5 Insurance policies one must purchase before turning 30

Investing in insurance early in life allows you to reap the benefits of compounding and helps you achieve your financial goals sooner.

5 Insurance policies one must purchase before turning 30

The best time to start financial planning is when you have started working and achieved a measure of financial independence. Insurance is a good way of protecting yourself against the uncertainties of life. From planning for future goals to safeguarding your interests in case of an accident, insurance has your back. Let’s look at the benefits of planning and purchasing insurance earlier rather than later.

  • Lower premiums – Having a small income should not be a deterrent while applying for a life insurance policy. A younger person is expected to live longer, hence the premiums can be quite low. 
  • Benefit of compounding – One of the main advantages of investing early is that you can reap the benefits of compounding. Paying a higher insurance premium later in life cannot equal the advantages of starting early.
  • Goal setting – The correct insurance policy can help you achieve your short-term as well as long-term financial goals.

Now, let's look at some insurance policies that every person under the age of 30 must consider purchasing.

Related: 8 Health insurance jargons explained

1. Term insurance

A term insurance policy assures you or your family a pre-decided amount for a pre-decided time frame on the condition that premiums are honoured on time. There are some excellent reasons to opt for a term insurance policy, and here’s why:

  • You can opt for a life cover at extremely reasonable premiums or opt for endowment insurance with additional savings cover.
  • You can choose to increase the cover during important stages of your life (such as getting married or becoming a parent); begin with a very modest premium and increase it only as and when required. 
  • You can customise your plan with riders such as disability cover, critical illness cover etc., which entitle you to receive the insured amount. 
  • The process of purchasing and renewing a term insurance policy has been made extremely simple.

2. Health insurance

Health insurance is a contract between the insurer and insured, in which the insurer will make good any expenses incurred as a result of hospitalisation. It helps to keep financial distress at bay. Investing in a health insurance policy has the following advantages:

  • Most major insurance providers offer a ‘cashless’ option, where you are not required to pay out of your pocket during hospitalisation. The insurer makes the required payments directly to the hospital. 
  • You can opt to receive treatment in the best hospitals, while reducing the impact on your emergency funds. Other pre- and post-hospitalisation expenses are also covered. Therefore, you can focus solely on recovery without worrying about your finances. 
  • It provides benefits over and above the insurance plan offered by your employer and can be customised according to your unique needs.
  • You can opt for a critical illness cover, which can help you cope with any financial setbacks in case you are diagnosed with a critical illness.
  • You can receive rewards in the form of a no-claim bonus, which will be added to the sum insured for each claim-free year or in case you choose to pay expenses from your pocket.
  • The amount paid towards premiums can be deducted from your yearly taxable income up to a maximum of Rs 1,50,000.

3. Accident/disability insurance

According to the Ministry of Road Transport and Highways, approximately 1.6 lakh people lost their lives due to accidents in 2018 alone. The number of road accidents – and fatalities – has only been increasing with each passing year. This highlights the importance of purchasing an accident policy. Although it cannot avert accidents, it can help in reducing the financial burden caused due to an accident.

Accident insurance can be of two types. An individual accident insurance policy pays back the insured a sum of money in case of accidental death or permanent disabilities caused due to an accident. Group insurance, on the other hand, is generally availed of by employers to cover their employees. This provides comparatively limited benefits.

Let’s examine the coverage benefits of a personal accident policy:

  • An accidental death insurance cover pays the nominee of the insured the entire sum in case of death or fatal injuries.
  • A permanent total disability cover pays the insured a fixed amount of money if the accident results in total (and permanent) disability.
  • A permanent partial disability cover pays a certain percentage of the amount if the accident results in partial (but permanent) disability.
  • A temporary total disability cover enables the insured to receive a weekly allowance to compensate for the loss of earnings in case they are bedridden due to a temporary disability. 

4. Insurance-cum-investment plans

In addition to providing financial security, insurance can also help you achieve financial goals. Consider opting for these plans to meet your financial goals.

  • Whole-life policy – This policy guarantees benefits throughout the life of the insured, provided the premiums are honoured and the policy is not surrendered. In the event of the death of the policyholder, the nominees receive the sum assured.
  • Unit-linked insurance plan – ULIPs are ideal for individuals with an appetite for risk. The company invests a fixed percentage of money in life insurance and the other percentage in equity markets according to your appetite for risk. The lock-in period for these plans is 5 years, but you might need to wait longer to achieve your financial goals. The amount paid towards premiums can be deducted from the yearly taxable income up to a maximum of Rs 1,50,000.

Related: Why do ‘I’ need life insurance?

5. Mobile insurance

Consider opting for a mobile insurance policy if you are planning to purchase a high-end mobile phone. It protects against various factors that can cause damage to your phone. Two issues commonly included under a mobile insurance policy are:

  • Damage caused to internal parts of the phone due to water seepage
  • Theft of the device from a locked vehicle or room. 

Related: All you need to know about personal accident cover in car insurance

6. Motor insurance

According to The Motor Vehicles Act, 1988, it is mandatory for a vehicle owner to obtain third-party insurance before they can drive on Indian roads. The owner's licence can be suspended if they fail to obtain/renew their motor insurance policy. 

Motor insurance can be either third-party or comprehensive. The former covers the liability suffered by a third party as a result of an accident caused by the insurer while using their vehicle. Comprehensive motor insurance protects the interests of the policyholder as well as the third party against any loss or damage caused due to an accident.

You can also opt for a personal accident add-on cover that protects your interests in case of an accident that results in death or permanent total disability.

It is vital to have a clear understanding of your financial requirements and do proper research before you purchase an insurance policy. Take a look at the importance of insurance to understand why buying different types of insurance policies during your 20s is a good idea.

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.


Related Article

Premium Articles