Do you have the RIGHT insurance?

Insurance to compensate for financial losses started with traders who would seek compensation in the event of loss of goods due to natural disasters, accidents or robbery. Insurance is an instrument to transfer risk that one doesn’t want to bear. The traders were ready to bear risks of business but not of the things beyond their control.

When do you need insurance?

Insurable interest is defined as ‘The financial interest that the assured possesses in whatever is being insured’. In other words, it is the right of a person to insure something which, when lost or damaged, would mean a financial loss.

You need to insure your vehicle and accidental harm caused to third party.

Your & family member’s health in case you incur substantial expenses owing to hospitalization.

Your life to ensure that those who are financially dependent on you continue to receive financial assistance till it is needed. Others can be property and any other assets that are financially valuable.

Common pitfalls in buying insurance

Mixing investments & insurance- Many investors feel ‘stuck’ due to wrong insurance policies being pushed to them. Heavy commissions in these products eat away the gains that investors expect.

Insurance of minors- Agents often insist on insuring children or grandchildren in order to reduce mortality expense. Usually a person is never financially dependent on future generations and hence there is no insurable interest. This gimmick leads to ‘penny wise pound foolish’ decision. 

Not being ready to let go of the premium- especially in life insurance people cannot fathom the fact that the premium becomes an absolute expense if you don’t claim insurance in a given year. Well, being alive for another year is a far bigger reason to be happy! This thought of ‘losing out’ premium leads one to choose a mix of investment and insurance. Such decisions usually lead to either inadequate insurance or excess premium outlay.

What should you do?

Buy pure insurance products such as term insurance for life.

Have adequate health insurance for your family.

Insure your home/property & vehicle.

Certain individuals may have some specific insurance requirement where a financial advisor can help.

Ensure that you have RIGHT insurance!

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