Art of Financial Planning Part 3: Some tips to insure your assets

Financial planning is the key to a build up your assets. This time, let’s learn about the knack of insuring your assets for assuring a calm life ahead. Insurance in its purest sense is a hedge against various kinds of risks faced by us, such as death, illness, disability or damage to property. The basic rationale that governs the purchase of insurance policies is that in the event of a loss, the insured or the dependents can be monetarily compensated to the extent of the cover taken.

Dealing with risk primarily involves identifying the risk, prioritizing it and managing tactfully. In order to manage the risk, you may have to bear it, soon transfer it thereby reducing or controlling the risk and eventually removing the risk out of your life. Sometimes these risks can be insured. For example if the risk involves an insured loss having a definite time and place, it can be insured. Insured risks that belong to a sufficiently large group of homogenous exposure units to make losses predictable and which are essentially accidental all come under the purview of insurable risks.

You need to identify risks, prioritize them on the basis of their financial severity and the probability of their happening. After this, take steps to develop an appropriate strategy to manage such risks. Insurance needs change according to your life stage. For example, if you don’t have dependents you may not need cover. Understand your financial commitments and long term needs before choosing a product. Take an insurance plan that continues to give life cover, even if it means a marginally higher premium on the rider. First take cover under a medium policy. Then top it up with a critical illness policy, to get the basic benefits.

When taken with a little insurance policy, critical illness rider provides additional recover for the risk of contracting a ‘critical illness’. Before deciding in this rider, check the list of illnesses, covered and the exclusions. Don’t bank on credit card insurance as most of the time it covers only accidental death and not natural death or death due to illness. The validity of credit card coverage expires when you surrender the card.

Exclusives

Art of Financial planning Part 2: Some Basic preparations
The Art of Financial Planning Part 1: What is financial planning? What can it do for you?
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