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Life Insurance - Five insurance covers worth taking a look at

23 Jan 2013

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There are lots of insurance policies that use scare tactics to lure you in, and have premiums that are overpriced. Therefore, you need to be selective in choice.

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 - particularly in such times when you can get insurance for almost everything on earth, including your wedding. You definitely need to know that while each insurance 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. Therefore, you need to be selective in choice.

Here we take a look at some types of insurance policies everyone should take into account:

1. Life Insurance

In today’s world your top priority should be to insure your life first, particularly if you have financial dependents. That is because it is not wise to leave your dependents without any financial protection in case something untoward happens to you. But you should avoid going for traditional insurance plans as that would be costly, which will also make it difficult to cover your life adequately. Therefore, a viable and much better option would be term insurance. Term insurance, in fact, is a no-frills, low-cost option to secure financial security for the family, and therefore should preferably be there in everyone’s insurance portfolio. "Term insurance is a ’must-have’ if you have a family that is financially dependent on you and if you are the primary source of income for your family. There’s never really a good time to die, but dying during one’s earning years is particularly burdensome to those who depend on us for income and support. Not having you around in such a scenario can impose a significant financial burden on your loved ones, especially if you have outstanding liabilities as well such as home loans, car loans etc," says Anil Sahgal, founder of financial services portal i-save.com . However, term insurance may not be necessary if you are single with no financial dependents and having limited or no liabilities.

2. Personal Accident Cover

Even if you are not keen on taking life insurance, you should at least take a personal accident policy. Personal accident cover 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 one’s 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, Optima Risk Management Services.

3. Critical Illness Cover

Even if you don’t have a health cover, you should go for a critical illness cover, if you are a middle-aged person. 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. Critical illness cover, in fact, is 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 hospitalized. 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.

4. 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.

5. Auto Insurance

After your dream home, your car remains the second-most prized possession for you. And more value is normally attached to it if it happens to be a luxury car like a BMW or a Mercedes. After all, car buying alone is considered to be a lifetime achievement for many amongst us. However, unlike other prized possessions, a car is not meant to be preserved at one place and then taken care of. It, instead, has to be run on roads and, most of the time, kept in public places where anything unfortunate can happen to it. It, therefore, needs protection not only from, say, third party liability but also from accidents apart from natural and man-made calamities. And what a better way to protect your vehicle than to give it an insurance cover! One good thing about motor insurance is that it is mandatory as per law. Under the provisions of the Motor Vehicles Act, all vehicles that ply in public places must have an insurance policy that at least covers ’Third Party Liability’ as specified under the Act. But if you really love your car and are not among those who keep changing their cars after every, say, six months, it is better to go for a comprehensive coverage to ensure all round protection.