What is insurance planning?
Insurance planning is the process of carefully selecting insurance policies to financially protect yourself, your family members, assets, etc., against unexpected losses. It includes finding one or more insurance providers who can financially support you in case of a crisis. In a nutshell, insurance planning helps to ease the financial burdens related to unfortunate life events.
Why is insurance planning important?
Without thorough insurance planning, you can be financially exposed to uncertain life events. Proper planning lets you identify the key risks that may impact your life and choose the insurance policies that cover those risks. This sort of preparation and management of life risks is essential to monetarily safeguard yourself and your family in the long run.
Benefits of insurance planning
Here are the key benefits of insurance planning.
1. Coverage against risks
A well-planned insurance policy helps to minimise the financial risks associated with illness, accidents, death, etc. You and your family feel prepared to face such unforeseen challenges without having to compromise the quality of your everyday lifestyle.
2. Different types of insurance coverage: You can choose various kinds of insurance policies for different kinds of risks.
There are health insurance plans that offer coverage for medical emergencies, hospitalisation expenses, medications, doctor consultations, etc.
You can choose life insurance plans or personal accident insurance for coverage against premature death.
Motor insurance allows you to cover your vehicles against theft, road accidents, third-party liabilities, etc.
There are travel insurance policies to provide coverage against contingencies associated with your trips.
With a well-thought plan, you can pick the best-suited combination of policies to create a 360-degree shield of financial protection around yourself and your family.
3. Financial security
Insurance planning provides financial protection by compensating for the losses you face due to covered emergencies.
4. Tax benefits
You get to save tax by purchasing certain insurance plans. For instance, the premium paid for a health insurance policy qualifies for tax deductions under the Income Tax Act. Hence, you can reduce your taxable income by buying specific insurance policies.
5. Mental peace
With a well-planned insurance portfolio, you don’t have to worry about losing your savings due to unforeseen events. You can plan for the financial well-being of your family even after your death using the term and life insurance plans.
Must-have insurance policies
The selection of insurance plans comes down to your lifestyle and associated needs. You must conduct a thorough assessment of the potential financial risks that may arise in your life. Based on the conclusions of that assessment, you can select relevant insurance policies. However, in a broad spectrum of insurance planning, the following are the must-have policies.
1. Health insurance
Health insurance policies are relevant due to the fact that medical emergencies are a part of everyone’s life. Such plans provide much-needed coverage to cover the costs related to disease management, hospitalisation, etc., depending on the terms of a policy.
Healthcare costs are constantly increasing and turning unaffordable for many families. Patients are paying a lot of money for quality healthcare, expert consultations and medications. Health insurance can help in this regard by offering timely financial assistance.
2. Motor insurance
The Motor Vehicles Act, 1988 states that all two and four-wheelers must be insured with at least third-party insurance. A Third-party Insurance Policy covers third-party liabilities like property damage.
Beyond that, you can choose a Comprehensive Motor Insurance policy for coverage against vehicle damages, vehicle loss, vehicle theft, and other calamities. It can be car insurance, bike insurance, etc., depending on the types of vehicles you own. Such a policy allows you to enhance the coverage with add-ons.
3. Term insurance
With term insurance, you get financial coverage against the chances of premature death. Such a policy contains a specific tenure. The compensation specified in the policy is paid to the nominees if the insured person dies within the tenure of the policy.
The uncertainty of life makes this type of insurance important, especially if you are the bread-earner of your family. In case the earning member of the family dies, the compensation under the policy helps the family to remain financially stable. You can look for all-inclusive term insurance policies that provide coverage against various instances such as accidental deaths, terminal illnesses, and critical diseases.
How to select optimal insurance coverage
Choosing optimal policy coverage is the most important aspect of insurance planning.
Ideally, your insurance coverage should align with your financial requirements. You can understand these needs by considering the following factors.
Emergency expenses: Look into the percentage of income you spent on healthcare, vehicle repair, and other emergencies in the last three years. It will give you an estimate of the coverage amount you need to opt for when buying policies.
