Insurance Basics

Insurance is NOT an investment. Repeat after me: Insurance is NOT an investment.

Insurance is an expense you pay to transfer a catastrophic risk from your shoulders to an insurance company. If you mix insurance with investment, you usually get the worst of both worlds.

The Two Must-Haves

You can skip phone insurance or travel insurance, but you simply cannot afford to skip:

1. Life Insurance (specifically Term Insurance)
2. Health Insurance

1. Life Insurance (Term Insurance)

Purpose: To replace your income for your dependents if you die untimely.

Who Needs It?

• If you have dependents (spouse, children, aging parents) who rely on your income: YES.
• If you are single with no dependents and no loans: NO.

Why "Term" Insurance?

There are many types of life insurance (Endowment, ULIP, Money Back). They are all expensive and give poor returns.

Term Insurance is pure protection.

• You pay a small premium.
• If you die, family gets a BIG sum (Sum Assured).
• If you survive, you get NOTHING.

How Much Cover Do You Need?

Rule of Thumb: 15x to 20x of your Annual Income.

• Earning ₹10 Lakhs/year? Get a ₹1.5 Crore to ₹2 Crore cover.
• Add any loan amounts to this.

2. Health Insurance

Purpose: To protect your savings from hospital bills. One major illness can wipe out 10 years of savings.

"But I have corporate cover!"

Corporate insurance is great, but risky:

• What if you lose your job?
• What if you retire?
• Cover amount (usually ₹3-5 Lakhs) is often insufficient for major surgeries.

Advice: Always have a separate personal health insurance policy.

Key Features to Check

1. No Room Rent Capping: Crucial! If room rent is capped, EVERYTHING else (doctor fee, surgery) gets capped proportionately.
2. Waiting Period: Pre-existing diseases usually have 2-4 year waiting period. Buy when young!
3. Co-payment: Avoid policies where you have to pay 10-20% of the bill.
4. Restoration Benefit: If you exhaust your limit, company refills it for unrelated illness.

How Much Cover?

• Tier 1 City: Minimum ₹10 Lakhs (Family Floater)
• Tier 2/3 City: Minimum ₹5-7 Lakhs
• Super Top-up: A cheap way to increase cover. (Base policy ₹5L + Super Top-up ₹20L = Total ₹25L cover for very low cost).

Common Insurance Mistakes

❌ Mistake 1: Buying ULIPs for Investment

ULIPs mix insurance and investment. High commissions, lock-in periods, and mediocre returns. Keep them separate!

❌ Mistake 2: Under-insuring

Having a ₹2 Lakh health policy or ₹10 Lakh life cover is almost useless today. Inflation hits healthcare the hardest.

❌ Mistake 3: Hiding Medical History

If you smoke or have diabetes, TELL THE INSURER. If you lie, they will reject the claim when your family needs it most.

❌ Mistake 4: Delaying Purchase

Insurance gets expensive with age.

• Term Plan at age 25: ₹8,000/year
• Term Plan at age 35: ₹15,000/year
• Term Plan at age 45: ₹30,000/year

7-Day Action Plan

Day 1: Check if you have personal Health Insurance (apart from office).
Day 2: If not, compare policies on PolicyBazaar or Ditto.
Day 3: Calculate your ideal Term Insurance cover (20x Income).
Day 4: Check your existing policies. Are you paying for expensive Endowment/Money Back plans? Consider surrendering them (do math first).
Day 5: If you have dependents, apply for a Term Plan immediately.
Day 6: Review parents' health insurance. Premiums are high for seniors; ensure they are covered.
Day 7: Create a "In Case of Emergency" file with policy documents and share location with spouse/parents.

Quiz

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💡 Final Wisdom: The best insurance is the one that pays the claim. Don't just look for the cheapest premium; look for the Claim Settlement Ratio and brand trust. And remember: Buy it hoping you never use it.