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Guard yourself, your family and home with insurance

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As another fiscal year-end approaches, and we celebrate the resurgence of India's economy and new opportunities for national and personal wealth creation, here are a few points on how you can protect your hard-earned wealth.

There are a few insurance policies that you should have if you seek protection through risk transfer. These are life, mediclaim, homeowner's protection, personal accident, and overseas travel. Here are a few guidelines to help you decide limits and extensions.

Life insurance

All of us are going to age, marry, start a family, educate our children, buy a home and other large assets, and probably assume debt. Should God need us before we've fulfilled all our responsibilities on earth, our family members should be able to continue to enjoy a comfortable life and a financially secure future. Life insurance either whole life or term life will ensure your dependents receive sufficient benefits to carry on as though you were still here, provided you have opted for sufficient limits to meet all your family's daily needs and obligations for all the days of their lives. A financial advisor will have a nifty calculator to help you determine how much coverage you need. This calculator factor in host of information like your age, marital or partnership status, the trajectory of your living expenses over a lifetime, loan liability, and large financial obligations. The ideal figure will be such that the interest earned on it would be equal to your annual income.

Do not decide on the policy cover based on your tax planning. Life insurance should not be used as a tax-saving tool. It is a life-saving mechanism for those who survive you. If both partners work, you should insure both lives. Today, many urban Indians have created assets from the income of two earning family members.

Health Insurance

Health expenses related to treatment of major illness or catastrophic accident can be financially crippling. Yet most of us are uninsured. The young postpone buying it and the elderly postpone it too long and thus are denied coverage when they are already sick. Medical inflation is over 12 per cent per year: it will not get easier to pay for hospitalisation.

Buy medical insurance as early as possible and pay your premiums on time to avoid losing credits towards coverage for pre-existing illness. Even if you are insured through your employer's group mediclaim policy, always have your own individual or family insurance coverage, including for your parents.

You have many coverage options today, and most insurers have provided extensive plan descriptions and even contract wordings on their websites to help you make an informed decision. Some insurers have introduced Outpatient and Dental coverage to fill a gap in the hospitalisation-only policy that has prevailed for decades. Even limited maternity coverage is now available, subject to a waiting period. You can buy excess insurance to help you bear larger costs. Excess insurance is triggered after your primary mediclaim policy limit is exhausted, and is thus priced less than the primary policy.

Estimating how much coverage you should take depends on the number of family members covered and their age and health profile, including that of your parents, if they are covered under your family plan. If you are willing to use your policy prudently, i.e., accepting room rent restrictions and caps on certain procedures, using tertiary care hospitals only for major illnesses requiring specialised medical care, a lower sum insured (Rs. 100,000 to Rs. 300,000) may be adequate for your family. Finally, consider the sufficiency of our family floater sum insured should your family meet with a major motor vehicle accident or other catastrophic event.

Bear in mind that the first Rs 1,00,000 sum insured costs the most, as most claims are under Rs 1,00,000. Additional limits of Rs 1,00,000 cost marginally more. Therefore, opting for a higher sum insured will not multiply your premium.

Homeowner's Protection

It is extremely inexpensive to insure one's home, furniture, and electronic items, but most of us do not have homeowner's insurance. It costs less than the price of a meal out with our family on Saturday night.

Homeowner's Insurance is a package policy with several sections, and you must choose to cover a minimum of four sections. It covers fire and allied perils, burglary and theft, workmen's compensation for domestic staff, electronic items, jewellery and precious items, baggage, personal accident, and public liability. If your home is in an earthquake-prone zone, then take an earthquake extension. Do insure the building on reinstatement value, as you would probably want to rebuild your home to the same standard. Underinsurance will trigger the condition of average, and you would have to bear a loss proportional to the percentage of underinsurance.

Personal Accident &amp; Disability

Given the fact that India has the highest incidence of road traffic accidents in the world, perhaps this insurance should be at the top of the list. Accidental death and disability insurance pays the sum assured to your beneficiaries should you meet with accidental death and to you should you suffer a permanent or partial total disability due to an accident. Extensions such as weekly benefits payable for total temporary disability can be purchased, as can family coverage at limits lower than that of the primary member.

When deciding your limits, you should keep in mind that a permanent total disability may not only prevent you from continuing in your current profession, but may also necessitate additional expenses for your care. Thus, your family has a double whammy of loss of income and additional expenses.

The author is vice president at Prudent Brokers

AldaDhingra / yahoo news

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