Any financial planning process is incomplete without considering the risk management aspect. One needs to bear in mind that both ~ risk as well as return, form an importance part of a financial decision making process. The concept of ‘insurance’ is central to risk management. Insurance, particularly the personal insurance cannot be ignored at any cost in a properly constituted financial plan. The main types of personal insurances are
(a) Life Insurance (b) Income protection (c) Permanent disability insurance & (d) Trauma insurance
Each of the above types has been discussed in detail below:
(a) Life insurance
The simplest form of insurance and the most commonly comprehended insurance is the life insurance. Here the policy beneficiary gets the money from the insurance proceeds if the the insured dies. For this, a regular amount, called the premium is paid for certain duration. This duration depends on the total term of the policy and the total sum assured. It must be remembered that the amount of premium also depends on the age of the insured. A 35 year old person will have to pay a lesser premium than a 55 year old for the same amount of sum assured. Moreover, if during the medical tests, it is evident that the person is a smoker or is suffering from a particular fatal disease, then accordingly the amount of premium will shoot up. In most cases, the premiums paid are tax deductible. (You need to take the help of your tax consultant for this advice) . One of the important questions to be handled while going for an insurance policy is ‘how much insurance is needed’? Well, there is no one solution for all the cases. There are various methods that can be used. But the most common parameters of consideration are your age, the age of your spouse, the number of dependents, your current income and debts, your general lifestyle etc. Therefore, it must be remembered that the quantum of insurance has to be decided on a case to case basis and this needs the help of a qualified professional.
(b) Income Protection
This insurance is also called as salary continuance insurance. This is the annuity that you would receive if due to certain reasons, you become disabled and cannot work. This type of insurance is similar to life insurance with respect to several parameters. Here, the premium amount is determined on factors like your age, general lifestyle habits, whether you are worker on the shop-floor or whether you are an administrative employee, the total percentage of your regular salary you want to insure and the total waiting period you are intending. It must be remembered that the waiting period and the premium amount are inversely related whereas the quantum of salary amount and the amount of premiums are directly related. This type of insurance is suitable for commission agents, wage/salaried people etc who are not adequately covered for risk bay way of their employee benefits.
(c) Permanent disability insurance
These policies cover you for permanent disabilities. Such disabilities make a person unable to work again in future. The amount that is paid will be a lump sum amount and will be paid on obtaining the certificate from the doctor that the disability suffered falls under the category of permanent disability. One must remember that there is a slight difference between trauma insurance and permanent disability insurance. Trauma insurance provides you with funds in case of medical emergencies. How you cope with it doesn’t matter. However, permanent disability insurance provides you fund only if that medical emergency has resulted in a permanent disability
(d) Trauma Insurance
Sometimes, there are such accidents that the patient doesn’t die but remains in a state of trauma for a long time. If he remains in a trauma for a considerable long time and then survives, life insurance cover won’t be of any benefit. To cover such cases, trauma insurance is helpful. Trauma insurance pays a lump sum amount in case you face any of the ‘specified’ traumas. Mostly, there is a long list of 35 to 40 traumas which get covered under this insurance. The main such traumas include ~ Stroke, Cancer, Heart Attacks, Bypass etc. Thus, it can be concluded that trauma insurance has struck a fine balance between the typical health insurance and the life insurance, where amount is received only if the life is lost. Trauma insurance is thus a very smart choice in personal insurance category.
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