Dependents: When choosing health or term insurance, you must decide the coverage amount based on the number of dependents in your family.
Financial portfolio: Insurance planning can support your overall financial portfolio. But you need to balance it with other financial goals and responsibilities. Look closely into the existing liabilities and assets to figure out the optimum amount you can spend on insurance.
How to avoid common mistakes in insurance planning
Making mistakes in insurance planning can lead to insufficient coverage or deriving less value for money. Hence, you must think about the following factors to avoid making insurance-related mistakes.
Assess all aspects of your life where you need insurance.
Understand the coverage of a policy in detail.
Look into the add-ons or value-added services offered by an insurance provider.
Ask the insurer about the payment plan in different scenarios included in your policy.
Understand ways you can obtain discounts on premiums paid to an insurer.
Get quotes from different insurance providers and compare benefits before choosing one.
How to estimate a budget for your insurance portfolio
With time, insurance needs often evolve depending on the changes in your lifestyle, gathered assets, family size, and other factors. Hence, you must anticipate your future needs to determine a budget for your insurance portfolio effectively. In general, you can follow these steps to estimate a budget for insurance.
Step 1: Make a list of all the insurance policies you currently hold and policies you want to buy.
Step 2: Starting from your current age, think of insurance goals for every 10 years. For example, if you are 20 years old today, you must set goals for ages 30, 40, 50, 60, etc.
Step 3: Adjust goals based on the changes you expect in your life, such as getting married, having children, buying a car, potential medical needs, etc.
Step 4: Assign an average amount you think is required for each goal right now.
Step 5: Add increments to those estimated amounts for every 10 years of your life.
Frequently Asked Questions (FAQs)
The following are common questions and their answers that may further help you with insurance planning.
Why is insurance planning important for financial planning?
Insurance planning offers the much-needed financial security from various risks and emergencies you may face in life. Without timely support from insurance policies, you may end up losing your hard-earned savings while dealing with emergencies.
What should I look for in a health insurance plan?
You must ensure that your health insurance plan aligns with all potential medical needs you or your family members may have. The policy should be able to cover the following.
Different medical requirements at the time of hospitalisation.
Transportation needs that arise due to medical emergencies.
Coverage related to pre and post-hospitalisation expenses.
Cost of ambulance trips.
Expenses of day-care treatments.
Is it possible to save money on medical consultations using health insurance?
Yes, you can save medical consultation costs depending on the terms of your health insurance policy. In fact, certain insurance providers offer free doctor consultations for their health insurance policyholders. Hence, you must check with an insurance provider about medical consultations before making a policy-buying decision.
How should I choose motor insurance for my car?
First and foremost, you need a Third-party Insurance Policy for your car. It is mandatory by law for motor vehicle owners to buy this policy and cover third-party liabilities.
Apart from that, you should consider a Comprehensive Insurance Policy that can cover you from different kinds of financial risks associated with owning a car. The risks can be accidental damages, theft, etc. An ideal insurance plan should include coverage for third-party liabilities, accidents, theft, fire/explosions, natural/man-made calamities, etc.
What should be the average sum insured of my term insurance cover?
In general, it is recommended to keep the sum insured 10-12 times of your annual earnings while buying term insurance. For example, if you earn about 25 lakhs every year, your coverage should be somewhere between 2.5 crores and 3 crores at least.
Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet and is subject to changes. Please go through the applicable policy wordings for updated ACKO-centric content before making any insurance-related decisions.
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Insurance planning is the process of carefully selecting insurance policies to financially protect yourself, your family members, assets, etc., against unexpected losses. It involves finding insurance providers who can support you in case of a crisis. The goal of insurance planning is to ease the financial burdens related to unfortunate life events [[1]].
Insurance planning is important because it helps you identify the key risks that may impact your life and choose insurance policies that cover those risks. Without thorough insurance planning, you can be financially exposed to uncertain life events. Proper planning allows you to financially safeguard yourself and your family in the long run [[1]].
