Insurance
Insurance — you pay to cover the risk, not for a return
Ask a prudent financial advisor about the things that can guarantee some financial security in the event of life’s uncertainty, and they would say Term Insurance and Medical Insurance, loud and clear — especially for the salaried class and the sole bread‑winner of the family.
If it is ‘risk’ that we mean to protect ourselves against, then the conventional Life Insurance or Term Insurance policy is the one to opt for. A Term Insurance policy guarantees a pay‑out to the beneficiaries if the insured dies during the specified term.
For example, if Mr. Subramaniam takes a term policy for a sum assured of INR 72,00,000, he might pay a little over INR 5,00,000 in total for a 21‑year tenure. If he dies any time during that tenure, the insurer pays his beneficiaries INR 72,00,000. He receives no pay‑out if he survives the term. It is the most effective and cheapest life cover that salvages the loss of income if the earning member of the family dies prematurely.
Why is term insurance essential?
If you think “I won’t get anything back if I take term insurance”, you’ve misunderstood its purpose. Wanting money back while you are alive makes it an investment from which you expect returns — like a whole‑life plan, whose premium is far higher. A term premium is the cheapest because you are securing your family against a risk, with no returns if the risk does not occur.
Buying term insurance makes sense when an individual is in the prime working years of life, as the family would find it difficult to replace the lost income. Term premiums are also eligible for income tax exemption under the relevant sections of the Income Tax Act, 1961.
Health at risk is wealth at risk
If ‘life’ is a risk, ‘health’ poses an equal risk. An accident or illness can paralyse an individual’s earning capacity and increase healthcare expenditure.
Consider Archana, a single mother with a 10‑year‑old son and a 55‑year‑old mother, working as a receptionist. Her company provides a medi‑claim policy covering hospitalisation for her and her dependents. When her mother fractured her leg and was hospitalised for two weeks, Archana still struggled with OPD care, medicines and assistance — and realised she could have signed up for additional health cover offered to her a year earlier.
Rising healthcare expenses leave us with no choice but to opt for additional medical insurance, based on the health profile of the family and its earning capacity. Both loss of life and loss of health are inevitable risks, and covering ourselves adequately through insurance is among the wisest decisions we can make. A prudent advisor will assess your earnings, financial responsibilities and risk profile before suggesting the right cover.