The relevance of insurance in your financial plan

Financial planning simply means taking charge of your finances. This includes mapping your
income, expenses, assets, liabilities as well as your financial goals. Then you create a
financial portfolio and invest in different avenues to reach your goals. With the cost of high
inflation and the rising cost of living, insurance seems inevitable, especially with the move
towards nuclear families in India. As the first step to financial planning, you must define your
goals, vision, and disposable income. (Cost of income). Next, you need to allocate your
disposable income across different investment paths to create a target achievement fund.
However, in all your plans, where does coverage fit? The question you may need to answer is
how important is insurance, and if so, how important is it?
To protect your family from any form of financial stress in your absence, insurance is
becoming more and more important. Insurance acts like your safety net and now might be a
good time to consider buying an insurance plan, here's why. The importance of insurance in
financial planning
Insurance, as a product, is beneficial in protecting your finances. Here are a few reasons why
insurance is an essential part of your financial portfolio:

1. Risk insurance
Insurance is a risk mitigation tool. Thus, it prepares you for the financial loss you may incur
in the event of an unforeseen event such as death or hospitalization.
2. Financial security
By compensating for losses you incur in the event of an emergency, insurance policies
provide financial security. You can rest assured that if an emergency arises, the insurance
policy will cover the loss. It helps you with financial planning and building a database of
your goals. It also ensures that the intended corpus is secure and not used in an emergency.
3. Different packages for different needs
There are different types of insurance plans to cover the different types of risks you may face.
A life insurance policy covers the risk of premature death while a health insurance policy
covers medical emergencies. Likewise, auto insurance plans cover the risk of a traffic
accident or vehicle theft and travel insurance packages cover trip-related contingencies.
So you can choose different policies depending on the risks you face and create a 360 degree
layer of financial protection.
4. Tax Benefit
Life and health insurance plans also help save taxes. Life insurance premiums qualify for a
Section 80C deductible, while health insurance premiums qualify for a Section 80D
deductible. These two deductions reduce your taxable income by INR 2,500,000 (INR
1,500,000 under Section 80C and up to INR 10,000 under Section 80D). If you fall into the
30% tax bracket, this deduction saves you a tax of INR 75,000.
In addition, under life insurance plans, the death benefit is completely tax-free. Even the
Maturity Benefit is exempt from tax (with special conditions) under Article 10 (10D). This
means that by investing in insurance plans, you can also plan for your taxes.

