We all know that risk management begins with insurance. Your financial plan can be effective and your financial future can be secure if and only if you have adequate insurance to cover your risks. That includes life insurance, medical insurance, asset insurance and insurance against your liabilities. That is the comprehensive package that your financial plan would require. Let us look at everything you need to know about life insurance and medical insurance. Let us also focus on what is life insurance and how does it work. Above all we must also look at what to keep in mind when buying life insurance or medical insurance.

5 points to keep in mind while buying life insurance

Before buying life insurance, here are the five key points that you should keep in mind and they must form the basis for your decision.
  • Approach the size of your life insurance appropriately. To give you a benchmark, if you want to cover your family against monthly expenses of Rs.1 lakh, then you need a minimum life cover of Rs.2.50 crore to ensure that your family gets safe access to Rs.1 lakh of flows each month.
  • Prefer term policies over endowments. Endowments tend to mix insurance and investments which is not advisable. Take a term policy and invest the money saved in mutual funds.
  • Life insurance is dynamic and not static. As your standard of living and your monthly expenses keep going up over time, you need to gradually increase the size of your life cover proportionately.
  • Non term covers can be surrendered and also have a surrender value. But surrendering a policy is never recommended unless you are going to ensure that your life cover is not compromised, i.e. it is replaced with a term cover.
  • Read the fine print and make it a point to give you medical and fitness tests. Also in case you have any past medical issues then you must disclose and take the acknowledgement of disclosure. That will reduce changes of your policy being questioned.

5 points to keep in mind while buying Medical (Health) insurance

Medical or health insurance covers you and your family against the costs of hospitalization. You have non-cash coverage wherein you don 't need to pay anything at a hospital. That is a lot more useful in an emergency. Here is what you need to keep in mind.
  • Don 't buy medical insurance with the sole objective of saving tax. Focus on the product that you are buying. See if the medical insurance has all the necessary features. Tax exemption under Section 80D is important but not the sold criteria.
  • Take medical cover as early as possible. You can keep adding later, but sooner you take the medical cover, you will get a larger cover and also entail lower premiums. With age, you also become prone to life style diseases like BP, Diabetes etc.
  • Make it a point to have an individual health insurance even if your company offers you a group health cover. Your corporate cover will cease if you leave the job and by then medical insurance may have become too expensive for you. Also take adequate insurance but don 't over-insure. Floater family is a good option for most people.
  • Never buy a health insurance policy which has a claim loading in the event of critical illness. If there is claim loading, then your premiums will keep on increasing and soon may become un-affordable. That is what we call a classic insurance trap.
  • Never lie and more importantly never hide information in your application form to the insurance company. Even the smallest of ailment or surgical procedures that you have gone through needs to be disclosed. Also, if you are smoker or if even if you take alcohol occasionally, disclose it. All this may mean that your premium is slightly higher but you don 't have to risk your medical bills not being passed. Also, check the waiting period post the policy. Today most plans cover pre-existing diseases after a gap of 3 to 5 years depending upon the plan. When you select a medical plan opt for the lowest waiting period and avoid plans with too many conditions and clauses.
To cut a long story short, both medical and life insurance are not only essential but also tax efficient products. While life insurance gives you exemption under Section 80C of the Income Tax Act, medical insurance gives you the benefit of Section 8D of the Act. But, your decision should not be driven by tax breaks alone. Ensure that you get adequate cover, start insurance early and keep paying the policy premiums regularly. Tax breaks can be incidental in both the cases.