One of the cornerstones of effective financial planning is insurance. It is tailored to protect you from unforeseen events and provides a safety net that helps secure your financial future. Mitigating risks and covering potential losses ensures that unexpected challenges won’t derail your financial stability. Here’s an in-depth look at how to make the most of your insurance. Types of Insurance Selecting the right type of insurance is essential for meeting your specific needs and goals. Here’s a breakdown of common insurance types: 1. Life Insurance: This comes in various forms, including whole life and universal life insurance. These policies offer coverage for the entirety of your life and often include a savings component or cash value that grows over time.
Explore the different types of life insurance plans to help you choose the best option:
• Term Insurance: This is a policy that offers coverage for a specific period (term) and pays a benefit only on the demises of the insured during that term.
• Endowment: This combines life coverage with a savings plan. They pay a lump sum at the end of the policy term or upon the policyholder’s death, whichever occurs first. These policies are useful for saving towards specific goals, like funding your child’s education or your retirement.
• Unit-Linked Insurance Plans (ULIPs): ULIPs offer insurance coverage and investment opportunities. A portion of the premium is utilised for life insurance, and the remaining amount is invested in different financial products like bonds or equities. They may be a suitable option if you are seeking growth through investments along with insurance protection.
• Money Back: A money back policy provides the advantage of investments in addition to financial protection. For the length of the policy, a money back policy can help you generate cash monthly. It allows the policyholder to give your loved one’s financial stability in the case of an accident or death, without incurring any losses if no claims are filed.
2. Health Insurance: This insurance covers medical expenses incurred due to illness or injury. It is crucial for managing healthcare costs and ensuring access to quality medical treatment. Health insurance plans may include coverage for hospitalisation, surgeries, and sometimes outpatient care.
Understand the policy terms
Understanding the terms of your insurance policy is essential to ensure you receive the protection you expect, like coverage limits; this helps you assess whether the coverage is adequate for your needs. Standard exclusions might include certain pre-existing conditions or types of damage. Understand how and when to pay your premium payment terms. Delays in payments can lead to lapses in coverage.
Regular reviews
Having a regular review of your insurance is important since they change over time. Major life events such as your marriage, the birth of your child, or purchasing a home can significantly impact your insurance needs. Regularly update your coverage to reflect these changes. As your financial situation evolves, whether through changes in income, debt, or savings, adjust your insurance coverage to match your current financial status.
Maintain adequate coverage
Ensuring your coverage remains sufficient as your responsibilities grow, is crucial. Ensure your sum will be adequate to cover your financial obligations and provide for your dependents. Regularly reassess the amount of coverage and make sure it aligns with your current needs and future goals. Adjust your insurance policies accordingly as you accumulate more assets or take on additional responsibilities, such as family support.
Stay informed about policy benefits
Most health insurance policies provide their members with a benefit known as a Cumulative Bonus, sometimes referred to as a No-Claim Bonus, if they stay claim-free for a predetermined amount of time. Typically, the policyholder receives a discount on the premium for the upcoming policy year or an increase in the sum insured. Both are subject to an upper limit. Let’s say you have a Rs.5 lakh health insurance policy with a cumulative bonus provision that adds 10% of the insured amount for every year you don’t file a claim to a maximum of 50%. If you don’t file a claim within the first year, you will receive a Rs.50,000 increase in coverage the following year, for a total of Rs.5.5 lakhs. Likewise, your coverage will hit its maximum of Rs.7.5 lakhs if you go five years without filing a claim.
On-time payment on premiums
To keep your policy active, ensure premiums are paid on time to prevent any lapses in coverage, which could leave you unprotected.
Utilise tax benefits
Insurance can offer valuable tax advantages if you opt for the old tax regime. Section 80C of the Income Tax Act 1961 allows you to receive tax benefits for premiums paid on term life insurance policies. Under this section, you can claim deductions up to Rs.1.5 lakh. And if you have a health insurance, you can get a tax deduction of up to Rs.25,000 each year under Section 80D of the Income Tax Act for health insurance premiums. It is even higher if you are a senior citizen.
Understand the claim process
Effective claim filing is essential for accessing your policy benefits. Familiarise yourself with the claim process outlined in your policy. Knowing how to file a claim and the required documentation can expedite the process and ensure you receive the benefits you’re entitled to.
To make the most of your insurance products, it’s essential to choose the right type of coverage, thoroughly understand your policy terms, and regularly review and adjust your coverage as needed. You must stay informed about additional benefits and adhere to payment schedules, ensuring that your insurance effectively serves its purpose. Proactively managing your insurance can protect your financial future and enhance your financial security.
