Insurance-Foundation of Financial Planning




Two of the most confusing words to many people in personal finance management are Insurance and Investments. Many people mix both of this as they choose insurance product for the purpose of investments and some choose investments that offer a small insurance coverage. A sound financial plan is a combination of protection, savings and investments. The simple reason to have an insurance plan is to avoid a financial crisis that can happen due to the occurrence of unpredicted events at unpredicted time.
Insurance are generally categorized into two main Category-Life Insurance and General Insurance (Non-Life Insurance). Life insurance is covering the risk of human life value in case of an eventuality and Non-life insurance offer the risk coverage for all other risks like health, vehicle, fire etc.
Life Insurance products in general can categorized into two and they are pure insurance (term insurance) and insurance combined with savings which could be further subdivided into Endowment plans and  ULIP. Life insurance policies are contracts of assurance.
Term Insurance is the simplest form of insurance. It provides the risk coverage to the human life. It offers protection for your family’s future in your absence. Since mortality is related to age it means lower premiums are charged for those who are young and higher premiums for older people. This covers only the risk of death and no investment is offered under term plans. If the policy holder dies during the policy term, the sum assured is paid to the beneficiary. But if he survives the term, no maturity benefit is available.
The second category is endowment plans where in you pay premium for a fixed term and the policy offer both maturity and death benefits. It means in the event of sudden demise of the policy holder during the policy term, the sum assured indicated in the policy will be paid to the beneficiaries (nominee). And in the case of survival, the agreed survival benefits will be paid.
The third main category is Unit Linked Insurance Plans(ULIP), which is a combination of insurance and investment. A fixed portion of the premium is allocated for the life insurance and the rest of the money is invested in equity shares, bond etc. Here the policy holder can choose the allocation based on his risk appetite.
The above plans can be customized and offered to customers to meet specific life stage goals such as
–      Protection needs
–      Children Education
–      Retirement Planning.
The insurance products offer tax benefits to the insured. The benefits available to individuals for life insurance under section 80C is Rs 1,50,000.
Before you buy an insurance policy, look for the following
Sum Assured: This is the amount, paid to the nominee in case of death of the insured.
Premium: The amount the insured pay to the insurer for receiving the benefits of the insurance policy. The mode of payment can be monthly, quarterly, half-yearly and annually or even one time (single premium)
Claim settlement Ratio: The claim settlement ration is the proportion of death claims which have been settled by insurance company from amongst the total claims received by the insurance company. This provides a fair idea of whether the insurance company can be trusted as a good option for the insurance cover.
The insurance policy should be purchased after identifying the need. This will help to lead worry free life.
(For queries, please contact on 8547442952)

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