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How to select the right life insurance policy

Vishal is a young accountant in his first job. He has no financial liabilities. However, he has been saving small amounts and wants to continue doing so. He has heard about the importance of insurance in ensuring financial stability and is considering taking a life cover. Has he considered all aspects before making this decision?

Vishal is right in considering insurance as an important aspect of financial stability and security. However, the type of insurance he requires depends on his specific needs. His primary requirement at this stage is protecting himself against loss of income, or a large, unexpected expense, which can derail his income and savings. Since he has no dependants, a life insurance may not be necessary at this point. So, he should consider covers that are more relevant to him.

Personal accident insurance will cover the loss of income in case an accident leads to temporary disability or inability to work. Vishal will receive an income, according to the policy terms, until he is able to resume work. Life insurance provides protection to income, but only in case of death, though it may have riders that also offer accident cover. However, it may be less comprehensive and will also translate into a higher cost since he will pay premium for life insurance as well, which he does not require. Vishal must also consider health insurance, to take care of medical costs.

He will be able to get one at a low cost since he is young and healthy. If he renews it regularly and on time, he will have access to a low-cost cover even at a later stage when there may be health complications. Similarly, if he has a car, a comprehensive motor insurance is a better option than a third party cover as it will cover any loss or damage to his vehicle.

Vishal must also assess the cost while deciding the type and size of the cover. Being over-insured will result in a higher than needed premium, while being under-insured will leave his income open to risk. His insurance decisions have long-term consequences and he must evaluate these before committing to them.

(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)


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