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You know what your financial goals are and how to achieve them. But that requires saving big early on, building a cash corpus for emergencies, investing in the public provident fund, cutting that credit card debt, and paying off your loans as soon as possible.
The problem: most people don't see insurance in the same light. They see insurance as some kind of an expense that is rather avoided. If you think insurance is only for those who do not have the ability to pay for the future, think again.
The costs of good health care are going through the roof. The common by-pass burns a tidy hole in one's pocket, and post-surgery day care costs are continuing to soar. A few years down the line these expenses will rise further, which will make good health care unaffordable for many.
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Yes, one should save as much early on to accumulate a tidy corpus for one's future. But when it comes to health care and life insurance, one should spend as much as possible early on to save big money on expenses in the future. Health insurance and life insurance are two such things that one must take up early in life. This helps reduce costs through lower premiums. And since the whole idea of insurance is to protect oneself from any emergency that may occur, it is better to cover risks as early as possible. After all, emergencies do not give advance intimation. Having a plan in place for contingencies would save much in terms of trouble and anxiety.
Health hazard planning
Considering the changes in lifestyles and food habits in modern times, having some sort of medical cover has turned into a necessity. Any medical emergency could be a cause of panic for you and your family members. Hence, it is advisable to have medical insurance which covers all family members. This would reduce the extent of financial loss due to some medical emergency since it takes care of most medical expenses.
There is a common misconception that the health cover provided by your company suffices to cover all costs which may arise out of medical emergencies. However, the medical cover offered by your company will cease after retirement or after leaving the company. Hence, it is necessary for every person to have personal medical insurance over and above that provided by your company.
Another reason to have personal health cover at an early age is to reduce the amount of premiums, which would have been much more if such insurance were taken later in life. Also, chances of denial for a health plan being taken at a later stage in life are quite high, and many pre-existing diseases may not be included. Premiums too are much higher.
Technically, the age of entry is up to 65 years. This means you can take an insurance policy till the age of 65 years. The fact, however, is that after, say, 50 or 55 years, it is very difficult to take health insurance. After this age chances of the policy being refused are greater.
But if you purchase insurance earlier, it is easier to renew it, even if claims have been made. Hence, it is advisable to have personal health cover and buy it at an early stage in life. Also, ensure that the health plan taken should be a Family Floater, which should cover other family members.
Taking medical insurance at an early age is beneficial because a person could enjoy coverage of many diseases, chances for rejection are low and premiums are lower than if one enrols later on.
Health cover options for sum assured of Rs 5 lakh should cost anywhere between Rs 8,000 and Rs 10,000 per annum for someone at the age of 40. It will also go a long way in protecting your family. If that is not enough, one should take a larger cover for one's family. At the age of 50, the premiums begin to rise by nearly 100 per cent, hence the earlier one buys health insurance the better.
Pure risk cover
The most common question is what should be the amount of risk cover one should have. The amount of risk cover should be equal to outstanding liabilities (including a corpus for goals) minus insurance/life cover available. A pure risk cover helps take care of financial liabilities in the event of an unforeseen emergency.
In case of an unfortunate event such as the death of the breadwinner, the financial status would be in jeopardy if liabilities and goals and daily expenses are not safeguarded/secured. Risk cover is a hedge against risks related to the life of the breadwinner. It is advisable to get a term/risk cover at an early age. Early in life one may not have to undergo a medical test. However, as one's age goes up, medical check-ups become mandatory. Unlike health insurance, premiums for term plans are constant throughout the tenure of the policy.
Here again, individuals who buy a term policy early on can save big money. For a 40-year old individual, premium on term policies should cost anywhere between Rs 18,000 and Rs 22,000 per annum for a sum assured of Rs 1 crore. This rises considerably to Rs 36,000-38,000 when one turns 50. So the earlier you start, the better.
The writer is founder and CEO, Right Horizons
