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Protecting Your Finances: The Importance of Adequate Insurance Coverage

 

Investment plans also act as tax-planning tools, as many avenues help reduce tax liability. There are different types of investment plans, and by choosing the right one, you can invest according to your needs and grow your savings.Read Less

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Written ByPalak Bagadia
AboutPalak Bagadia
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Palak Bagadia, Associate – Digital Marketing at Bajaj Allianz Life, with experience spanning content and performance marketing, recruitment, employee engagement in the BFSI industry.
Reviewed ByRituraj Singh
AboutRituraj Singh
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Rituraj Singh,With over 6.5 years of experience in the insurance industry, Rituraj Singh, Manager- Product & Brand Marketing at Bajaj Allianz Life Insurance overlooks new product launches, compliance, and brand projects, leveraging artificial intelligence and technology to enhance outcomes.
Written on: 7th July 2024
Modified on: 7th July 2024
Reading Time: 15 Mins
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Importance of insurance coverage

 

An insurance policy is a financial protection tool which covers the financial loss suffered in an unforeseen event. For instance, a life insurance policy covers the risk of premature demise. If the life assured passes away during the policy tenure, the policy pays a financial benefit to help the family deal with the loss suffered.

The importance of insurance coverage lies in the financial aid that it provides. In the case of an unfortunate event or emergency, you might incur a financial loss which might put a strain on your budget. An insurance policy covers this loss and helps you tide over difficult situations.

 

Why is insurance important?

 

Insurance is important because of the following reasons –

  • It covers different types of financial risks that you face and which, if incurred, might cause a financial loss
  • The importance of insurance coverage also lies in the mental peace that it provides. When you know that insurance will cover the possible losses that you face, you can be at ease
  • There are different types of insurance policies which cover different types of losses. You can choose a policy that aligns with your coverage needs
  • With some insurance plans, like life and health insurance, you also get tax benefits. Such plans help you reduce your tax liability
  • Life insurance plans also aid in creating a financial corpus for your goals

 

Types of insurance:

 

As mentioned earlier, there are different types of insurance policies. Here’s a broad classification of insurance and its types –

types of life insurance

Life insurance includes plans which cover the risk of premature demise. Some plans also help in creating a savings corpus. The different types of life insurance plans include the following –

Term insurance

Protection-oriented plans which primarily cover the risk of dying early

● Endowment insurance

Savings-oriented plans which provide insurance protection and also help in creating a savings corpus

● Money-back plans

Also savings-oriented plans which offer liquidity through regular money-back benefits

● Whole life plans

Savings-oriented plans which run till 99 or 100 years of age

ULIPs

Investment-oriented plans which offer market-linked returns and insurance protection

● Pension plans

Retirement-oriented plans which help in creating a corpus for retirement and create a regular pension income

General insurance plans include other types of plans which cover different assets. Common types include the following –

● Health insurance plans

cover medical bills in the case of injuries or illnesses

● Motor insurance plans

cover the financial loss suffered involving a bike or a car

● Travel insurance plans

cover financial losses suffered during a trip

● Fire insurance

covers the loss suffered due to fire and other associated perils

● Home insurance

covers the structure of your home and/or its contents against possible losses

 

Coverage in insurance & the amount of coverage

 

In insurance parlance, coverage means the maximum financial protection offered under the insurance policy. It is the limit of loss up to which the insurance company would compensate you in the case of a claim. For instance, say you buy a term insurance policy of ₹50 lakhs. In the case of premature demise, the policy would pay ₹50 lakhs as the death benefit. Similarly, if you have a health insurance policy of ₹5 lakhs, medical bills up to ₹5 lakhs would be covered. If the bills are higher, you pay the excess.

Choosing an adequate amount of coverage is important so that your losses are covered adequately. If you buy coverage which is lower than the possible loss, you suffer out-of-pocket expenses. For instance, if you have a health plan of ₹5 lakhs and you incur a bill of ₹7 lakhs, the policy will pay a maximum coverage of ₹5 lakhs. The remaining ₹2 lakhs would be your out-of-pocket expense which might put a strain on your finances.

So, when choosing the amount of coverage, assess your coverage needs and the estimated funds needed to compensate for the loss that you might suffer. Find out the right coverage required and then buy it for adequate protection.

 

Features of insurance coverage:

 

Some of the common features of insurance coverage are as follows –

  • The choice of coverage depends on you. The insurance company might specify and minimum and maximum coverage limit and you can choose a coverage within the specified limit
  • Life insurance plans might offer unlimited coverage options. Thus, you can choose a coverage that suits your needs
  • In the case of insurance of assets, the maximum coverage might be limited to the cost of the asset. For instance, in the case of motor insurance, the maximum coverage depends on the value of the vehicle
  • In some plans, you might increase the coverage when renewing the existing policy

 

Which Insurance Coverage type suits you?

 

The choice of insurance plans depends on your needs and the risks that you face. Thus, you should assess your coverage requirements and then choose the right type of insurance coverage.

For instance, life insurance plans suit most individuals since everyone faces the risk of premature demise. Thus, you can buy life insurance to protect against this risk. Similarly, health insurance plans are also suitable for most households because the risk of medical emergencies cannot be avoided.

Besides life and health insurance plans, the choice of other types of insurance coverage depends on your needs. For instance, if you have a vehicle, a vehicle insurance policy would be a must as it is mandatory per the Motor Vehicles Act of 19881.

So, assess your coverage needs and buy the right types of plans.

