Insurance planning is an essential part of an effective financial plan that includes assessing risks and selecting the best insurance products to mitigate those risks. Insurance can help alleviate financial burdens that often occur when unexpected circumstances arise, safeguarding your home, income, and other assets. Health, life, disability, and long-term care insurance can help protect your family in the event of an unforeseen death, medical event, or injury.
Insurance, as a product, is beneficial in safeguarding your finances. Here are some reasons which make insurance a quintessential part of your financial portfolio:-
1. Risk coverage
Insurance is a risk mitigation tool. So, it prepares you to face the financial loss that you may incur in any unforeseen event such as death or hospitalization.
2. Financial security
By compensating for the loss that you suffer in an emergency, insurance policies provide financial security. You are secured in the knowledge that if an emergency strikes, the insurance policy would shoulder the loss. This helps you plan your finances and accumulate a corpus for your goals. It also ensures that the planned corpus is secured and is not used in emergencies.
3. Different plans for different needs
There are different types of insurance plans to cover the different types of risks that you might face. Life insurance policies cover the risk of premature death while health insurance policies cover medical emergencies. Similarly, motor insurance plans cover the risk of road accidents or theft of the vehicle and travel insurance plans cover trip-related contingencies. You can, thus, choose different policies based on the risks that you face and create yourself a 360-degree layer of financial protection.
4. Tax benefits
Life and health insurance plans are tax saving too. Life insurance premiums qualify for a deduction under Section 80C while health insurance premiums qualify for deductions under Section 80D. Both these deductions help you lower your taxable income. Furthermore, under life insurance plans, the death benefit is completely tax-free. Even the maturity benefit is tax-free (subject to specific terms and conditions) under the provisions of Section 10 (10D). This means, by investing in insurance plans, you can also plan your taxes.
5. Peace of mind
Insurance plans give you peace of mind knowing that your savings would not be threatened in emergencies. This gives financial independence to you and your family.
The choice of insurance policies depends entirely on your needs. You need to assess the financial risks that you face and then buy suitable plans to insure such risks. However, some insurance plans are universally relevant and demand a place in everyone’s portfolio. These plans are:-
1. Term insurance
A term insurance policy is a basic life insurance plan that covers the risk of premature death. The policy comes with a specified tenure and if the insured dies during the tenure, a death benefit is paid. Term insurance plans are a must simply because of the fact that death is uncertain. If the breadwinner of the family dies prematurely, the family might suffer a considerable financial loss. A term plan covers such loss. It pays the family a death benefit enabling them to meet their lifestyle expenses and also fulfil their goals.
Moreover, modern-day term plans have become all-inclusive. You can find different coverage variants that not only secure you against the risk of premature death but also against critical illnesses, terminal illnesses and accidental deaths. You can also opt for the whole life option and enjoy coverage up to 99 or 100 years of age, which you ideally shouldn't take.
2. Health insurance
Health insurance plans prove relevant because of the incidence of medical contingencies and the coverage that these plans provide. If you suffer an illness or are injured in an accident and require hospitalization, a health plan covers your medical bills. In today’s age, medical costs are increasing considerably and are rapidly becoming unaffordable for most families. According to official inflation data, medical inflation jumped to 8.4% in May 2021 compared to 3.8% in December 2019. The report also stated that the cost of medicines jumped 8.6% YoY while those of medical tests increased by 6.2%. Similarly, hospital charges jumped 5.9% YoY while consultation charges increased by 4.5%.
In such a scenario, having a health insurance plan has become a must. It ensures financial protection when medical emergencies strike.