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The Three Insurance Policies that you Must Have

Before we discuss the three types of insurance plans that you must buy, let us be very clear what is the primary objective of an insurance policy.

Why is this important?

Because 
(a) Most people buy insurance either as an investment to earn returns or as a means to save tax
(b) There is a clear conflict of interest between the plans that are normally more beneficial for you and those that give more benefit to the agent / insurance company (and hence mis-selling).

The basic idea behind any insurance plan is to provide financial relief in case the underlying risk factor materializes. For example, if we fall sick, medical insurance should pay for our hospitalization. If we die, our family should receive monetary relief from the insurance company.

As such
a) Don't buy any plans where 'investment' component is involved. There are much better investment products available in the market.
b) Don't buy any plans just to 'save' tax. Buy plans that you 'really need' and if they also give tax benefit, well and good.


1. Medical Insurance
There is a high risk that our family or we would have to undergo hospitalization sometime or the other. Hospitalization costs a lot. But comparatively the premium on medical insurance is quite nominal. So much so that cost of even one instance of hospitalization will be more than 7-10 years of premium payments. Therefore, it is but obvious that medical insurance is a must.

Buy a conventional Mediclaim policy only, supplemented by a Critical Illness Cover. Avoid other types of health insurance plans.

2. Life Insurance
If you do not have sufficient wealth that will take care of your family in your absence, you must insure your life. Risk to life is not as low as it ordinarily appears to be. Natural disasters, terrorism, medical problems, accidents...these risks are all too common.

Buy Term Policy only. Avoid ULIP, Moneyback or Endowment Plans.

3. Accident Insurance
You must also be insured for accidents. In fact as statistics show, disability (both temporary and permanent) is more common than death in an accident. Therefore, probability of a claim under an accident policy is higher than in a life insurance policy.

Buy a standalone accident insurance plan. Don't buy it as a rider with your life insurance policy. 


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