Understanding the Importance of Insurance

Understanding the Importance of Insurance


Hello Friends, Greetings from Mitraz. Hope you are having
a good day. In this video series, we will be talking about
some important tenets of Financial Planning. Today’s video addresses risk cover also
known as insurance. Watch till the end for a simple thumb rule on the right insurance
amount for life cover. Having a risk cover in place is as important
as wearing a helmet while driving. Accidents may happen without any notice and lead to
financial difficulties. What are the risks one should be aware of and what risk management
should be put in place? Risk 1 – One or more earning members of a
family are not able to financially support due to their loss of life
Risk 2 – One or more earning members of a family are not able to financially support
due to disability Risk 3 – Expense much more than routine medical
treatment is incurred and puts a strain on finances
Risk 4 – Loss of personal belongings due to theft, fire, earthquake, etc.
Risk 5 – Unplanned expenses like loss of baggage, medical treatment during overseas travel
Risk 6 – Involvement in road accident, personal and third party auto damage The risk management for all the above risks
is to take appropriate insurance. The definition of insurance is “an arrangement by which
a company or the state undertakes to provide a guarantee of compensation for specified
loss, damage, illness or death in return for the payment of a specified premium.” Risk 5 related to travel is taken care of
with travel insurance. Some countries even insist on this insurance before issuing a
travel visa. Risk 6 related to auto is forced by the transport department regulations. It
is the risks from 1 to 4 that individuals keep postponing. Emergencies do not come with
a warning and we need to put the risk management in place. Risks 1, 2 and 3 may be managed with term,
disability and health insurance. It is best to not mix risk cover with investments. The
right insurance amount should be determined considering the earnings, lifestyle, goals,
assets, and liabilities. Please keep in mind under insurance jeopardizes risk management
whereas over insurance adds unnecessarily to the expense without any real benefit. Even though you may have the corporate cover
it is a good idea to have additional standalone policies especially for Health because getting
a policy after 40 may pose challenges in terms of health conditions. Risk 4 may be covered
with Homeowners/Renters insurance. As a thumb rule, you should go for life cover
amount of 8 to 10 times the annual gross income. However, it is a good idea to work with an
Adviser to understand the various insurance options, providers available in the market
and determining the right coverage amount. In my next video, I will talk about Estate
Planning. This is Nandita Jaiswal from Mitraz Financial.
Helping Clients Realize Their Aspirations!