Protection decision comes before investment decision

Published in Mint on Jan 02 2016

 

Money conversations usually start and end with where to invest. But did you know that before the investment decision comes the protection decision. Reason is simple. You create assets out of current income and savings. If some harm were to come to those assets, you will have to dip into your savings. Some events are so catastrophic that you may need to break your entire savings pool. This is where protection of assets comes in and takes its place in your money box.

Begin by getting a good health insurance plan. Most remember medical policies only when facing a hospital bill. With hospitals increasingly resembling 5-star hotels, the bills have taken the same course. You need a medical cover even if you have one from your employer. Go for a policy that pays for hospital bills and reimburses expenses incurred before and after hospitalisation. Families should buy floater plans of an adequate sum insured as these consider an entire family as one unit. “Floater plans are generally cost effective if the age difference between (elder) family members is small. If one family member is several years older than the other, then individual plans are more cost effective,” said Kapil Mehta, executive director, SecureNow Insurance Broker Pvt. Ltd.

If you already have a good existing plan but need more cover, consider top-up plans. These cover hospitalisation costs but only after a threshold limit, which can be covered by your basic policy. Choose from the Mint Mediclaim Ratings (http://www.livemint.com/mintmediratings) if you are unable to decide which plan to buy.

Next, get your house insured. A householder’s policy protects your home and its contents from fire and allied perils like lightening and flood. “Property should be insured at reinstatement value. First assess the cost of construction. In an A grade property, the cost is about Rs.5,000 per sq. ft. This is the sum assured to be insured. Also, buy extensions for earthquake, storm, flood, inundation, riot, strike and malicious damage,” added Mehta. Adequately insure your house, else the insurer will penalise you by paying the claim proportionately to the level of underinsurance.

Don’t forget to insure your car. While the third-party insurance (which covers your liability towards a third party) is mandatory for all vehicles, insurers typically offer a comprehensive car insurance policy that bundles what is called an ‘own damage’ cover. This insures vehicles for damages. The structure and benefits of a comprehensive policy usually stay the same across insurers but now you can add more to your policy by opting for add-on covers.

Be smart. Fill your money box with good policies.

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