5. Peace of Mind
Insurance plans come up with peace of thoughts understanding that your financial savings
might now no longer be threatened in emergencies. This offers monetary independence to
you and your own circle of relatives. Financial Planning is a Five-Step Process • According
to the monetary making plans pyramid, a derivation from Maslow's Hierarchy of Needs, the 5
steps may be labeled as:  Managing your money: wherein the point of interest is in your
each day costs, decreasing debt and setting up a strong coins glide  Building a protection
net: wherein the point of interest is on creating your emergency corpus, developing financial
savings and choosing good enough coverage insurance- each fitness and lifestyles. 
Accumulating wealth: wherein the point of interest is on growing your funding portfolio,
retirement corpus and using tax advantages and exemptions efficiently.  Preserving wealth:
wherein the point of interest is on playing monetary independence via way of means of
changing retirement corpus into profits and maximizing pension earnings.  Leaving a
legacy: wherein the point of interest is on property making plans, succession and continuity
making plans together with philanthropy. These are the 5 levels of monetary making plans in
which coverage comes withinside the 2d step, earlier than collecting wealth. Must-Have
Insurance Plans in Your Portfolio The desire of coverage regulations relies upon completely
in your needs. You want to evaluate the monetary dangers which you face after which
purchase appropriate plans to insure such dangers. However, a few coverage plans are
universally applicable and call for an area in everyone's portfolio. These plans are as follows:
1. Term coverage
A time period coverage is a primary lifestyles coverage plan that covers the threat of
untimely dying. The coverage comes with a exact tenure and if the insured dies at some point
of the tenure, a dying gain is paid. Term coverage plans are a have to absolutely due to the
reality that dying is uncertain. If the breadwinner of the own circle of relatives dies
prematurely, the own circle of relatives would possibly go through a large monetary loss. A
time period plan covers such loss. It can pay the own circle of relatives a dying gain
permitting them to fulfill their life-style costs and additionally fulfil their goals. Moreover,
present day time period plans have emerge as all-inclusive. You can locate special insurance
versions that now no longer simplest steady you in opposition to the threat of untimely dying
however additionally in opposition to crucial ailments, terminal ailments and unintended
deaths. You also can choose the complete lifestyles alternative and revel in insurance as
much as ninety-nine or one hundred years of age.
2. Health coverage
Health coverage plans show applicable due to the prevalence of scientific contingencies and
the insurance that those plans provide. If you go through an infection or are injured in a twist
of fate and require hospitalization, a fitness plan covers your scientific bills. In present day
age, scientific expenses are growing appreciably and are hastily turning into unaffordable for
maximum families. According to professional inflation data, scientific inflation jumped to
8.4% in May 2021 as compared to 3.8% in December 2019. The record additionally said that
the value of drugs jumped 8.6% YoY even as the ones of scientific checks improved via way
of means of 6.2%. Similarly, sanatorium expenses jumped 5.9% YoY even as session
expenses improved via way of means of 4.5%. In one of these scenarios, having a medical
insurance plan has emerge as a have to. It guarantees monetary safety whilst scientific
emergencies strike.
3. Motor coverage
A motor coverage coverage turns into applicable in case you very own a car. Whether you
power a two-wheeler or a four-wheeler, a motor coverage plan is obligatory beneath the
provisions of the Motor Vehicles Act, 1988. Motor coverage plans shield you from the
monetary legal responsibility which you would possibly face in case you injure a person else
or harm 0.33 celebration property. The plan handles the monetary duty and compensates the
0.33 celebration for the loss suffered. Furthermore, in case you choose complete plans, you
furthermore get insurance for the damages that your car suffers in an coincidence or in
another calamity. The plan additionally covers the robbery of the car and presents you with a
lump sum gain that will help you update the stolen car. These 3 rules are a have to to your
monetary portfolio and have to now no longer take delivery of a miss. They assist you stable
your price range if an emergency strikes. How To Choose Optimal Coverage The trouble of
underinsurance may be very not unusual place in India because the penetration and the
density is beneath the worldwide average. Moreover, while it got here to fitness coverage,
General Insurance Council's information confirmed that among March 2020 and 14th May
2021, policyholders paid 40% in their clinical payments out of pocket in spite of having
fitness coverage. Numbers do not lie.
First, the penetration of coverage is low and, second, even the ones who've coverage are
grossly underinsured. In such situations, shopping for premier insurance is as essential as
shopping for coverage withinside the first place. If the insurance isn't sufficient, the complete
reason of coverage stands defeated. When shopping for coverage, choosing premier
insurance is essential. Here are a few easy formulae to consider:
1. Term coverage
Opt for a sum confident of as a minimum 10 to twelve instances your annual profits. For
instance, in case your annual profits is INR 25 lakh, you want insurance of as a minimum
INR 2.five to three crore.
2. Health coverage
opt for a sum insured that is identical to 50% of your annual profits and the aggregated
sanatorium payments during the last 3 years. So, in case your annual profits is INR 25 lakh
and you've got suffered hospitalisation over the last 3 years the invoice of which amounted
to INR 2.five lakh, your sum insured have to be as a minimum INR 15 lakh. Remember,
those are simple calculations that don't think about different variables. Ideally, the insurance
have to rely on your monetary desires that may be ascertained from exceptional elements.
Some such elements are as follows: Your way of life costs .Existing belongings and
liabilities ; Your monetary duties or desires

So, while shopping for coverage, do now no longer make a hasty decision. Assess how a
great deal insurance you want after which choose the proper plan. Bottom Line The best-
laid plans can move awry. Life has a bent to throw the everyday curveballs your way. You,
thus, want a contingency plan. Insurance is that contingency plan which facilitates your
portfolio take in the monetary shocks of emergencies.

Emergency making plans is step one of monetary making plans and coverage plans let you
do simply that. So, earlier than you are making complex financial savings and funding plans
to your desires, do the coverage making plans groundwork. Lay the inspiration of secured
monetary making plans, proof against emergencies. Thereafter, embark to your monetary
making plans journey, plan your portfolio and watch your investments assist you meet your
desires.