We all experience life events we don't expect—and can't control. For instance, we could end up in an accident on the freeway during rush hour. A nagging pain might turn into something serious, requiring us to buy emergency or long-term treatment. But by thinking and planning ahead, individuals and families who buy policies should re-consider some factors.

In India, insurance is broadly divided into life and general insurance. Life insurance covers a family against the financial implications of the death of the insured. In addition, it may also provide certain survival benefits, in case the policyholder survives the policy term. Life insurance policies are broadly termed as "benefit policies". General insurance is a broad term encompassing protection in several areas such as health (For some strange reason, it is not treated as a part of the life insurance sector), property, professional liability among others. These are usually "non-benefit" covers. They will only reimburse losses suffered and not confer any additional benefits to the policyholder.

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Before deciding whether you require insurance or not (although all of us certainly require it in some form or the other), take the following into consideration:

The probability and impact of an event:

Assess the probability of an event and its financial impact on you, before zeroing in on a policy. Of course, an element of intuitiveness, is contained in the estimation but it is preferable to a random choice. For instance, a shopowner in Mumbai can consider an earthquake as an event, which will occur infrequently but may still opt to insure against it, as the financial damage in case of an earthquake, could be significant. Also, if the event occurs infrequently, the premium charged by an insurance company is also low. If an event occurs very frequently (like earthquakes in Japan), the premium will be high. Of course in the case of life insurance, although death is a certainty, the financial impact of death will vary with age, and the number of dependents.

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Will I be adequately insured?

Merely having a cover is not enough. Take care to ensure that the cover is adequate for you. Too small a cover is virtually pointless, considering that it will not serve yours or your family's purpose. Too much insurance will mean wastage of precious money towards payment of premiums. There are certain techniques to help you estimate the right quantum of cover. We will discuss these later.

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Can I afford it? We should take care that insurance premiums do not eat into a huge chunk of our income. This is especially important in case of long-term contracts such as life insurance. This may mean working backwards, and calculating the size of the cover, based on the premium afforded by you. Beware of agents who try to hard sell you high-priced insurance covers, as they may be detrimental to your long-term finances.

Two of the most common mistakes committed by customers in the case of life insurance are:

Income tax-led decisions:

While contributions towards life insurance premium of up to Rs 100,000 can be reduced from "gross total income" under section 80 C, there is no need to be guided solely by this consideration. Also, do not wake up to the need for insurance only in the final quarter of the year. By doing so, you are only playing into the hands of agents who will exploit your urgent need to save tax and sell you policies that are not really suited to your needs. Let tax saving be incidental to choosing a cover, not the sole force behind it.

Bundling insurance and investments:

Unfortunately, globally, over the years insurance products has been sold more as an investment tool rather than a 'protection' vehicle. The nomenclatures change (endowment policies, money back policies, and unit-linked plans) but the underlying principle remains similar.

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And why insuranceMall?

InsuranceMall is the leading and first online insurance broker in India. With the motto to make our customer delighted and proud about their decisions, we’re always there to help them with best possible policy. So, visit InsuranceMall and get your free quote NOW! If you would like to know more about health insurance, feel free to contact us today at analysis@insurancemall.in

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Source: Rediff NEWS