Which types of insurances do I need to buy?
I work in a MNC in India and can save up to Rs.10000 per month. My parents and sister are dependent on me.
I like to use this ‘extra’ money to buy insurance for any contingencies.
So far,
- I have a term insurance of Rs.5 million, this is around 7-8 times my gross salary.
- A mediclaim insurance of worth Rs. 300000 each for me (provided by my employer) and my parents (I pay the yearly premium).
- I also have a Motor insurance for the two-wheeler.
What are the other types of insurances I will/might need in future?
Can you afford to replace your home if it suffers major damage in a fire or earthquake? Is your home at risk of flooding? In the United States, one can purchase insurance for each of these risks, but the customer has to ask about each of them. (Most default American homeowners policies cover fire and wind damage, but not earthquake or flooding. I am not sure about hurricane or tornado damage.)
Your most cost-effective insurance against fire, earthquake, or flood damage is to prevent or minimize such damage. Practical measures cannot completely eliminate these risks, so homeowners’ insurance is still a good idea (unless you are so rich you can easily afford to replace your home). But you can do things like:
Your most cost-effective health insurance is to have clean water, wash your hands before handling food, eat healthily (including enough protein, vitamins, and minerals), exercise regularly, and not smoke. Your medical insurance can cover some of the inevitable large medical expenses, but cannot make you healthy.
It sounds like you’re putting all your extra money into insurances because you feel that one can never have too much insurance.
That’s a very bad idea, financially. Basically it means you’ll end up giving your money away to insurance companies in order to satisfy that feeling.
Do realize that the expected value of every instuance is negative: on average, you’ll pay more money than you’ll receive. Otherwise, insurance companies would go bankrupt, so they are very good at ensuring that they get more in premiums than they pay out.
Insurance should only be bought to cover essential risks, things that would ruin you: major health problems, death (to cover dependants), disability, liability.
For everything else, you should self-insure by saving up money (up to a few months’ wages) and putting it into safe and liquid investment vehicles as an emergency fund. That way, you are much more flexible, don’t pay for the insurance company’s employees, fancy offices and profits, and may even earn some interest.
Evaluate if the Rs 5 million term insurance is sufficient. Typically the term insurance provided by employer is in the range of 1 to 3 times the gross. Generally one should be covered in the range of 5 to 10 times the Gross. The sooner you start the lesser the premium and you can get insured for a large amount for a long duration at very nominal rate.
NOTE:
You can also buy a health insurance for your father, note these typically come at high cost, generally if over 70 years of age, 25% is the premium amount and 25% as co-pay. So if your dad doesn’t fall ill once in 3 years, its a loss making proposition.
Edit:
Accident insurance best take is along with rider on term plan. Additional Health insurance is a good idea and helps if you are in between jobs. Plus the new company health insurance can reject a particular treatment as “Pre-Existing”. i.e. certain illness [in certain plans] require one to have coverage for 3 years before the claim for it can be covered.