Insurance is a risk cover and not an investment: Don't confuse the two
Vihaan Gupta, 30, is planning to get married and start a family. He has been saving for his key financial goals like buying a house, travel and retirement. He took a Rs.15 lakh life insurance policy five years ago when he started working. Though he often receives insurance sales calls, he believes his current cover and investments are sufficient and a simple top-up will suffice as he settles down. Is this assumption correct?
Vihaan Gupta is right to identify and plan for his life goals, but achieving them depends on his ability to keep earning and investing. An untimely death could derail this plan, leaving his family without adequate financial support. A pure term insurance policy is best suited to cover this risk and should be sufficient. It should be reviewed at every life stage and starting a family is a crucial point to do so. Gupta must factor in inflation, current finances, number of dependants, and his family's future lifestyle needs in his absence.
Just as death is a risk that can't be ignored, so is the loss of earning capacity by the breadwinner. A personal accident policy helps cover this risk, especially if it includes death, permanent total or partial disability, and temporary disability. Similarly, a major illness or accident requiring hospitalisation can strike any family member at any time and lead to significant expenses. Without health insurance, Gupta may have to dip into savings or even borrow, putting his long-term goals at risk. Opting for health insurance early is essential to safeguard against medical risks. Insurance is a risk management tool and should not be confused with investment, as it serves a completely different purpose. Identifying key life risks and covering them with suitable insurance is essential.
Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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