In the previous article of this personal finance series, we discussed the importance of building an emergency fund—your first shield against uncertainty.
In this article, we move to the second, equally crucial building block: Insurance.

Insurance protects you from financial risks that could otherwise destroy your stability—health emergencies, accidents, or in tragic cases, the loss of the family’s breadwinner.

This guide explains:

• Why insurance is essential
• The two must-have insurance products
• Common misconceptions
• Top five tips for buying term insurance
• Top five tips for buying health insurance

Why Insurance Matters in Personal Finance

Both emergency funds and insurance exist for one purpose:

👉 To protect you from financial shocks caused by uncertainty.

While an emergency fund helps you deal with short-term unexpected expenses, insurance protects you from long-term financial damage—especially in cases you cannot handle alone.

You don’t have to wait to finish building your emergency fund before buying insurance.
Both can—and should—be built in parallel.

Two Must-Have Insurance Policies

1. Term Insurance

Term insurance is essential if:

• You’re the primary or partial income contributor
• Your family’s lifestyle depends on your income
• You have dependents—parents, spouse, children

What is Term Insurance?

Term insurance ensures that if the insured person passes away, the insurer pays a large lump sum (sum assured) to their family.

Example:
You buy a term plan with a ₹2 crore cover.
If you pass away, your family receives ₹2 crore.

This payout acts as:

• Income replacement
• Financial stability
• Protection against long-term financial distress

In return, you pay a yearly premium—for example, ₹15,000 for a ₹1.5 crore cover.

The premium amount, age limit, and coverage depend on:

• Your age
• Health condition
• Smoking habits
• Duration of coverage
• Insurer’s terms

2. Health Insurance

With medical inflation rising at 15% annually in India, health insurance is a necessity, not a luxury.

It covers:

• Hospitalization
• Surgeries
• Critical treatments
• Emergency care

Get coverage not just for yourself but also for:

• Spouse
• Children
• Parents (especially senior citizens)

Common Misconception

“I’m young; I don’t need health insurance.”

This is a dangerous assumption.
Post-COVID, more young people face:

• Heart attacks
• Type-2 diabetes
• Critical illnesses at early ages

Once diagnosed with such illnesses, you may never get health insurance later.

Buying early ensures:

• Lower premiums
• Wider coverage
• Zero medical complications during approval

Why You Should Never Mix Insurance and Investment

Many people think:

“If I’m paying premium anyway, why not buy a plan that gives returns too?”

This is the biggest mistake.
Mixed products—like ULIPs or endowment plans—perform poorly as both insurance and investment.

👉 Insurance = Protection (Expense)
👉 Investment = Wealth building

Treat them separately.
Buy pure term insurance and invest your money elsewhere.

Top 5 Tips When Buying Term Insurance

These practical insights come directly from insurance experts:

1. Be Fit Before Applying

Insurers conduct multiple tests, including treadmill tests.
Any abnormality may lead to:

• Higher premiums
• Application rejection
• Delayed approval

Stay reasonably fit to avoid complications.

2. Smokers Pay Higher Premiums

If you smoke, your premiums can be significantly higher.
Quitting smoking benefits both your health and your finances.

3. Add a Critical Illness Rider

Critical illnesses can be financially devastating.
A rider provides a lump sum payout that helps cover:

• Treatment
• Income loss
• Long recovery periods

It’s slightly more expensive but absolutely worth it.

4. Don’t Buy a Term Plan Until Age 99

After retirement, most people do not have active income.
Your family may not be financially dependent on you beyond 60.
So paying extra for coverage till 99 makes no financial sense.

Choose a coverage period based on:

• Income years
• Family dependency
• Retirement planning

5. Use a Trusted Insurance Advisor

Insurance has complex terms and hidden clauses.
A good advisor helps you with:

• Claims
• Documentation
• Rejections
• Escalations

In insurance, a middleman is an advantage—not a disadvantage.

Top 5 Tips When Buying Health Insurance

1. Never Lie in Your Proposal Form

People hide:

• Pre-existing conditions
• Medical history
• Lifestyle habits

This is risky.
Insurers will discover it during claim settlement and may reject your claim entirely.

Be truthful.

2. Choosing the Right Insurer Matters More Than Features

A fancy policy is useless if the insurer:

• Has poor claim settlement history
• Regularly rejects claims
• Lacks hospital network coverage

Always check:

• Claim Settlement Ratio
• Cashless network
• Reputation

3. If You Travel Often, Check for Zonal Copay

Some policies charge extra if you get treated outside your home zone.
For frequent travelers, choose pan-India coverage—even if premiums are slightly higher.

4. Understand the Waiting Period and Exclusions

Health policies exclude certain illnesses for 2 years—like:

• Cataract
• Kidney stones

But some insurers also exclude major issues like heart conditions for longer periods.

Read exclusions carefully.

5. Choose Adequate Coverage for Parents and Dependents

Senior citizens must be covered adequately.
Their treatments are expensive, and insurance helps avoid major financial strain.

Final Thoughts

Insurance is the second pillar of a solid personal finance plan—right after building an emergency fund.

It protects your family, safeguards your savings, and ensures that unexpected tragedies don’t turn into financial disasters.

Before you explore investing, trading, mutual funds, or stock markets, ask yourself:

✔️ Do I have an emergency fund?
✔️ Do I have term insurance?
✔️ Do I have health insurance for the entire family?