Common mistakes while buying Life & Health Insurance | Personal Finance for Beginners Ep - 2

Summary

In this video, Karthik Rangappa discusses the importance of insurance in personal finance, focusing on term and health insurance. He explains how term insurance provides financial security for your family in case of an untimely death, while health insurance covers medical emergencies. Karthik also shares valuable tips on what to look for when purchasing both types of insurance, including the importance of buying early, understanding policy details, and the role of a trusted agent. The video emphasizes risk coverage as a key building block in financial planning.

Takeaways

• 😀 Insurance is a key building block in your personal finance journey, alongside an emergency fund, to cover various risks.
• 😀 Term insurance provides financial support to your family in case of your unexpected death, ensuring they don't suffer financially in your absence.
• 😀 Don't mix insurance and investment – they should be treated as separate financial tools to avoid poor returns and inadequate coverage.
• 😀 Health insurance is critical to cover medical expenses and hospitalizations, especially in the face of rising medical inflation (15% in India).
• 😀 It's a misconception that health insurance is only necessary for older people; younger people should also consider it due to potential health risks (e.g., heart attacks, diabetes).
• 😀 It's important to buy health insurance early to lock in lower premiums and ensure you're covered for unforeseen medical events.
• 😀 Before buying term insurance, ensure you're in good physical condition, as insurers will often conduct medical tests that could affect your premiums or approval.
• 😀 Smoking can significantly increase the premium for term insurance, so quitting is advisable to lower costs and improve your overall health.
• 😀 Adding a critical illness rider to a term insurance policy is beneficial, providing additional income if you face life-altering health issues.
• 😀 Don't opt for term insurance coverage until you're 99 years old; after 60, your financial dependents may reduce, making such a policy unnecessary.
• 😀 Always be cautious when dealing with insurance claims; having a trusted professional can help resolve issues if a claim is rejected or contested.

Q & A

Why is insurance important in personal finance?

Insurance plays a crucial role in managing financial risks by providing a safety net for unexpected events, such as death or medical emergencies. It ensures that financial responsibilities, like family support or medical bills, don't become a burden when unforeseen events occur.

What are the two essential types of insurance everyone should consider?

The two essential types of insurance everyone should consider are term insurance and health insurance. Term insurance helps protect your family's financial future in case of death, while health insurance covers medical expenses, especially hospitalizations and surgeries.

Can term insurance be considered an investment product?

No, term insurance should not be treated as an investment product. It is primarily a risk cover for your family in the event of your death. Mixing insurance with investment typically results in a poor outcome for both, as term insurance is designed to be affordable and straightforward.

When should I buy term insurance?

You should buy term insurance as soon as you begin assuming financial responsibilities, especially if you're the sole breadwinner or contributing to family finances. It’s essential to have this in place early to ensure that your family is protected in case of an unexpected event.

How much coverage should I get from a term insurance policy?

The coverage amount should be based on your family’s needs, financial goals, and liabilities. Typically, it should be enough to cover debts, household expenses, future financial goals, and any dependents' needs in your absence. A trusted insurance agent can help you determine the right amount.

What factors affect the premium for term insurance?

Factors that affect the premium for term insurance include your age, health, lifestyle habits (like smoking), and the coverage amount. Younger and healthier individuals typically pay lower premiums, while smokers or those with health issues may face higher premiums.

Why is it important to get health insurance early in life?

Getting health insurance early, while you're young and healthy, is important because it locks in lower premiums and ensures that you're covered in case of unexpected health issues. The risk of developing serious health conditions like heart disease or diabetes increases over time, and buying insurance early can help avoid higher costs.

What are the common mistakes people make when buying health insurance?

Common mistakes include lying on the proposal form about pre-existing conditions, choosing a policy based on attractive features without understanding the insurer’s reputation, and ignoring the exclusions or waiting periods for certain diseases. It’s essential to choose a reputable insurer and carefully review the policy details.

How can smoking affect my term insurance premiums?

Smokers typically face significantly higher premiums for term insurance compared to non-smokers. Insurers consider smoking a health risk, and the higher the risk, the higher the premium. It is advisable to quit smoking not only for health reasons but also to secure more affordable insurance premiums.

What should I look for when choosing a health insurance provider?

When choosing a health insurance provider, you should look for the insurer’s track record in claims settlement, their network of hospitals, customer service reputation, and the specific coverage options offered in the policy. It’s crucial to ensure the insurer is reliable and has a good reputation for processing claims efficiently.