Why is Insurance Important?

The importance of insurance should never be undermined. Insurance acts as a vital shield against unforeseen circumstances. It protects you from unplanned expenses and offers a financial cushion from accidents, illnesses and more. Insurance safeguards the financial interests of your family in your absence. It helps them cover immediate expenses and secures their long-term financial stability.

Reasons Why Insurance is Important

Below are some reasons why insurance is important:

• Provides Financial Stability

  The need for insurance cannot be stressed enough. Insurance provides financial stability to families and helps them cover expenses like education, loans, housing, groceries and more. It also ensures financial stability during unexpected situations and helps cover medical expenses, property damage and other similar costs.

• Promotes Personal Economic Growth

  Insurance acts as a catalyst for personal economic growth by empowering surviving family members to pursue their aspirations in the absence of the policyholder. It provides a safety net to ensure your loved ones have access to essential resources, such as education. Your loved ones can also use the insurance payout to improve their financial situation by investing in businesses, purchasing real estate and more.

• Generates Long-Term Wealth

  Life insurance plans like endowment, money-back or Unit-Linked Insurance Plans (ULIPs) provide a means to accumulate wealth over time. These policies offer long-term savings and investment opportunities and allow you to secure your financial future. Life insurance can be used for various financial goals like retirement, a child's higher education and others.

• Supports Families in Medical Emergencies

  The importance of insurance is particularly pronounced in today's times. Medical expenses are skyrocketing due to medical inflation and the increasing frequency of various illnesses1. Therefore, having a robust health insurance policy is essential at this time. Health insurance offers financial protection against medical costs. It provides an affordable solution by allowing you to buy policies with a high sum assured without straining your wallet. It also guarantees access to quality healthcare services in your hour of need.

Why Do You Need Insurance?

If you are wondering about the importance of insurance in your life and why you need it, below are six reasons:

• Secure your family's financial future

  Insurance can help your loved ones in varied situations by providing them financial immunity from health expenses, the loss of a loved one, damage caused to property and other belongings and more. It ensures that your family members have the necessary financial support in your absence to carry on their lives and cover their essential needs.

• Retirement Planning

  Life insurance plans are suitable financial tools for retirement planning. These plans offer a life cover^` along with the potential for wealth creation and regular income in retirement.

• Accomplish your financial goals

  Insurance plans help you pursue diverse financial goals, such as retirement planning, house purchase, child’s higher education, marriage expenses and more. Insurance combines the benefits of life coverage^` and helps you save and invest your money for your future needs.

• Risk Management

  Several insurance plans offer guaranteed^# income or 100% protection of your invested capital. These plans minimise risk by ensuring you get an assured return that fulfils your future needs without any uncertainty.

• Asset Protection

  Insurance helps protect your assets, such as your car, jewellery and other valuable belongings, by providing financial coverage against loss or damage. Life and health insurance plans also play a crucial role in asset protection by offering sufficient financial support and ensuring that you do not need to sell off your assets to meet unexpected expenses or medical needs.

• Tax Advantages

  Insurance plans come with multiple tax benefits that can help reduce your taxable income. For instance, life insurance policies allow you to claim a deduction of up to ₹ 1.5 lakh on the premiums paid subject to conditions prescribed under Section 80C^* of The Income Tax Act, 1961. Moreover, the death benefit paid to the beneficiary is exempt subject to the conditions prescribed under Section 10(10D)^*. Health insurance plans provide additional tax savings by allowing you to claim deductions of up to ₹ 1 lakh under Section 80D^* for the premiums paid.

Types of Insurance

There are several types of insurance plans available. Some of the commonly preferred ones include the following:

• Life insurance

  Life insurance is what you can avail in order to safeguard your family in case of your death during the tenor of the policy.The most basic form of life insurance available to buyers is term insurance. Life insurance helps secure your family financially with a lump sum amount that is paid out in the event of the policy holder’s death within the policy period

• Health insurance

  This is purchased for covering medical expenses revolving around various health issues, including hospitalisation, treatments and so on. These insurance plans come in handy in case of medical emergencies; you can also avail of cashless facility across network hospitals of the insurer

• Child Plans

  These insurance policies are savings instruments that help in generating lump sum funds whenever children reach a certain age for pursuing higher studies. In these plans, the life assured is that of the child or the recipient of the funds while the parents are the policy owners

• Home insurance

  These insurance plans cover any damages to the home on account of accidents, mishaps and natural calamities, among other such events

• Auto Insurance

  These are insurance plans for vehicles, including cars and bikes. These offer protection against natural calamities, damages to third parties (people who have incurred losses or been hurt in an accident with the policyholder’s vehicle) and also damages to the vehicle along with mishaps and accidents
  Insurance is thus the need of the hour in today’s uncertain times -- evaluate your financial situation to choose a plan best suited to your future financial needs

How do I determine the right Insurance Plan for me?

Below are some things that can help you determine the right insurance plan for your needs:

• Identify your need for Insurance

  Understanding your specific insurance needs is essential to choosing the right coverage. For instance, if you need financial protection against medical expenses, you can buy health insurance. If you wish to secure the financial security of your loved ones in your absence, life insurance may be the best option. Additionally, you may require motor insurance to protect your assets, such as a car, from damage or loss.

• Claim Settlement Ratio

  The claim settlement ratio refers to the percentage of claims that an insurance company settles versus the total number of claims it receives in a given year. A high claim settlement ratio indicates the insurance company's reliability and efficiency in processing claims. It ensures that your claim will be settled promptly and without unnecessary hassle in the future.

• Adequate Coverage

  Make sure to analyse your financial needs and select a plan that offers adequate financial coverage. Insufficient coverage may help you save some money at the time of purchase but can lead to compromised financial security in an emergency.

• Ability to Pay Premium

  The plan's premium is another essential aspect to consider when selecting the right insurance plan. You may have to pay the premium for years, depending on the policy term. Therefore, aim to strike a balance between adequate coverage, premiums and your monthly expenses. If the premium is too high, you may find it hard to continue paying for the policy in the long run.

• Policy Duration

  Life insurance policies are long-term plans and often last for many years. When choosing a life insurance policy, it is vital to consider various factors such as your age, the ages of your dependents, outstanding debts and future financial obligations. For example, if you have young children, it is prudent to select a policy that lasts at least until they become financially independent.
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• Policy Terms & Conditions

  Each insurance plan has a unique set of terms and conditions. Understanding these details is essential to ensure you fully benefit from the policy and avoid surprises when filing a claim. It also helps you maximise the policy's features and allows you to make informed decisions about your policy.

• Tax Implications

  Insurance plans offer several tax benefits under the Income Tax Act, 1961. The premiums paid for life and health insurance can be claimed as deduction subject to the conditions prescribed under Section 80C^* and Section 80D^* respectively. Furthermore, the death benefits paid under life insurance are exempt subject to the conditions prescribed under Section 10(10D)^*. It is important to understand the prevailing tax laws when you buy an insurance policy to know how they can benefit you.

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