Insurance - An important tool to hedge yourself against a possible eventuality.

Reading Time - 5 mins

Hello Readers,

Hope you all are safe and keeping yourself healthy.

Do you know? : - अपने देश में, Most of us buy an Insurance as an Investment which is a very wrong approach.

This wrong approach can burn out your lots of money (in form of premiums) if you don't analyze and understand the tricks played by Insurance companies. (CA's, CFA's and Actuaries sitting at their table to cut your pocket and book more profits).

NO WORRIES, I will help you out to get yourself insured at an effective cost, vis-à-vis at minimum cash outflow.

First of all, Let me tell you What is Insurance?

In simple देसी  language, Insurance is just like a सुरक्षा कवच you get against your asset/ liability by paying a token amount, which is termed as premium.

There are several types of Insurance available :

1. Health Insurance
2. Life Insurance
3. Term Insurance
4. Motor Insurance
5. Fire/ Marine Insurance
6. Property insurance
7. Travel Insurance
8. And many more (For probably every asset, there is an insurance)

In this blog, I will discuss about Health Insurance, Life Insurance and Term Insurance only.

Covering each of them will make this blog to a long book, which will indirectly force my readers to get rid of this blog which I definitely don't want. 😃

So, let's first pick up Health Insurance which I consider the most basic thing an individual should get/buy in today's world, which is full of uncertainty regarding health.

So, What is Health Insurance?

Health Insurance is a tool which can be used to hedge your unforeseen expenses/ liabilities against your health, by paying a premium.

This expenses could be related to hospitalization costs, cost of medicines or doctor consultation fees.

Health insurance makes health care more affordable.

Let's understand this by an example,

If you take a health insurance of Rs. 5,00,000 (Sum Insured) at a premium of Rs. 7,500 per annum.

Now, in any eventuality, if you face any health related issue where you would need to visit hospital and get yourself treated, then this Health Insurance comes into  the picture, all expenses for that hospitalisation upto Rs. 5,00,000 will be borne by Insurance company.

Magic, you have hedged yourself for expense of Rs. 5,00,000 for just Rs. 7,500.

That is the true meaning of Insurance.

Are you confused, how to chose a good health insurance? 

After several research and self analysis, I have laid down following pointers which one should take into consideration while getting a health insurance - 

1. Base Cover + Super Top up* - Try to get Super Top up above your base cover.
2. Room Rent - Opt for "No room rent cap".
3. Sub Limit on Diseases - There should not be any sublimit on diseases, you can't foreseen the disease.
4. Co-pay - BIG NO to Co-pay. What will be the benefit of getting an insurance if you have to burn your pocket thereafter?
5. Zonal or Pan- India Cover - Get Pan India Cover.
6. Day Care Coverage - Check your HI covers Day Care Treatment, all treatment doesn't need more than 1 day hospitalization.
7. Waiting period - Chose plan which have minimum waiting period.
8. No claim bonus - If you are in early 30's, please opt for No Claim Bonus, this will increase your sum insured if you don't claim every single year.
9. Network of Cashless Hospitals - 6500 - 10000 Hospitals is fair enough. 
10. Free Annual Health Checkup -  This is must, your plan should have this.
11. Private and Government - I will suggest to go with Private (Eliminating TPA's)
12. Third party administration vs In house claim settlement - Chose which provides in-house claim settlement process.
    

What is Super Top-up?

A super top-up health insurance plan is like an extension of a health insurance you can use when you’ve already used the maximum claim amount of your base plan (during the year).

Premium for a good health insurance covering all the following parameters will cost you about Rs. 7,500-8,500 per annum.

(Age- 23, Sum Insured - Rs. 5,00,000)

If you are planning to get a health insurance now, you should consider this all above pointers to be included in your policy wordings.

Please let me know in comments if you have any queries relating to HI.

Life Insurance vs Term Insurance

I am pretty much sure, most of us don't understand the thin line difference between life insurance and term insurance.

Let me burst the confusion between the two - 

- Term insurance is an insurance plan where you pay a fixed premium for a fixed term, suppose till the age of 60,

and, If you leave your body before 60, your dependents will receive a corpus amount (Insured amount), and if you stay long till 60, your dependents will enjoy your awesomeness.😂 Don't think that your money has been wasted, Insurance is not an Investment. 

- On the other hand, Life insurance is a insurance plan where your life is insured till the term you chose, suppose same as 60, and if you leave your body before 60, the dependents will get a corpus as same in the case of term insurance, but the main catch is here that, if you stay long till 60, you will get your sum assured back along with some extra amount which is termed as bonus (distribution of companies profits accumulated over the period of your policy).

The most common difference between a term insurance and traditional life insurance plan is that a term insurance plan only provides death benefit in case of demise of the insured within the term period, whereas a life insurance policy offers both death and maturity benefit to the insured.

But the premium amount of Life Insurance will be much higher than the premium you will pay for term insurance.

If we get into maths, your cash outflow for Life Insurance premium is if adjusted net of term insurance premium, and the same money is invested in a simple Index fund, it would have grown to the corpus amount. (Don't underestimate the power of compounding)

Tips to get an Insurance at effective cost -

• Get your term insurance at an early stage i.e., 21-23. A delay of every one year will cost you thousands of Rupees extra.
• Don't ever ever think for choosing various pay outs plan (It's totally a trap for people who are not aware of Time value of money).
• Chose term insurance instead of Life Insurance. (T&C)
• Get the term insurance online (you will save some bucks by paying online)

Note :-  I can't disclose the name of Insurance Companies from where you can get yourself insured, but I have made out the pointers which you should consider before getting yourself a health insurance.

Hope you get a handful insights about the Insurance and it's benefits.

Please let me know in the comments if you have some query regarding the discussion. 

Also, if you are interested to get more such topics related to Money and Finance, please let me know in the comments. 

Enjoy reading!

Signing off.....

Ayush Garg

FinDost - A simple way to understand money!

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