An insurance portfolio is built after understanding your insurance needs. It is necessary to build an insurance portfolio in such a manner that there are no gaps and in case of any incident you and your family are financially protected. There is a range of insurance products and you have to plan an insurance portfolio according to your earnings and age.
The first step is to know your needs. When you are aware of your needs, only then you can choose a product in the market. The need falls into two categories; life insurance and general insurance. Life insurance helps the nominee in case of the unfortunate event of death of the policyholder and general insurance acts as a backup for the financial losses that a person can suffer and includes home insurance, motor insurance, and health insurance. There is also cyber insurance that people should have.
After you know your needs the next step is to work out the insurance coverage that you will require. Try to find out the hospitalization costs that you are likely to incur if you are hospitalized. It could be a major drain on your resources and you can take health insurance cover accordingly. Similarly, you have to work out your expenses and take out a life insurance policy that can maintain the living standard of your family in case of your unfortunate death.
The companies have many insurance products and you should compare the price and the policies that fit your needs. Each policy provides financial backup but the scenario under which they come into action might be different. So you must be aware of the insurance products available in the market and under what circumstances they would meet your needs.
The circumstances keep changing in life and you must review your insurance portfolio every three years. There are many changes in life that may occur as your assets may increase, your liabilities may increase, your income may increase resulting in the lifestyle changes, the inflation may have increased, financial goals may have changed or you might have divorced. Taking the changes into account it is better to review your insurance portfolio.
The insurance policies that you must have in your portfolio are-
1) Life Insurance-
The life insurance policy guarantees the death benefits to the beneficiaries in event of the death of the policyholder in exchange for the premium received. The policyholder must pay a single premium upfront or regular premiums over a period of time.
The life insurance policies are there for a certain number of years. Only the permanent life insurance policy is there until the insured dies or surrenders the policy. There are different types of life insurance policies like-
- Term Insurance– It is a pure protection insurance policy.
- Endowment life insurance policy– The endowment life insurance policy covers the life of the insured, helps the policyholder save over a period of time and he gets a lump sum on maturity.
- Money-back insurance policy– The money-back insurance policy provides the insured regular returns at defined points in addition to the insurance coverage.
- Whole Life Insurance– It provides insurance coverage till 100 years of age.
- ULIPs– A unit-linked insurance plan provides dual benefits of investment for long-term goals and financially protects the family in case of any unfortunate event.
- Child Insurance Policy– It secures the future of your child.
The ideal age for buying a term insurance policy is between 30 to 35 years of age and the premium would increase as you grow older. The sum assured should be at least 10 times your annual income.
2) Health insurance-
Health insurance covers the medical expenses that arise due to illness. A serious illness can happen to any person and can cause financial strain on the savings that a person would have accumulated. The cost of treatment is ever increasing and the person may have to compromise on his standard of living if he doesn’t have health insurance. The factors on which the health insurance premium depends are- age, policy duration, past medical history, occupation, body mass index, smoker, the location where you stay, gender, and the plan you choose.
There are two types of health insurance-
- Mediclaim policy–
A mediclaim is health insurance that covers the medical expenses due to any emergency up to the sum assured. It covers the cost of treatment when a person is admitted to a hospital. A person can take the family floater plan that covers the whole family or individual health insurance plans covering only a single individual. The payout is made when the original bills are submitted covering the expenses that occur in a hospital.
- Critical Illness Plans–
The critical illness plans cover certain life-threatening diseases which may require a long treatment and multiple visits to the hospital. There are other expenses like hospitalization expenses, doctor’s fees, and medical expenses. The critical illness plan pays a lump sum amount that can be used to cover these expenses. If you are unable to work due to the illness the amount acts as a substitute for your monthly income. A person needs both the Mediclaim plan (to cover hospitalization expenses) and the critical illness insurance plan (to cover loss of income and other expenses).
3) Home Insurance-
Home insurance covers the residence against the natural calamities as mentioned in the policy. The house has many important items like furniture and appliances like television, refrigerator, washing machine, gold, silver, or a painting that the people may keep. These items can be damaged by fire, earthquake, or floods which can result in financial hardship for a person. The home insurance covers all the above situations and also the death of a person or his spouse under a personal accident add-on (with a nominal additional premium.)
The banks and home insurance companies in India offer different types of home insurance policies and some of them are-
- Standard fire and special perils policy.
- Home structure/building insurance.
- Personal accident.
- Burglary and theft.
- Content insurance.
- Landlord’s insurance.
In-home insurance you are compensated for the damage done to your home and the amount of compensation depends on the valuation of the home. The home can be insured in two ways; one is the market value and the other is reinstatement value.
The insurance should be enough to cover the cost of rebuilding your home that is destroyed. You can multiply the built-up area of your home with the local construction rate per square foot. The contents in the home like furniture, durables, and clothes are valued at the current market value of similar items after taking into account the depreciation. Premium depends on the value insured and the coverage taken.
4) Auto insurance-
Auto insurance is also popularly called motor insurance and provides insurance cover for loss or damage to any vehicle like a car, two-wheeler, or commercial vehicle. It provides financial protection against physical damage or bodily injury due to collisions and the liability that can arise from accidents by a vehicle. The premium payable by a person for this insurance depends on factors like insured declared value, age of the vehicle, type of vehicle, age of the insured, etc.
Only third-party insurance is compulsory in India. The types of car insurance offered in India are-
- Third-party car insurance–
If you have an accident the third-party car insurance policy takes care of the expenses incurred by the car you have crashed into. The other person would receive compensation for the damage and you would be saved from big financial trouble.
- Comprehensive car insurance–
The comprehensive insurance policy not only offers the coverage of third-party insurance but also provides protection for your vehicle. It covers any unforeseen incident such as accident, fire, theft, or natural calamity and also covers lawsuits, including the legal fees against you due to the accident.
The annual premium depends on the vehicle you own and its age and the insured value is reset each time the policy is renewed. You can get a reduction in your car insurance premium by opting for voluntary deductibles or setting up safety devices in your car.
5) Cyber Insurance –
In today’s world, most social and professional interactions and financial transactions take place digitally. This leaves people vulnerable to cybercriminals as most of their personal information is available in the digital world. Cyber insurance provides coverage protection from activities such as identity theft and unauthorized transactions.
Cyber insurance is indemnity-based and covers risks such as financial losses and data breaches and covers you, your spouse, and your children. It covers all the digital devices that you own and use to carry out the transactions. The insurance commences immediately after you buy the plan and is valid for a year.
The cost of cyber insurance for an organization depends on a number of factors such as the size of the business and the annual revenue. Other factors are the industry that the business operates in, the type of data the business deals with, and the security of the network.
The five types of insurance discussed above are required and must be included in your portfolio of insurance policies. During the period of distress, an appropriate insurance policy comes to your rescue, reduces your mental agony, and protects you from financial devastation.