Musing 37- Essential Five Insurances: The Concluding Part
MUSING
37
INSURANCE:
THE ESSENTIAL FIVE
OTHER
INSURANCES
It is
a matter of great honour and privilege for me to unveil the cover of my new
book, “The Millionaire Mechanic- Financial Wisdom in The Rann”, to my
friends. With this book, I am attempting a new genre in writing- a Financial
Travelogue. The book is set in beautiful Kutch and will give you the thrill
of travelling as you also gain financial wisdom through the protagonists-
Anshreya, HoneyCool and Aman. I will await your reactions to the book cover
with bated breath. I will also request you to share the book cover with your
family, friends and social circles to give it wide publicity. The book should
be in your hands by December.
In the
last three posts we have discussed two out of the five essential five
insurances- Life and Health insurances. In this final post of this series, we
will tackle the balance three essential insurances.
Accident
and Disability Cover
The
number of road accidents are rising by the day in our country. Despite enhanced
safety features in the vehicles, many of these accidents result in serious
injuries to the persons involved in them. Many of these injuries could be
potentially debilitating and may result in short/long term hospitalisation which
in turn may impact the earning capacity of the victim. This could have a
serious financial effect on the family of the victim.
It is
thus axiomatic to protect you and your family against such mishaps by an
appropriate insurance. This cover will protect you against a temporary or
permanent disability which results in your loss of job or reduction in earning
capacity. The thing to note is that one should not go for a ‘short-term
disability plan’ meaning a plan that covers less than five years of disability.
Instead, go for a longer duration disability plan, we see the mishaps resulting
in persons being even paraplegic for life.
The
important issue is to look at all the financial liabilities that one has
including the EMI being paid and the investments that are ongoing in terms of
SIP. The annual financial requirements must be diligently worked out and a
cover of 6 to 8 times could be considered. This amount (sum insured) could be
reviewed every five years or so as one’s financial obligations will undergo a
change with children and their education and marriage requirements looming.
There
are policies that pay out a lump sum to one’s nominee in case of death due to
accident and pay a monthly sum in case of a disability due to an accident. Take
a call as per your needs and financial status.
Home
and Content’s Insurance
Your
home and its contents are invariably your most precious possessions which you
can’t afford to lose in a natural or manmade catastrophe. Yes, earthquakes,
fires, cyclones, floods and burglary can occur with no notice and cause the devastation to your home- remember the recent floods in Chennai? This is one kind
of insurance that people shy away from and this could be a big mistake in case
of a mishap.
You
don’t have to insure the house for the "value of the property" which
includes the cost of the land, locality and construction costs but only for the
reconstruction cost in case of a mishap.
Even if
you are living in the house as a tenant, do insure the contents of the house
against any mishap.
Vehicle
Insurance
Your
vehicle insurance should not only cover the cost of repairing or replacing the
vehicle but also have a ‘third party insurance’ clause which protects you
against claims made by the accident victims. Also, go for the cashless repair
clause wherein your vehicle gets repaired in the designated workshops without
you paying for it.
You
may consider a zero-depreciation rider meaning that year-on-year the value of
the car will not be deemed to be depreciating by the insurance company. The pros
are that in case of an accident, you get almost the full settlement without
considering any depreciation in the cost of the vehicle. The cons are a slightly
higher premium. You may also consider covering your valuable car accessories.
Do not
claim the cost of minor repairs to the car as that is construed as a claim and takes
away the No Claim Bonus on renewal of the policy. This bonus could be as
high as 20-60% of the premium amount.
Also
remember, never to let your vehicle insurance policy lapse. It is taken as a sign
of reckless behaviour by the insurance companies with a corresponding higher
premium.
Key
Takeaways
• The ‘essential five’ insurance policies
discussed in the last four posts (Life, Health, Accident and Disability, Home and Content and Vehicle Insurance) along with your breathing fund (please read
Musing 33 dated 16 October in the blog. The link is provided below.) will give
you a solid foundation to build your financial future without worrying about
emergencies and mishaps. Most importantly, peace of mind will follow you and
your family.
• Never mix insurance with investment.
Don’t look for returns from your insurance policies.
See
you next week with more information on my new book. Till that time enjoy my
book, “Musings of a Financially Illiterate Father”, still ruling the global rankings
in top 10. the link is below.
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