Make sure you are adequately insured:

Definition of insurance: A promise of compensation for specific potential future losses in exchange for a periodic payment.

The definition clearly says it all. However, the companies which offer insurance provide a bouquet of products. Whole life insurance, term insurance, endowment plan, ULIPs, health insurance is some of the product categories. However, each classification may have one or many products with slight variation

Why you need insurance?
You never know what is going to happen in near/distant future. If someone is the only earning member of a family and due to health reasons, he is unable to work, or due to sudden demise of the sole earning member, family goes in no earning mode.

•  Who will pay the EMIs of home loan, vehicle loan?
•  How the monthly household expenses would be taken care of?
•  How to pay kid’s school fee & tuition expenses?
•  How to pay expensive nursing care? Hospital expenses are skyrocketing these days.
  
  Leave apart human life, what if your vehicle needs emergency repair? If the repair cost runs into few thousand of rupees and you do not have contingency funds at hand for this repair, it will be pain for you to arrange the sum and repair your vehicle right?

Answer to above questions in case of unexpected happening is INSURANCE. Insurance make sure that there are no financial hardships to family if something goes wrong.

Do your own research – A little bit of homework is a must

Do not assume that you need to buy insurance policy because your friend who is a salesman in insurance firm told you to do so. First identify purpose of buying insurance. Insurances can be of few types

• Life insurance: The only purpose of life insurance is to provide safety net to the people if the person taking insurance dies a premature death. This is for the ones who have people financially dependent on them. This gives them means to offset financial losses in case of their demise. The best or rather ideal route here is to take term insurance policy. This is the least expensive solution and serves its purpose well. There are many online calculators available for calculating premium by various service providers online.Other life insurances like whole life policies / ULIPs are also available but they are usually not worth due to the cost associated with them. The investment returns from these products are poor compared to investments in other options.There is no benchmark formula, but general thumb rule is that take insurance cover equal to your liabilities plus 10 times of your annual income. So if you have a home loan + vehicle loan of INR20 lakhs, your insurance cover should be of INR20 lakhs plus 10X your annual income. 10 times of income will give your family a sustained monthly income to cover the expenses for family members
• Health insurance: If you go back a little in history and compare historical cost of medical treatment, it doesn’t take rocket science to arrive at conclusion that the cost of medical treatment has gone up considerably. And keeping the trend, it will keep moving upward. You must insure yourself to cover the cost of medical treatment. There are host of factors on which the health insurance premium depends. But it is worth comparing offerings from different service providers and to take the best plan based on your requirements. Health insurance will safeguard you from cost of medical treatment and will save tons of cash for you. Also, a healthy family of four, husband, wife and two kids should have a INR8 lakh family floater health plan to cover emergency medical expenses.

• Vehicle insurance: Vehicle repairs are expensive. Imagine a situation where your vehicle meets with an accident. The vehicle becomes immobile and you need to fine a tow truck. Then the cost of repairs which can break your back. As per the government rules, it is mandatory to take insurance and people usually opt for a third party cover in order to cover any litigation cost arising post accident. But you must opt for a comprehensive plan as there are a lot of costs associated with repairs once your vehicle is involved with an accident. Again loads of online calculators available and based on your needs, opt for the best plan that suits you.

There are other insurances also like home owners insurance, renters insurance, asset insurance, travel insurance but the most important and must have ones have been covered earlier.

If you are not insured and some mishap occurs, your financial plans will go haywire. Also taking proper and adequate insurance is one of the building blocks of financial freedom and wealth creation. Not taking insurance or not taking adequate insurance can make a serious dent in your investment portfolio.

Bottom-line is that one has to make sure that he/she is adequately covered through insurance, both for life as well as health.