Insurance Planning
 
Insurance is a highly misunderstood product and it's often bought and sold for the wrong reasons. At the same time it's a very important part of your life and you must know certain ground rules for making the right decisions in the New Year. Many of us consider insurance just another investment for tax saving. Our day-to-day life is full of unpredictable risks for example loss of life, loss of income, critical illness, disability etc. Insurance planning means figuring out adequate cover against "insurable risks" and getting the maximum out of the premium you pay. Tax exemption is just another aspect of it.
 
Having the right insurance cover gives you peace of mind as it provides financial support in case of contingencies.
 
Insurance is for the earning member of the family
Life insurance is a replacement for your income. When your income ceases or falls insufficient either due to death, illness, retirement or a major goal such as children's education or marriage, insurance fills in the gap. On your death, the money received from term insurance policies will provide a corpus with which the family can pay off debts, convert dreams to reality and still lead a comfortable life. You must have seen cases of non-working mothers or non-earning family members getting insured. It goes against the fundamental principle of insurance. 
 
Therefore it's important that the breadwinner covers the risks to his life and income, so that his family's quality of life is not compromised after he is gone.
 
For what term do you need this cover?
Ideally, insurance must be taken to cover the working period in one's life. You take insurance to protect your dependents from the loss of your income; using the same logic, you take insurance for the time that the dependents are being supported by your income. Hence, it is advisable to take insurance till one's retirement. However, when insurance is taken for protecting and saving towards specific goals, then the tenure of the plan should match the years left for meeting the goal.
 
Financial planning and its role in selecting insurance
To be able to prescribe the best insurance products for an individual or family, a financial plan is necessary. Any advisor needs an in-depth knowledge and understanding and proper prioritization of all aspects of your life. The probable duration of life, amount of security needed, present and future needs / shortfalls and post retirement requirements are also essential pieces of information to be collected.
 
It is very important that you are adequately covered as inadequate cover is equal to no cover at all.
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