Here are the key benefits of insurance planning:
-
Coverage against risks: Insurance planning helps minimize the financial risks associated with illness, accidents, death, etc. It allows you and your family to face unforeseen challenges without compromising your everyday lifestyle [[1]].
-
Different types of insurance coverage: Insurance planning allows you to choose various types of insurance policies for different risks. For example, health insurance plans provide coverage for medical emergencies, hospitalization expenses, medications, and doctor consultations. Life insurance plans or personal accident insurance provide coverage against premature death. Motor insurance covers vehicles against theft, road accidents, and third-party liabilities. Travel insurance policies provide coverage against contingencies associated with trips. By creating a well-thought-out plan, you can select the best combination of policies to create a comprehensive shield of financial protection for yourself and your family [[1]].
-
Financial security: Insurance planning provides financial protection by compensating for the losses you face due to covered emergencies [[1]].
-
Tax benefits: Certain insurance plans offer tax deductions. For example, the premium paid for a health insurance policy qualifies for tax deductions under the Income Tax Act. This allows you to reduce your taxable income by purchasing specific insurance policies [[1]].
-
Mental peace: With a well-planned insurance portfolio, you don't have to worry about losing your savings due to unforeseen events. You can plan for the financial well-being of your family even after your death using term and life insurance plans [[1]].
The must-have insurance policies depend on your lifestyle and associated needs. However, in a broad spectrum of insurance planning, the following are the must-have policies:
-
Health insurance: Health insurance policies provide coverage for medical emergencies, hospitalization, and other medical expenses. They are essential due to the increasing healthcare costs and the need for financial assistance in times of illness [[1]].
-
Motor insurance: Motor insurance is mandatory for all two and four-wheelers. It includes third-party insurance to cover third-party liabilities and comprehensive insurance to cover vehicle damages, theft, and other calamities [[1]].
-
Term insurance: Term insurance provides financial coverage against the chances of premature death. It is important, especially for breadwinners, as it helps the family remain financially stable in case of the insured person's death [[1]].
To select optimal insurance coverage, consider the following factors:
- Emergency expenses: Look into the percentage of income you spent on healthcare, vehicle repair, and other emergencies in the last three years to estimate the coverage amount you need [[1]].
- Dependents: Consider the number of dependents in your family when choosing health or term insurance coverage [[1]].
- Financial portfolio: Balance insurance planning with other financial goals and responsibilities. Consider existing liabilities and assets to determine the optimum amount you can spend on insurance [[1]].
To avoid common mistakes in insurance planning, consider the following factors:
- Assess all aspects of your life: Identify areas where you need insurance coverage [[1]].
- Understand policy coverage: Read the policy details to understand the coverage provided [[1]].
- Look into add-ons: Explore value-added services offered by insurance providers [[1]].
- Payment plan: Ask the insurer about the payment plan in different scenarios included in your policy [[1]].
- Compare benefits: Obtain quotes from different insurance providers and compare benefits before making a decision [[1]].
To estimate a budget for your insurance portfolio, follow these steps:
- Make a list of all the insurance policies you currently hold and policies you want to buy.
- Set insurance goals for every 10 years, considering changes in your life such as marriage, children, car purchase, potential medical needs, etc.
- Assign an average amount required for each goal and add increments for every 10 years of your life [[1]].
In summary, insurance planning is crucial for financially protecting yourself and your family against unexpected losses. It provides coverage against risks, financial security, tax benefits, and mental peace. Must-have insurance policies include health insurance, motor insurance, and term insurance. When selecting insurance coverage, consider factors such as emergency expenses, dependents, and your financial portfolio. Avoid common mistakes by assessing all aspects of your life, understanding policy coverage, and comparing benefits. Estimate a budget for your insurance portfolio by setting goals and adjusting them based on anticipated changes in your life [[1]].
