Savings and investments are crucial for young families navigating through life. Insurance is a vital financial tool every family needs. Unexpected events such as hospitalisation can deplete a family’s hard-earned money. Insurance is based on risk coverage. An insurance company pools funds from its customers by charging a premium and covers the risks when the insured event takes place for a customer. There are different types of insurance policies designed to cover specific risks. In this article, we explore the main insurance policies that every family should get to stay protected against unpleasant events.
Why is insurance important?
Crises, such as hospitalisations or accidents, occur without notice. It is not possible to cover the expenses in these situations from one’s pocket. Insurance policies are designed to cover such risks and provide financial protection for the insured person. The cost of obtaining insurance coverage is known as a premium, which must be paid regularly to the insurance company. However, the premium is not refundable in case the family does not raise a claim.
Types of insurance
Policies are broadly classified as general insurance and life insurance. The former works on the principle of indemnity: The money is paid to the customer only when the actual insured event occurs. Some examples of general insurance are health insurance, travel insurance and motor insurance. On the other hand, in life insurance, the sum assured — for which the customer paid the premium — is paid to the nominee in case of the insured person’s death or upon policy maturity, whether or not the insured event occurred.
Family health protection with health insurance
There are various types of health insurance plans, such as floater plans that cover multiple family members in one package. Other plans include senior citizen health policies and critical illness policies.
In addition to covering medical emergency expenses, health insurance qualifies for tax deductions under Section 80D of the Income Tax Act.
Income protection with term life insurance
Life insurance policies also come with tax benefits. The premium paid is eligible for tax benefits under Section 80C of the Income Tax Act. In addition, there are maturity benefits if the insured person outlives the term period.
Personal accident insurance cover for safety
Among the other risks against which young families need protection are accidents. A personal accident insurance policy provides financial protection when the insured meets with an accident resulting in injuries and partial or complete disability, permanent or temporary disability. Such insurance policies provide a safety net when the family goes through income loss and heavy expenditure due to hospitalisation and medical treatments.
Under Section 80D, premiums paid towards personal accident insurance policies are eligible for tax deductions.
Insurance to safeguard personal property
Personal property can refer to movable and immovable assets, including house, car or jewellery. In the event of theft or natural disasters, the damage caused to property can be severe, resulting in financial losses. Getting insurance to safeguard personal assets is a wise decision. especially for young families who are in the process of securing their financial position.
Insurance policies young families must get include:
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Home insurance: A comprehensive home insurance policy will offer coverage for the house and its contents, such as furniture and other items. -
Motor insurance: It protects against death, injuries, and damages caused to a third party and legal expenses arising from it. It also protects the owner against theft, accidents and natural hazards.
Factors to consider when choosing insurance
Young families must weigh some important factors before opting for any insurance plan:
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Costs: It is important to clearly chart out a plan and estimate the expenses one may incur and choose a plan accordingly. The premium will depend on the coverage selected. -
Age: The younger the family, the easier and more affordable it is to get an insurance policy. -
Lifestyle and occupation: The kind of occupation or lifestyle one has will necessitate the insurance and impact its premium. High-risk occupations or smoking habits increase health risks. So, the premium is also higher.
FAQs
What should be the first step when buying insurance?
The first step when buying an insurance policy is to assess the risks and choose the right coverage. For example, a family that has high health risks should consider opting for a higher coverage instead of a standard Rs 5 lakh health policy.
Which trade-off matters most here: cost or coverage?
The trade-off that should matter the most for young families is choosing coverage over costs. Going for the basic insurance plans with the right coverage will safeguard a family and its financial health in the long run, even if the premiums are higher.
What mistakes are most common when people choose insurance?
The most common mistake young families make is choosing inadequate insurance in search of an affordable premium. Insurance should be selected based on other factors such as risks and the number of family members.
How often should the insurance plans be reviewed?
Insurance plans should be reviewed once a year. A young family with growing needs should consider upgrading the policy. For example, health risks increase with age. So, one should consider increasing the coverage amount.
