Anticipating future risk

Insurance planning is about coverage for eventualities, not profit.

March is approaching and many of you have got busy with tax planning. In the process, you are looking at various financial instruments and insurance is surely on your agenda. If so, it is important that you consider some aspects.

Insurance, besides protection, is considered an investment and tax benefit tool, too. Is it right to use insurance as a money-making vehicle?

Not really! If insurance is taken with an intention of generating profits, then it's a wrong notion. Insurance is a promise of reimbursement in the case of loss, paid to the families of people in case of any untoward incident, after prepayments to an insurance company. There is no mention of profit here, only about indemnifying loss out of earlier precautionary payment towards an unforeseen eventuality.

Different life stages require different types and amounts of insurance covers. The table below illustrates the major insurance needs at different life stages:

This is covered by term insurance offered by insurance companies, which is the original form of life insurance and is considered to be pure insurance protection because it doesn't have any repayment value.

Some of the term insurance plans offered by various insurers are listed below:

Along with the term insurance coverage, you can consider taking riders for a small extra premium: the benefits are big. Riders are add-ons bundled with your life insurance policy, given at the same time when the policy is issued, for a cost.
 

Life Stages

Cover Requirement

Single & earningPersonal accident insurance + Temporary total 
disability clause (1) Married (1) + Term cover for self + Medical cover for self,
spouse (2) Have children(2) + Step up term cover as per income growth +
Annuities for retirement planning (3) Houseowner(3) + Home loan term cover RetirementContinue asset, health and personal accident covers 

One such common rider is accidental death, which is commonly referred to as 'double indemnity', which pays twice the amount of the policy's face value if death results from accidental causes, as if both a full coverage policy and an accidental death policy were in effect on the insured.

Another common rider is premium waiver, which waives future premiums if the insured becomes disabled.

This way your life insurance policy becomes all the more valuable and provides you peace of mind, too. And, it provides you with that much-sought tax benefit. After so covering yourself and your dear ones, look for investments with tax benefits.

The writer is VP (Personal Finance),  ApnaPaisa.com