The money question: Determining the type of insurance required

Varun Cyriac is a young engineer in his first job and has no financial commitments except those related to his own needs. He has been saving small amounts and wants to be able to do it consistently. He has heard about the importance of insurance in ensuring financial stability and is considering taking a life cover. Has he considered all aspects before making this decision?

Varun Cyriac is right in considering insurance an important aspect of his financial stability and security. However, the type of insurance he requires depends on his specific needs at the current juncture. His primary requirement at this stage is protecting himself against loss of income, or a large, unexpected expense, which can derail his income and savings. Since he has no dependants, life insurance may not be necessary at this point. So, he should consider covers that are more relevant for him.

Personal accident insurance will cover the loss of income in case an accident leads to temporary disability or inability to work. Cyriac will receive an income, according to policy terms, till such time that he is able to resume work. Life insurance provides protection to income, but only in case of death, though it may have riders that also offer accident cover. However, it may be less comprehensive and will also translate into a higher cost since he will pay premium for life insurance, which he does not require, as well as for the rider. The other cover that Cyriac must consider is health insurance to take care of medical costs. He will be able to get one at a low cost since he is young and healthy. If he renews it regularly and on time, he will have access to a low-cost cover even at a later stage when there may be health complications. Similarly, if he has a car, a comprehensive motor insurance is a better option than a third party cover as it will cover any loss or damage to his vehicle.

Cyriac must also assess the cost while deciding the type and size of cover he requires. Being over-insured will result in a higher cost than he needs to incur, while being under-insured will leave his income open to risk. His insurance needs will keep changing and require re-evaluation in terms of the type and amount. His insurance decisions have long-term consequences and he must evaluate these before committing to them.

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