 

Things to consider while selecting the right Insurance Plan

 

Some things to consider when buying the right insurance plan are as follows –

  • See if the plan suits your coverage needs
  • When choosing the coverage amount, try to choose coverage which would be adequate to cover the possible losses that you might face
  • In the case of long-term plans, choose the right tenure
  • If the insurance plan offers optional coverage benefits called riders, assess which riders would suit your needs. Choose the appropriate riders for an inclusive scope of protection
  • Ensure that the premiums of the policy are affordable for easy payments

 

Conclusion

 

Assess your financial needs and then select the types of insurance coverage that suit your requirements. Choose the right coverage amount so that you can be adequately compensated in the case of unforeseen eventualities. The importance of insurance coverage lies in the protection that it provides. By covering unavoidable risks, insurance plans give you peace of mind and help you face financial emergencies. So, add insurance to your financial portfolio and be prepared against possible emergencies.

 

FAQs

 

1. How much term insurance coverage do I need?

The coverage amount of your term insurance plan depends on your income, expenses, financial goals, existing assets and liabilities and other factors. There are online term insurance calculators which help you calculate an adequate sum assured for the policy based on your age, income and other factors.

So, when buying term insurance, you can use these online calculators and find out the insurance coverage which would be adequate to provide the financial assistance you need.

2. Is a health insurance policy important?

A health insurance plan covers the medical expenses that you might incur in the case of illnesses or injuries. In today’s age, illnesses like diabetes, hypertension, etc. are becoming common. They might result in medical complications which can lead to hospitalisation and expensive treatments. Moreover, medical expenses are rising steadily. Affording the treatment costs might incur a financial strain. As such, a health insurance policy becomes important. By covering your medical expenses, it allows you to afford quality healthcare without incurring a financial burden.

3. Why is a motor insurance plan mandatory?

The Motor Vehicles Act of 19881 mandates that every vehicle running on Indian roads should be insured under a valid third-party insurance policy. As such, if you own a vehicle, whether a car or a bike, you need mandatory third-party coverage on it to fulfil the rules of the Act.

Reference

1. https://www.turtlemint.com/general-insurance-companies/types-vehicle-insurance/

BJAZ-WEB-EC-06853/24

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Disclaimers:
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~Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER. The Unit Linked Insurance Products do not offer any liquidity during the first five years of the contract. The policyholder will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of the fifth year

ULIPs are different from the traditional insurance products and are subject to the risk factors. The premium paid in ULIPs are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.

The views stated in this article is not to be construed as investment advice and readers are suggested to seek independent financial advice before making any investment decisions. For more details on risk factors, terms and conditions please read sales brochure & policy document (available on www.bajajallianzlife.com) carefully before concluding a sale.

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Disclaimer

*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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Terms & Conditions

I hereby authorize Bajaj Allianz Life Insurance Co. Ltd. to call me on the contact number made available by me on the website with a specific request to call back. I further declare that, irrespective of my contact number being registered on National Customer Preference Register (NCPR) or on National Do Not Call Registry (NDNC), any call made, SMS or WhatsApp sent in response to my request shall not be construed as an Unsolicited Commercial Communication even though the content of the call may be for the purposes of explaining various insurance products and services or solicitation and procurement of insurance business

 

Please refer to BALIC Privacy Policy

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Disclaimer

%%Above illustration is for Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V03) considering Male aged 25 years | Non-Smoker | Policy Term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 1,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 6,238. 2nd Year onwards premium is Rs. 6,659. Total Premium Paid is Rs. 1,99,349 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly installments (Lumpsum Payout Percentage : 45, Income Payout Percentage : 55) | Premium shown above is exclusive of Goods & Service Tax/any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only. This is inclusive of all the discounts mentioned above.

##Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

@Term Insurance plan bought online directly from Bajaj Allianz Life Insurance has no commissions involved.

^^The Return of Premium amount is total of all the premiums received, exclusive of extra premium, rider premium and GST & /any other applicable tax levied, subject to changes in tax laws
Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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Disclaimer

Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V04)

*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116


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Disclaimer

*Above illustration is for Bajaj Allianz Life eTouch II - A Non-Linked, Non-Participating, Individual Life Insurance Term Plan (UIN:116N198V01) considering Male aged 25years | Non-Smoker | Policy Term(PT)– 30 years | Premium Payment Term (PPT)– 30 years | Sum Assured opted is Rs.1,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 5,092. 2nd Year onwards premium Rs. 5,520. Total Premium Rs. 1,65,172 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly instalments (Lumpsum Payout Percentage: 40, Income Payout Percentage: 60). Income payout instalment opted for 40 years | Premium shown above is inclusive of Online Discount only, no other discounts have been considered and exclusive of Goods & Service Tax/ any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only. For more details on risk factors, terms and conditions please read sales brochure & policy document (available on www.bajajallianzlife.com) carefully before concluding a sale.

##Tax benefits as per prevailing Section 10(10D) and Section 80C (under old tax regime) of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

**5% Discount applicable for customer's first individual life insurance policy, applicable only on first year’s premium. 5% Discount for salaried customers, applicable only on first year’s premium. 6% Discount on online purchase is available for regular premium payment and limited premium payment frequency on first year's premium.

$Term Insurance plan bought online directly from Bajaj Allianz Life Insurance has no commissions involved.

^^The Return of Premium means total of all the premiums paid under the base product, excluding any extra premium and taxes, if collected explicitly.

Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

X
Terms & Conditions

I hereby authorize Bajaj Allianz Life Insurance Co. Ltd. to call me on the contact number made available by me on the website with a specific request to call back. I further declare that, irrespective of my contact number being registered on National Customer Preference Register (NCPR) or on National Do Not Call Registry (NDNC), any Call made, including via Voice over Internet Protocol & WhatsApp, SMS or WhatsApp messages, in response to my request shall not be construed as an Unsolicited Commercial Communication even though the content of the call may be for the purposes of explaining various insurance products and services or solicitation and procurement of insurance business

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