Topic 3: Insurance Is The Gateway To Financial Freedom

No matter how good you are with your investment management, your plan to financial freedom will be incomplete if there is no insurance in place.

We all strive for financial freedom. Who doesn’t want to have the joy of fulfilling yours and your families’ wishes and not having to worry about money? Unless we inherit some royalty’s wealth or discover oil in our backyard; all of us need to actively plan our finances to achieve this kind of independence.

Financial planning in the true sense, is not just about growing wealth and countering inflation, it is also about managing risks and seeing us through uncertainties. While most of us Indians have a savings mindset, what we lack is in our understanding of risk management. Uncertainties such as accidents, deaths or sickness have the potential of becoming huge financial adversities besides being huge personal losses. Without management of risks for financial losses or catastrophes in life, any kind of a well planned corpus created through fixed deposits, investment in Gold, SIPs, the right equity portfolio mix can go for a toss.

That’s why it is imperative that we understand insurance and invest in it. Insurance, as the definition states: “is an arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium.”

Sadly insurance penetration (ratio of premium to GDP) in India stands at an abysmal 3.9%, much lower than the world average of 6.3% per Govt. sources. Although the Indian multi-player insurance market is fairly young, it is fast growing and has a lot of sophisticated products on offer to help Indians manage their risks well. Even the IRDA is actively developing guidelines and processes to ensure Indians are covered well.

If you don’t want to throw your life plans off track or simply, don’t want the stress of large bills when something untoward was to happen, there are primarily 5 kinds of insurance you definitely must have. All of these 5 types of plans together for an average 30-32 year old man, won’t cost more than a 30-40,000 rupees annually.

Life insurance: This simply helps your family tide over the huge financial loss they would suffer, in case you, an active contributor to family’s earnings were to lose your life. The amount of cover needs to be a function of your income, current and future liabilities & expenditure (student loan, children’s education, household expenses etc). An average 30 yr old should definitely have a term cover of Rs. 1 Crore, but the exact amount will vary for everyone depending on income & liabilities. This should set you back by about Rs. 20,000

Source: moneycontrol
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