Insurance, Do I need it

What do you think is insurance? Insurance is a promise of reimbursement in case of loss. Many insurance companies keep advertising asking us to get insured. What is their interest in it?  When you go to an insurance company and ask them to cover a certain risk, they charge a fee to take a risk, this fee is called premium.

The more the premium collected and risk not materializing increases their profits, hence the reason for them to advertise. So should you insure yourself? When we go for insurance we usually go to the insurance companies to buy ULIP’s or endowment plans i.e. where we would get a return.

If we talk of return, we are not insuring, but are investing. We should understand that insurance and investment are two different things. Insurance is a tool for protecting your risk and insurance company’s main job is insurance and not investing. So when you go to an insurance company, go to them only for insurance.

So now we decided that we go to an insurance company for insurance, what is the amount I should insure myself for? Assume that if something happens to you today, how your family will be taken care of, it could be out of your savings or it could also be out of insurance.

Usually a person should insure himself / herself by around 10 times of his / her annual income. Another method would be to take into account the expected expenses the family would have to bear without you, include child’s education, marriage, loans and other expenses.

Now if you go for so much of insurance and go for money back plan the premium would be high, but if you go for a pure term plan it would be cheap. Another thing you could do is increasing your insurance cover over a period of time, so when you are young, your risk level is low, so you can pay a lower premium payments.

But remember the premiums are usually locked depending on your age, so when you are young the premium per year would be lower, so start your insurance policy early. One more insurance policy you should not forget is a health insurance policy. If you have a family, go for a policy with family floater, you get a bigger cover and less premium, than if you take an individual health insurance policy.