Saturday, 9 November, 2013

Importance of Insurance - Part 1

Be safe or You'll be sorry! Part 1

It is a long time since I wrote anything about the importance of Insurance.

For those of you who are financially literate, the information in this (and perhaps the next few posts) would be a repetition of known stuff. For you, I'd just say: I hope that you have already acted on your knowledge. Review your existing policies and recent developments in the past couple of years by way of new products in the markets. And, if appropriate, go in for mid-course corrections.

For the rest of you, I hope that my thoughts on insurance would come in handy to make a beginning. And in case you've already made a beginning, do a meaningful review.

Having covered the prelims, here's the main course:

Insurance is nothing but a method by which you can make up (or at least mitigate) any financial loss that may arise due to a risk that you have insured against. Among other things, some of the stuff that you can think of insure would include:

  • Your life (and that of various members of your family)
  • Your home (and perhaps various valuables that are kept therein)
  • Your vehicles (Car, Bike, etc.)
  • Your health (so that hospitalisation expenses do not come as a shock)

First, I'm sure that there are a whole lot of other things that can be insured - don't bother - Right now, make a beginning with the basics.

Secondly, like in most other financial products (whether it is mutual funds or shares or credit cards), there's a plethora of insurance policies that are available in the market, provided by a host of insurance companies. More than enough to completely confuse you. In fact, even the supposedly financially savvy and financially literate individuals are often prone to choose (or continue with) a policy that may not be suitable to them or have become unsuitable to them since the time they initially went in for the policy.

Some action steps for you before you are ready to actually start evaluating and choosing insurance policies that are suitable for you:

  • Identify a list of various types of financial risks that you (and your family) are likely to face in the foreseeable future.
  • Among the above, shortlist those financial risks that you are ready, willing and capable of bearing on your own. For these "things", you DO NOT require any insurance policy unless it is mandatory according to law.
  • Now, the financial risks that remain are the ones for which you would ideally like to consider buying appropriate insurance policies.
  • Do a bit of preliminary reading to identify the different types of policies that are available in the market place to cover those risks. A good starting point would be to identify the web sites of major insurance companies and financial service providers.
  • Till you are reasonably clear about what you want (and, better still, till you have read enough and acquired adequate knowledge about what's suitable for your specific needs, DO NOT CONTACT ANY INSURANCE AGENT.  

In my next few posts, I hope to write about covering different types of risks.

Watch this space!



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