As laying a foundation is necessary before constructing a building, one should start his / her investment journey only after covering the insurable risks adequately. Otherwise, in the case of any uninsured eventuality, even the entire savings may drain out, jeopardising the financial goals.
“A calamity can strike at any time. It could be a sudden health emergency that requires hospitalization or a car breakdown. These emergencies often involve significant spending that can strain our finances and may even jeopardize all our savings. Prudent financial planning, hence, dictates that we accommodate for these emergencies through insurance. In fact, investing in insurance is seen as one of the cornerstones of financial planning. By ensuring economic support in an emergency, insurance is one of the critical means of achieving financial independence, ”said Milan Ganatra, Founder & CEO, 1Silverbullet.
“However, despite its importance, insurance penetration in India is still very low, particularly for the non-life or general insurance segment. While life insurance penetration at 3.2 per cent is comparable to the global average of 3.3 per cent, the non-life segment at 1 per cent is significantly lower than the global average of 4.1 per cent. In 2020, the market size of the Indian insurance sector was valued at $ 280 billion and is expected to increase at a CAGR of 5.3 per cent by 2023, ”he added.
According to some surveys, the awareness about the necessity of having insurance cover has been increased only after the damages done by the COVID-19 pandemic.
“Life insurance only picked up after the COVID pandemic forced a greater realization of the importance of protection against hospitalization. In 2020, immediately in the aftermath of the pandemic, 44.3 per cent of the total premium collected by life insurers came from new policies. These figures reveal that while COVID has brought a greater realization of the importance of life insurance, there is no such trend in general insurance, which many people still view as an unnecessary expense. This is shortsighted as it can leave one vulnerable when accidents do happen and they have to manage the expenditure from their savings, ”Ganatra said.
Ganatra lists the following points to highlight why buying insurance should be our top priority –
The primary function of insurance is to provide protection for insurance buyers and their families. For instance, a health insurance cover ensures that one has the means to seek hospitalization should there be any need. In certain cases, it can also extend to a third party. For instance, ‘third party liability’ under motor insurance cover is meant to benefit a third party and not the policyholder or the insurance company. Motor insurance can be a boon when one’s car breaks down during a financially difficult period when it is not possible to meet the expenses of general repair.
Insurance is seen as a risk management strategy as the risk is transferred from the policy buyer to the insurance company thus, reducing stress during difficult times. It provides the policyholder with financial security that comes from the ability to meet unplanned expenses. Insurance can also act as one’s legacy. One can choose to leave behind a financial legacy through premiums that are to be distributed among the nominees or protect a nominee against a specific condition such as terminal illness through a term insurance plan.