Insurance Planning & Risk Management

Insurance Planning is determining the adequacy of insurance cover required by the client to cover the risk associated with one’s life, medical emergencies and assets.

A) Life Insurance

B) Health Insurance

C) Insuring Physical Assets

D) Accident/Disability Insurance

A) Life Insurance

Life Insurance Planning is planning for a situation when the individual on whom the family is dependent for fulfillment of their goals is not alive. In case of one’s death, the family may face two types of losses: Financial Loss and Emotional Loss. While the latter happens in all the cases, the former happens if an earning member of the family dies. Life insurance helps the family to overcome this financial loss, by analyzing and estimating the financial loss the family is likely to incur and by considering one’s family expenses and future goals.

Classification of Life Insurance Plans:

A.a) Traditional Plans

• Pure Term Plans

Plans of insurance that provide only death cover are called ‘Pure Term Assurance’ plans. If the insured does not die within the specified period, no payment is

made under a term assurance plan. It is the cheapest form of insurance.

• Increasing Term Assurance Plan:

Because of inflation, a term assurance with a level sum assured gives a reducing amount of real cover as the value of money declines year by year. And to

overcome this, term assurance policies with some form of escalating sum assured are available.

• Decreasing Term Assurance Plan:

Term assurance of this type has a sum assured which reduces each year or even every month, by a stated amount decreasing to nil at the end of the term.

It is normally used to cover a reducing debt, such as capital outstanding on a house purchase mortgage, with a sum assured being linked to the reduction

in the capital outstanding under the loan.

• Pure Endowment Plans

Plans of insurance that provide only survival benefits are called ‘Pure Endowment’ plans. If the insured dies within the specified period, no payment is

made under a pure endowment plan.

• Endowment Plans

A pure term assurance plan along with a pure endowment plan, when offered as a single product is called an ’Endowment Assurance’ plan, under which

the sum assured is paid on survival of the specified period or on earlier death.

NOTE:  Traditional Plans can further be classified as:

Participating or With Profit Policies:

These are policies which are entitled to participate in the bonuses declared by the companies.

Non-participating or Without Profit Policies:

These are polices which are not entitled to participate in the bonuses declared by the companies.

A.b) Unit Linked Insurance Plans (ULIPs)

 ULIPs are plans that combine the benefits of life insurance as well as investment through various options of participating in the growth of the capital market.

B) Health Insurance

Health costs are rising and critical illness or surgery might cost a fortune today. Some important goals may need to be postponed if a family member has to be hospitalized. Health Insurance makes sure that this does not happen. The bills are taken care of by the insurer and one can continue with plans and goals set for one’s life. Determining, how much health insurance cover to take is largely a function of an estimate of expenses that one may incur on certain treatment as well as certain incidental expenses on account of such medical condition.

C) Insuring Physical Assets

Physical assets such as household goods, jewelry, vehicles, bullions, etc. must be insured for their current value against fire, theft, burglary, etc. These assets are valuable and hence must be insured for the value they can be replaced with today.

D) Accident/Disability Insurance

These policies provide insurance cover if the insured is temporarily and partially disabled and also if totally and permanently disabled. Most such products compensate the insured for the loss of income on account of disability.

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