How to Choose the Right Insurance Plan for You

Mar 2022
3 mins read

The first step in investment planning is determining your specific financial goals and needs. This sets the foundation for your plan and defines the tools you may want to consider.

Insurance is one of the most important elements to finalise when you begin financial planning. Your financial goals will help you define the different variables for your insurance needs, such as the desired amount at maturity; the specific purpose for which you are considering insurance; and the age until which you require insurance cover.

Here are two key steps to help you choose the kinds of insurance and the specific plans that are right for you:

1. Reviewing the main insurance options:

·         Pure Life Insurance – This policy provides cover to the family in the event of the death of the insured person. It is also known as term insurance. It will help your family take care of household expenses, debts and major expenditures like children’s education, in case of your demise

·         Health Insurance – With healthcare costs rising, this is an important type of insurance cover, especially in light of the pandemic. Health insurance provides financial cover and protection in the event of hospitalisation and other expensive medical procedures. Critical illness cover can also be incorporated into the policy.

·         Accident Insurance – Accident insurance is popular among motor vehicle owners and drivers, who can get cover for incidents on the road. Under this policy, a benefit up to an assured amount is provided to the insured or to their nominee.

·         Property Insurance – This insurance covers your property such as house, vehicle and so on, in case of damage from fire, flood or such other eventuality 


2. Choosing the right insurance policy for you:

To find the right insurance policy, you should be able to define your requirements and have a clear plan in mind. Health insurance is a must-have policy given the sheer cost of healthcare these days – but when it comes to life insurance and pension plans, there is a need for an effective financial plan. To arrive at the right insurance policy, you need to answer these four questions:

·         What is your investment objective?
The expectation that you have from an investment should be very clearly defined, so that you can arrive at a product that is the best fit. The amount of cover required is one of the most important factors while deciding on insurance.

·         How much does the insurance cost?
Any investment comes with a price tag. A comparative analysis should be done on various policies that provide benchmark requirements. The devil is in the detail, so carefully studying each plan will help you determine any hidden costs and other terms and conditions. Financial planning apps can also assist you in this regard.

·         What is the claims settlement ratio of your shortlisted insurers?
Insurance is a protective investment – its sole purpose is to provide a secure financial future in case of an unfortunate event. So while choosing a policy, you should choose a service provider that has a higher claims settlement ratio, which reflects their record of paying out claims to their customers. You don’t want to end up with a company that drags its heels on payment just when you need it the most.

·         What are the associated tax benefits?
Your insurance policy serves several functions, one of which is to obtain tax benefits. Therefore, you should consider selecting an insurance policy whose premium contribution is eligible for tax deductions. Insurance policy premium payments help keep your spending disciplined – but they also provide tax-saving benefits under various sections of the Income Tax Act. Under Section 80C, you can claim benefits on life insurance premium paid up to a maximum of Rs. 1,50,000 during each financial year. Similarly, premium paid for health insurance can be used to claim deductions under Section 80D.

Whether it’s health insurance or life insurance, you should be able to achieve a right fit as long as you carefully consider the above factors and make an informed decision. Remember, choosing the right insurance policy is crucial for financial planning, so seek advice from a professional financial advisor to find the policies you need to achieve your investment goals.

Disclaimer: Mutual fund investments are subject to market risks, read all scheme-related documents carefully.


1.            https://www.policyholder.gov.in/indian_insurance_market.aspx

2.            https://www.ibef.org/industry/insurance-sector-india.aspx


Which are the four basic types of insurance

·         Pure, Health, Accident and Property Insurance

·         Pure, ULIP, Accident and Gold Insurance

·         Silver, Retirement, Health, Accident and Property Insurance

Pure Life insurance provides:

·         Insurance Cover and Returns

·         Insurance Cover, Returns and Tax Benefit

·         Insurance Cover and Tax Benefit

Life Insurance provides tax benefit under:

·         Sec 80C

·         Sec 80B

·         Sec 80A

Health insurance provides tax benefit under:

·         Sec 80D

·         Sec 80K

·         Sec 80L

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