Decoding Insurance Types for Financial Security

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In the last edition, Tanya insisted on investing in insurance policies as early as possible and helped us understand the need for insurance. This time lets us understand what types of insurance one might need throughout life.

Types of Insurance

There are diverse options in insurance tailored to specific needs and circumstances. The two major categories are life insurance and general insurance. It is further divided based on specific needs and customisation.

Life Insurance

There are various types of life insurance. We have listed the different ones based on different needs and specifications.

Term Plan

This is the basic and affordable type of insurance. In term insurance, you pay a small premium as cover for life. In case of an accident illness or death, your loved ones will be paid the insured sum. This will act as financial security.

The only catch here is that if the policyholder dies within the specified term or period i.e., say 10 to 40 years, the sum assured is paid to the nominee as a death benefit. However, if you survive the term, there is no payout. Term insurances are pure insurances and do not double up as investment plans.

Whole Life Plans

Whole life plans are costly. They usually provide cover up to 99 years of age, and as we all know, very few people live beyond that age. But the main difference is whole life plans propose a guaranteed payout. They have death benefits, survival benefits and maturity benefits.

They almost cost three times the term plans. For example, a cover of INR 1 crore with a premium paying term till the age of 60 will cost a 30-year-old a premium of INR 525/month approximately compared to INR 1700/per month for a whole insurance plan.

Unit-Linked Insurance Plan(ULIPs)

ULIPs (Unit Linked Insurance Plans) offer flexible solutions that adapt to your evolving needs, blending investment and insurance benefits. Premiums are paid annually or monthly, with a portion dedicated to insurance and the rest invested in stocks, bonds, or both.

While ULIPs can boost your wealth, their returns are market-linked, exposing them to market risks. However, their flexibility, allowing fund switches and partial withdrawals, helps mitigate these risks.

Endowment Plan

Endowment plans offer the best of both worlds. It has a double benefit of insurance and savings. You save consistently over a set period, with a guaranteed sum payable at maturity, making it ideal for building funds for future needs like education or retirement. If the policyholder survives the term, they receive the maturity amount. In case of premature death, beneficiaries get the sum assured plus applicable bonuses, ensuring a risk-free plan with guaranteed returns.

Retirement Plan

Think about the savings on your premium and the sizable growth of your corpus if you plan for your retirement at 60 years of age. This will give you almost 30-35 years of wealth accumulation, thanks to the compounding effect. Retirement plans also double up as pension plans, where you get a certain amount every month after the maturity period.

General Insurance

General insurance includes all your assets and liabilities, like home, auto motors, travel and fire insurance. One of the most important insurance that everyone must invest in is health insurance. Let us take a look at these in detail.

Health Insurance

Health insurance is a vital safety net that covers the expenses of medical treatments, including the costs of inpatient care, critical illness treatments, post-hospitalization bills and day-care procedures,

Here are several add-ons are riders you have to keep in mind while choosing a health cover.

1. Individual Health Insurance: Provides coverage for a single person.

2. Family Floater Insurance: Allows the entire family, including the husband, wife, and two children, to be covered under a single policy.

3. Critical Illness Coverage: Covers life-threatening conditions such as stroke, heart attack, cancer, renal failure, and similar diseases. Policyholders diagnosed with such illnesses receive a lump sum payment.

4. Senior Citizen Health Insurance: Specifically designed for individuals over the age of 60, these policies cater to the unique healthcare needs of senior citizens.

5. Group Health Insurance

   This type of insurance is issued to employees by employers.

Automobile Insurance

Motor insurance is a form of insurance that covers damage to your vehicle in case of accidents or crashes. Insurances are available for four-wheelers, two-wheelers and commercial vehicles. Automotors are a liability and maintaining them in itself is an expense. On account of accidents, insurance can save you tons of money.

Home Insurance

After building a home, it can be destroyed by different factors such as fires, natural disasters (like storms, floods, earthquakes), and man-made disasters (like strikes and riots). Home insurance is a hedge against these oddities.

Travel Insurance

This is one of the very lesser-known insurances. While travelling, you might miss pre-booked flights or cancel hotel bookings due to various reasons like weather, flight delays cancellations etc., all of it can be covered in travel insurance with proper documents. It also covers theft and luggage damage at times.

Tanya’s Insurance Plan

Tanya has opted for term life insurance and an endowment plan. She also has decided to ask her father about his health insurance policy and ask about the coverage and add-ons it carries so that she can just pay the extra premium and add herself as a rider in her father’s health insurance. You also choose one based on your needs and plans and stay financially secure.