Insurance is tricky. It’s not like buying a chair or a shirt or groceries. When you buy insurance, you’re buying a promise. It’s a promise that if something catastrophic happens to your business, your carrier is going to assist you to make your business whole again. Sometimes, though, it’s tempting to question the value of insurance because it is an intangible product.
There are however, five insurances that most financial experts recommend that all of us have: life, health, auto and long-term disability. The fifth one, travel insurance, has gained both, popularity and importance in the past 5 years due to various reasons. Each one of these covers a specific aspect of your life, and each one is very important to your financial future.
The above mentioned five can be briefly divided into 2 groups,
1. Essential — Life & Health
2. Situational — Auto, Long-Term Disability, Travel
I am going to explain the importance of having insurance through short stories simply because a story would be more effective and will help me put my point across. Although these are not real stories, they’re common situations we all can go through.
1. Life Insurance
Dhara and Akhil have a 24-year-old daughter named Payal who took out Rs. 1,50,000 in private student loans to fund her law school degree. Her parents co-signed the loans, wanting to give Payal a shot at her dream career. Payal graduated from law school, joined a great law firm, had a baby and started paying off her student loans. When she died at the age of 34 from breast cancer her parents suddenly became responsible for about Rs. 1,20,000 (the balance on her loans) and their 2-year-old granddaughter.
Because they co-signed the loans, Dhara and Akhil were responsible for repaying the loan balance. In some cases, the loan documents may include an acceleration clause that will bring the entire balance due at death. Dhara and Akhil could not afford to pay off the loan and had to sell their own home to settle their daughter’s debt. While no parent ever wants to take out a life insurance policy on their own child, if you have co-signed their loans, and paying off the balance of those loans would be financially devastating; a life insurance policy can protect you from financial ruin.
The premium on a 25-year term life insurance policy on a 25-year-old woman with a cover of Rs. 75 lakhs costs around Rs. 10,800 per year (Payal’s age when she graduated from law school) would be very affordable and would have saved the day for Dhara, Akhil and their granddaughter.
2. Health Insurance
Payal’s mom, Dhara was an employee at a BPO. As a single parent, she took great pride in saying to Payal, “I work. I put food on the table. We don’t need help.” While they struggled, she never sought out welfare, working double shifts to get by. But the truth is, they did get help: Through a scheme, her mother had acquired a health insurance for Payal at minimum premium and with better benefits — XYZ — and it saved them from medical poverty.
When she was 14, Payal was diagnosed with anorexia nervosa. At 5-foot-4, she weighed in at 41 kgs, her organs were failing, and she required immediate in-patient care. Her paediatrician sent her to a residential hospital nearby, one of the only ones in the state staffed to treat eating disorders. Each day that she spent there cost her more than a lakh, totalling to around 15 lakhs, before she could be released.
A year later, when she was 15, she needed gallbladder removal, an emergency procedure that would have cost them 2.5 lakhs had her Mediclaim not covered the bill. Then, during the week of her HSC exams, her appendix ruptured, another random surgery with a steep bill of 10 lakhs. All told, within five years, her teenage medical expenses would have cost her mom more than 50 lakhs without her health insurance — or the entirety of what her mother earned in 10 years. She paid only around 35% of the total bills via premiums.
3. Long Term Disability Coverage
“I could never envision a life without working,” Dhara says. She didn’t want to ‘waste’ her money on disability insurance because she thought that it wouldn’t happen to her. Her insurance professional convinced her otherwise.
It was wise advice. Although Dhara never thought she would need it, a condition called ulcerative colitis made the decision for her. The disease and a series of surgeries made it impossible for her to carry out her duties, and she found herself unable to work at a company she loved. It was her disability insurance coverage that allowed her to survive financially and care for her young daughter who she was raising as a single mother.
“Most people think, ‘It will never happen to me,’” says Dhara. “But the truth is it can — and does. Everything else goes away if you don’t have disability insurance coverage and you can’t work.”
4. Auto Insurance
Akhil was excited to reach home. He had been away from home for a month now and was driving thinking about how he’ll surprise Dhara and Payal once he reaches.
All of a sudden, a truck, being driven on the wrong side of the room rammed into him. He became unconscious. The next time he opened his eyes was when he was in the hospital. His car was a wreck. Luckily, he sustained only a few hand injuries because of the seatbelt and the airbags.
For a person whose monthly expenses and income almost matched, there was no room for paying the repairing charges. Luckily, he had car insurance which saved him around 80 thousand rupees.
5. Travel Insurance
Payal was nightclubbing with friends in Bali when she became ill after drinking a cocktail. Her friends recognised the symptoms of methanol poisoning and rushed her to hospital. Fortunately, Jenny recovered after two weeks of care. Her bills ran as high as Rs. 17,00,000. Had she not spent a little to pay her premium on travel insurance, her cash-strapped family would have had to sell their car to pay the Rs. 17,00,000 in medical expense.
So, to conclude, while insurance is expensive and certainly takes a chunk out of your budget, being without it could lead to financial ruin.
