Insurance is different from investment. You are protecting the risk by paying the smallest premium to attain the highest benefits when you met with the risk. The insurer will assess your risk potential and the insurance premium will in tune with your risk factors.
You can also figure out various kinds of risk factors that you face in everyday life and should buy the most appropriate policies to protect your interests. Life, health, motor, and travel insurance are the most sought after policies for young people in covering the risks and extending a bright future in their lives.
What is an Insurance Policy?
- An insurance policy is a contract between the insurance company (insurer) and the person (insured).
- The insured will pay the premium either regularly (monthly/quarterly/semi-annually/annually) or a lump sum to the insured
- The insured will cover a list of risk factors that are mentioned in the insurance policy
- The contract will be applicable as long as the policy is in force
- If the policy date expires, it should be renewed
Types of Insurance Policies
The following insurance plans are very much helpful for a young person as it will offer financial security in various aspects of life.
- Life insurance plan
- Health insurance plan
- Motor insurance plan
- Travel insurance plan
Life Insurance Plan
A life insurance policy will be offered by a life insurance company. There are life insurance companies in the public as well as private sector in India.
You can buy a life insurance product from any insurance company registered with IRDA (Insurance Regulatory Development Authority).
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Importance of Life Insurance Plan
When you are healthy, you will work and earn your living. There will not be difficulty in meeting your financial needs.
If you get sick or met with an accident, there will be a risk to your life. You may be hospitalized or go through the unfortunate permanent disability.
The life insurance policy will cover the risk of death either natural or by accident. During the unfortunate death of the insured, the insurance company will pay the compensation to the nominee (or beneficiary) listed in the insurance contract.
Types of Life Insurance Products
There are three types of life insurance products.
- Term policies
- Endowment policies
- Unit-linked policies
Term Insurance Policy
- The term insurance policy as the name implies will cover the risk during the term only.
- It is the most affordable insurance policy
- The premium is low and the financial benefit is high
- If there is the untimely death of the insured, the sum assured will be paid to the beneficiary
- If the policyholder will not undergo the risk during the policy term, there will be no financial benefit
- The variation of a term policy is the term policy with the premium return option. The insurance company will return the premium if there is no risk by the end of the term.
- The insurance premium can be paid on a regular basis or a lump sum as per the convenience of the insured
Endowment or Money Back Policy
- You can buy endowment or money back policies from insurance companies to cover the life risk and to get returns at regular intervals.
- If you choose an endowment policy, it will offer the insurance and savings benefit as well
- The premium paid to the insurance company is exempted from the income tax up to Rs. 1.5 lakh in a financial year
- The policy proceeds (claim) will be paid after the end of the term or when the insured is met with the risk
- There will be lump sum payout with an endowment plan
- If you choose a money-back plan, the returns will be paid at regular intervals (such as 20% of the sum assured after 5/10/15 years of a 20-year policy) and the rest of 40% sum assured and accrued bonuses will be paid after the maturity.
- You can subscribe to various add-ons to cover other risk factors such as critical illness, accidental death, or disability. You will want to pay an additional premium with the addition of add-ons.
- The minimum entry age for endowment or money back policy is between 1 year and 18 years
- The insurance cover will be applicable up to 55 or 60 years
Benefits of an Endowment Policy
The following benefits are available with an endowment policy:
- Accidental death benefit
- Permanent or partial disability benefit
- Critical illness benefit
- Family income benefit
- Hospital cash benefit
- Waiver of premium benefit
- The premium paid towards the policy is exempted from the income tax under Section 80C and the policy returns are exempted under Section 10(10D)
If you have a regular stream of earning, you are advised to go for an endowment policy. There will be a protection to the family members and dependents by subscribing to a suitable endowment or money back policy.
Unit Linked Insurance Plans
- Unit-linked insurance plans offer risk protection and capital appreciation as well.
- The policy comes with certain restrictions. The lock-in period varies from 3 years to 5 years.
- It is possible to switch over from one type of fund to another fund
- Partial withdrawals after the lock-in period will be free from tax.
- You will enjoy triple tax benefits. There will not be a tax on the premium, regular withdrawals and the maturity amount
- The drawback is that the returns are not guaranteed.
- Young people can take the highest possible returns. Hence, they can choose Unit policy to get better returns on a long-term basis.
- Partial withdrawals are permitted with ULIPs
- ULIPs are useful for individuals in the high-income bracket
Health Insurance Plan
The protection of health is an important aspect of your life. If you manage good health you will realize various goals in your life. Hence, you should buy a policy to cover the uncertainties of health.
- The health insurance plan will give protection from various uncertainties such as sickness or disease
- Exposure to allergens or chemicals will have a negative impact on your health
- Sudden sickness will interrupt your work and it affects your earnings
- The high healthcare expenses can be borne by buying a suitable health insurance policy
- A policy can be purchased to cover self and dependents
- The plan offers cashless hospitalization
- Reimbursement of medical bills
- Unmarried young people can buy a policy to cover self and parents
- Gives access to various specialties spread across the country
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Motor Insurance Plan
A motor insurance plan can be purchased from reputed insurance companies so that your needs will be fulfilled in the best possible way.
- You can buy a policy to cover your private or commercial vehicle
- The policy is available to cover the risks associated with your bike or car
- Add-on covers will give additional protection
- Liability (third-party) or comprehensive policy
- Cashless garage facility
- Hospitalization expense
- Reimbursement of bills
- Nil depreciation
- No-claim bonus
Types of Motor Insurance
There are two types of motor insurance policies.
Third-Party Insurance Plan
- The plan will cover the risk associated with third-parties only
- It will not cover the damage of your vehicle
- It will not offer personal accident cover
- It is the cheapest insurance policy
- The policy fulfills the mandatory obligations as per the law
- For old cars and bikes whose value is very low, you can buy the third-party vehicle insurance policy.
- A package plan will offer complete protection
- It will cover its own damage as well as third-party damage
- Personal accident cover is applicable to the insured
- Loss or damage of own vehicle is covered
- Engine protection, nil depreciation, etc. add-ons can be subscribed by paying an additional premium
- Covers against fire, floods, and earthquakes
Unless the vehicle is used for illegal activities, the claim will not be rejected by the insurance company.
You should be aware of the terms and conditions of the insurance policy so that you will not face unpleasant surprises while claiming the policy.
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Travel Insurance Plan
A travel insurance policy can be purchased to cover domestic as well as foreign trips.
- Covers travel-related uncertainties
- Student travel insurance plan is affordable
- Loss of baggage
- Loss of travel documents
- Tuition fee reimbursement due to discontinuation of studies
- Emergency medical assistance
- Cashless hospitalization
- Trip cancellation/delay
- Missed flight
Even though you are covered by a health insurance policy and a life insurance policy, you should buy a travel insurance policy to cover various uncertainties in the travel.
Youngsters will face various kinds of risks during the budding stage of their careers. Hence, you should take a holistic approach to review your insurance needs. You should buy a life, health, travel, and motor insurance as per your needs from a reputed insurance company to get absolute peace of mind!
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