the event of death in the initial years, you would end up paying much more than what you would have paid till that time under a normal plan.

Also, if at any point you want to discontinue the plan in the absence of dependants, you would have paid for the entire term in any case. Switching to a lower cost plan would also be hindered.

DLF Pramerica's Family Income Plan has come up with another innovation. Unlike a conventional protection plan, where the dependants receive a lumpsum, the plan allows you to choose the monthly financial support system.

Under this, your dependants would be paid on a monthly basis till the end of the plan term.

Important

Keep the highest possible term
Keep the maturity age as long as possible
Talk to 4-5 insurers or visit their websites to get premium rates
Choose the plan that has the lowest premium at your parameters
Undergo medical tests, if required
Keep the nominees informed
Pay premiums every year

2. Health Insurance

You may not care about your health, but you sure do care about your finances. With healthcare costs rising at more than 15 per cent a year, having a health insurance is becoming a necessity.

These policies are of three types -- the first covers basic hospitalisation needs; the second critical illness; and the third daily hospital cash reimbursements. Even life insurers offer health covers with defined benefits.

Under these, a pre-specified amount is paid as compensation, irrespective of the expenses incurred.

With or without a family, you need a health cover. For those who have a family, we recommend a family floater instead of a standalone policy since the probability of all family members needing hospitalisation at one go is remote.

Even if your employer offers group medical insurance, get your own cover. A change of job could leave you without insurance, and so could retirement. And, getting a fresh cover after 45 is difficult.

Important

Buy floater plan to cover entire family
Opt for a cashless plan, keep cashless mediclaim cards at hand
Ask insurers for premium rates to find the cheapest policy
Keep an eye on exclusions and inclusions in the policy
Undergo medical tests, if required
Buy health insurance even if you have one from your employer

3. Accident Insurance

Accidents don't just happen on the roads. You may meet with one if you slip in your bathroom, or trip down the staircase in your office, or fail to see the next step in the darkness of a cinema hall.

One careless step could render a double blow to your finances -- your healthcare spending increases as you undergo treatment and your income stream gets disrupted until you recuperate. It is here that accident insurance plays a crucial role.

In India, you have two major options to cover the risk from accidents. First, are standalone personal accident insurance policies (PAIP) available with general insurance companies. Second, you can get it as a rider along with a life cover.

Accident policies only cover bodily injuries due to accidents, which are external, violent and visible, as the definition goes. It covers you for four contingencies that may arise from an accident -- death, permanent total disability, permanent partial disability, and temporary total disability.

Like benefits from all insurance policies, buyers need to understand how these contingencies are defined in the policy. When you go for a PAIP, opt for a comprehensive cover of the four contingencies even if you have the option of covering one, two or three of them.

Important

Choose your preferred insurer as premiums are the same across insurers
Provide income and profession details to the insurer
Insurer determines your risk category
Pay the premium based on risk category
Opt for comprehensive cover to include disability
Receive certificate and check its terms and conditions

4. Motor Insurance

Not having a cover for your vehicle is like driving one at night without switching on the headlights.

You need to compulsorily take a third-party insurance, or third-party liability cover, sometimes also referred to as the 'act only' cover, when you buy a vehicle. It is referred to as a 'third-party' cover since the beneficiary of the policy is not the two parties involved in the contract -- the insured and the insurance company.

It covers the injuries to a third person, or damage to the third person's assets. But, it is better to go for a comprehensive motor insurance.

You can negotiate for a discount while buying. Also, soon general insurers would be able to price the premium on the policy wordings.

As a buyer, you will need to understand how the wordings of the policy would affect your premium. Factors like the driver's age and record, the type of vehicle and usage could determine the premium in the future. For now, look for lower rates without compromising on any of the clauses or feature.

Always remember, to transfer your no-claim bonus to the new car, if you are replacing your old one. This way, you would be able to save 20-50 per cent on the first premium of your new car.

Important

Talk directly with insurers or brokers while comparing premiums
Negotiate on discounts
Check if there is deletion of any clause or benefit
Opt for co-payment/deductible to lower premium outgo
Make sure benefit of no-claim bonus is added, if available
Receive the original policy certificate/cover note

5. Home Insurance

For most Indians, buying a house is the most cherished dream and probably the biggest investment of life. Home insurance not only covers your dwelling against unpredictable events, such as a terrorist attack or an earthquake, but also your valuable personal property, such as consumer durables and jewellery.

The premium is less than 1 per cent of the actual cost of the contents or structure covered. You can also opt for a long-term cover by paying a lumpsum premium. In terms of cost, the policy gives you two choices -- cover against the present market value and against the reinstatement value, or the value at the time of the claim. Opt for the latter.

You can either opt for a standalone fire insurance policy (FIP), or a more inclusive householder package policy (HHP).

FIP only protects the building of your house against fire and allied perils like earthquake, lightning, storm, floods and riots. HHP, meanwhile, covers the contents of the house against burglary and mechanical or electronic breakdown, in addition to covering the building and contents against fire and other perils. HPP even offers other covers like public liability due to your negligence, personal accident (offers an income stream for the period you are temporarily disabled and a lumpsum payment in the case of death or total disability), workmen's compensation (covers you against injury or death of your domestic help) and baggage loss.

Remember, it's never too late to buy insurance. So, if you don't have the must have five, buy them now.

Important