What COVID Taught us in 2020 - Invest in an Insurance Policy

What COVID Taught us in 2020 - Invest in an Insurance Policy

If there could be one takeaway from this year, it would be that it pays to be financially prepared - by taking an insurance cover.


Everybody needs an insurance plan

Before Coronavirus disrupted our lives, most of us saw insurance as an avoidable expenditure. Not many were in favor of term insurance as an investment in one did not lead to sufficient payback after maturity. As regards health insurance, employees of almost all companies were covered under a group insurance plan which made taking a separate health cover redundant.

But all this changed as COVID 19 hit the most complacent of us the hardest - people lost their jobs and sources of income overnight as the number of cases increased drastically.

As people spent months in lockdown, they realized that life, in all its frailty, needs to be protected.

The unfortunate people who got diagnosed with the virus found their health cover inadequate for the hospital bills that ran into several lakhs of rupees. For those who got left behind after losing a loved one due to the Coronavirus, the pain and feelings of loss were only aggravated by the absence of a reliable life insurance plan.
 

Insurance - An overview

The concept of insurance is as old as time. Different variations of insurance can be found in Hindu scriptures such as Arthashastra and Manusmriti. Insurance is a way to protect oneself from any kind of loss. It is a type of risk management where an insurer (the insurance company) enters into a contract with the buyer (the policyholder) through a policy that guarantees financial protection in case of an uncertain loss to the latter.

The insurance policy mentions the terms and conditions of the contract between the two parties. The Insured party pays a regular sum called an insurance premium to the insurer for covering the risk. The premium is calculated by the insurer based on an individual’s age, health, and life expectancy. A medical health exam may be carried out as well to review the person’s health and his family medical history.

Insurance can be purchased for a large number of things. But the most essential kinds of insurances include life insurance, health insurance, auto/vehicle insurance, property insurance, et al.

Term insurance provides coverage for a certain period or ‘term’ of years. If the insured person dies during this term when the policy is active, a death benefit can be claimed. 

In contrast to term insurance which is in force only until the specified number of years, a permanent life insurance policy provides coverage until the insured person’s death, whenever it may be. The policy may also lapse if the individual stops paying premiums or surrender the policy.
 

Advantages of Life Insurance

  • You cannot put a price on life, but in case of a contingency, for example, the death of the sole breadwinner of the family, the amount of financial pressure on survivors post that tragedy is immense. Besides being struck with grief, the dependents have to deal with enormous financial liabilities after the income source is no more. These liabilities can include living expenses, EMIs, rent, child expenses, etc.
     
  • Life insurance is a smart financial move that provides a safety net for your family and other dependents if you die prematurely. It assures the bereaved family of a guaranteed income in case of an untoward event.
     
  • It is considerably less expensive to buy life insurance or term insurance in your 20s and 30s since the premiums would be lower as compared to buying in your 50s when your health conditions are bound to suffer.  
     
  • Certain insurance policies can help you save up for retirement in addition to providing risk cover. There are policies that include a savings plan that invests your money in profitable ventures which can be useful after the term plan is past maturity.
     
  • Cash value or ‘living benefits’ is an important feature of some life insurance policies wherein a part of the premium is kept aside by the insurance company to accumulate interest. This money can be accessed later for use in important life events or for funding retirement plans and so on.
     
  • Term insurance plans come with a slew of tax benefits for the policyholder. The premium of the insurance policy is tax-deductible under section 80(C) of the Income Tax Act, 1961.

Term insurance plans also offer add-ons or ‘riders’ that provide additional benefits to the insured in return for a charge. These additional services may consist of risk cover for death in case of accidents, critical illness, waiver of premium on disability, and waiver of premium on critical illness.

Benefits of Health Insurance

  • As life expectancy has increased, so have several lifestyle diseases. Health insurance has become a real necessity for people of all ages as the cost of healthcare and medical expenses have skyrocketed. Health insurance policies offer a convenient way to reimburse medical bills and offer cashless treatment for both pre and post-hospitalization.
     
  • Depending on the plan, an individual can also avail of benefits for the pre-existing disease.  Moreover, health insurance is a good way to claim a tax rebate. The annual premium paid for health coverage is subject to tax exemption under Section 80D of Income Tax Act, 1961. The exemption ranges from Rs. 25,000 to Rs. 75,000.
     
  • Health insurance plans also provide coverage for critical illnesses and accidents. Almost all health cover plans now include Coronavirus disease treatment cover. Under the insurance regulatory body IRDAI’s guidelines, many COVID-specific plans have been launched like Corona Kavach Policy and Corona Rakshak Policy. These policies disburse a lump sum on diagnosis and also pay for consumable items like PPE kits, masks, and gloves.
     
  • Health insurance greatly reduces the financial burden which falls on a person when he or she is diagnosed with an ailment and gives peace of mind while the person is recovering from the disease.
     
  • Although one wishes for the best, it is wise to be prepared for the worst. Future is highly uncertain and therefore, investing in an insurance plan well suited to your needs will go a long way in ensuring financial security and peace of mind.

 

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