In this article, let's discuss about 3 different aspects related to insurance.

1) Why is health insurance required?

Buying a health insurance policy for yourself and your family is important because medical care is expensive, especially in the private sector. Hospitalisation can burn a hole in your pocket and derail your finances. It will become even tough, if the person who brings in the money, is now in a hospital bed. All this can be avoided by just paying a small annual premium which would lessen your stress in case of medical emergencies.

A good health insurance policy would usually cover expenses made towards doctor consultation fees, costs towards medical tests, ambulance charges, hospitalization costs and even post-hospitalization recovery costs to a certain extent.

Benefits of Medical insurance:

1. Changing lifestyle: There are a plethora of reasons to have a health insurance policy in place. The tectonic shift in our lifestyle has made us more prone to a wide range of health disorders. Commuting, hectic work schedules, wrong eating habits, quality of food, and rising levels of pollution have increased the risk of developing health problems.

2. Rising medical costs: The medical costs have dramatically risen lately. So, in case of a medical emergency, consumers end up spending their savings, which takes a toll on their future plans.

3. Income tax benefit: Individuals up to 60 years of age can claim a deduction of up to Rs. 25,000 for the health insurance premium paid for themselves, or for their spouse or children. One can also claim another Rs. 50,000 as deduction if you buy health insurance for your parents aged 60 years and above.

Deduction will be available with respect of payments towards annual premium on health insurance policy, or preventive health check-up, of a senior citizen, or medical expenditure in respect of every senior citizen. So overall, if you are paying the health insurance premiums for your senior citizen parents, you can avail total deduction up to Rs.75,000 (Rs. 25,000 + Rs. 50,000).

4. Coverage of pre and post hospitalisation expenses: Not only mainstream medical costs, but also the cost of OPD (out-patient department) expenses, diagnostic tests have also risen in recent times which have made it even more vital for one to buy a health insurance policy. It is noteworthy that the medical policies not only cover the hospitalisation costs but also the expenses incurred towards OPD and diagnostic tests before and after a stipulated time period as prescribed by the policy.

5. Additional benefits: One also gets benefits such as ambulance coverage, coverage for day-care surgeries, coverage for health check-up and vaccination expenses under health insurance.

2) What is free look up period in insurance?

When you buy an insurance policy, you generally have what is called a free look period. During this time, you have the option of cancelling your policy without penalty. Depending on the insurance company and the state you reside in, the free look period can be 10 days or even longer.

The free look period is to your benefit, as it gives you some additional time to review your insurance policy in-depth and have your agent or company representative review your policy's terms and conditions with you. It also allows you a period during which to cancel your policy outright with a full refund of payment in most cases. From the time you are in receipt of your insurance policy, the free look period begins. If you decide that you need to cancel the policy, you must notify your agent or company representative with your request(s).

3) What is a cash guaranteed scheme in insurance?

When you pay premiums towards insurance policy, usually the risk is covered and there is no return from the premiums paid for the policyholder. Many feel that they might outlive their policy term (in case of life insurance) and wanted returns from the premiums they paid through the policy term.

For such requirements, most of the insurance firms offer “guaranteed income” policy or “money back” policy. So there is a mix of both, insurance cover during the policy term and returns from the premiums paid at the end of policy period OR gets periodic (say monthly) returns through the policy term.

However, there is a catch in such guaranteed income plans. The guaranteed income is usually paid on the sum assured and not the fund value. The sum assured remains the same throughout the policy term while the fund value keeps rising with time. This means investors do not benefit from compounding of returns.

Another point to note in such schemes is that, guaranteed returns starts only after certain years from the policy start date. When one checks CAGR, it returns will be very less. Main issue in such policies is that, most will not understand the net return they get from such policies and believe what the sales agent says. Even if someone is aware of basic personal finance, they will not be able to calculate the CAGR correctly without understanding the terms fully. Products will be mostly designed in such a way and will be marketed as “innovative product” of the year, etc.

Before buying such cash/income guaranteed insurance schemes, it is always better to check alternate options available along with one’s risk profile.