Five must-have insurance policies

Insurance market
============

Insurance is possibly the best financial tool to protect yourself as
well as your valuables from unforeseen circumstances. In fact, you owe
it to your family to get the best cover you can afford .

However, while it pays to be smart about insuring your family and your
valuables, it is even wiser to make out which policies are truly
worthwhile, and which ones are redundant. You need to know that while
each cover has its own benefits, not all of them are needed in normal
circumstances.

Also, there are lots of insurance policies that use scare tactics to
lure you in, and have premiums that are overpriced. And paying too
much for protection can be a financial strain in itself. Therefore,
you need to be selective in choice. Says Swaraj Krishnan, CEO of Bajaj
Allianz General Insurance, "Insurance is the best known form of
financial protection to guard against major uncertainties or vagaries
of nature.

As a thumb rule, a person needs to have at least a basic cover to
protect himself in the form of personal accident insurance — which is
the cheapest cover for self protection or health insurance to cover
hospitalization expenses with a minimum sum insured of Rs 1 lakh.
Assets like vehicle or home, which may be prized possessions, are also
depreciating and as such need adequate protection from risks like
accidents or natural perils." Thus, the insurance that's worth it
typically covers your life, your health, your earning power or the
assets you've accumulated during your lifetime. Primarily the five
main types of insurance everyone should take into account are:

Personal accident cover
==================

It basically covers the risk of accidental death and permanent total
disablement, and is a good choice to supplement a life insurance
policy. The best part of it is that it is the cheapest cover for self
protection and can be taken even by those whose income is low or
cannot qualify for life insurance due to medical issues.

Personal accident cover is also recommended in the early stages of
life when one has just started his/her career and there is no need of
insurance cover as the likelihood of death from natural causes is way
too low to require a financially unencumbered person to take on life
insurance.

The more compelling insurance need at that stage is for a personal
accident cover which covers the risk of accidental death. "Persons
below the age of 40 have a bigger risk from death and disability due
to an accident compared to any other risk. Disability for a young
person can be a bigger tragedy than death. Personal accident insurance
provides an extremely low cost option of covering this risk," says
Rahul Aggarwal, CEO of Optima Insurance Brokers.


Term insurance
============

Once a person crosses 35 years of age, the risk of diseases and
ailments starts increasing. The person also becomes more prone to
lifestyle diseases. Now it is not uncommon to hear of persons who have
died of a heart attack at the age of 30 or 35.

Hence it becomes important to cover the risk of death due to reasons
other than accident. Term insurance is a nofrills , low-cost option to
secure financial security for the family, and therefore should
preferably be there in everyone's insurance portfolio. "Every human
being has a quantifiable economic value for his dependents.

Any amount of loan that a person has taken gets added to this value.
Protection of this economic value is very important, especially in
India which does not have a strong social security net. A term
insurance is the cheapest way to cover oneself for one's Human Life
Value (HLV)," says Rajesh Relan , managing director of MetLife India
Insurance.


Critical illness cover
===============

By opting for this cover, you can insure yourself against the risk of
serious illness in much the same way as you insure your car and your
house. Under this cover, a guaranteed cash sum is paid if the
unexpected happens and someone is diagnosed with a critical illness
such as cancer, stroke and kidney failure .

The benefit amount is payable once the disease is diagnosed meeting
specific criteria and the insured survives 30 days after the
diagnosis. This is, in fact, a very important cover for persons who
have crossed 45 years of age. "Although a health insurance policy
covers hospitalization expenses, critical illness involves a lot of
expenditure even when the person is not hospitalised.

Expensive medicines and diagnostic tests, regular doctor visits,
special diets etc. add up to a lot of money. A critical illness policy
provides financial stability by providing upfront money to the insured
for all the treatment," says Aggarwal.


Home insurance
============

Your home is not just your most valuable asset, it's your safe haven
from the world outside. However, while your home cocoons you and your
family, it's your responsibility to see that nothing untoward happens
to the building and its contents. Therefore, insuring your home is as
essential as ensuring that it has strong foundations.

A home insurance policy, also known as householders' insurance, is the
best bet to safeguard your house because "it not only covers the
structure of your home but also all its valuable contents from
different kinds of perils such as earthquake, terrorism, flood,
burglary and house-breaking ," says Ajay Bimbhet, MD, Royal Sundaram
Alliance Insurance Company Ltd.

Besides, "all of us have observed that the weather has become very
unpredictable and vicious in the last one decade. The unpredictability
of weather, its extremes and increasing crimes in urban areas are
reason enough to take this policy," says Aggarwal.


Pension plan
==========

Retirement need arises when individual reaches such a stage in life
when one does not anticipate future inflows and he/she has to provide
for a regular inflow out of the money that a person has accumulated.

So all your accumulated wealth has to ensure that you go through the
golden years of life without any worry. A good retirement plan allows
you to accumulate for your golden years in a systematic manner. "You
could consider single pay/short pay pensions or immediate annuities
for such a need.

A flexible unit-linked endowment structured with regular partial
withdrawals could be suitable for such a need," says Relan. Thus, if
you are unable to afford all types of insurance , just stick to the
basics and you will be fine!