Insurance - an important tool for financial well-being

"Baba, can you please help me with this brand quiz?" My elder one asked me third time, knowing fully well my answer. "Now only three are left! I found the others by myself as you said..." She added hopefully.

Satisfied that she has tried and is genuinely stuck I decided to have a look.

"Some moments are priceless! For everything else there is ___________!"

"Aise daag, waise daag, __________ hai na!"

"_______ Power! Go get it!"

Rather than giving the answers straightaway, I nudged her with few hints to get the correct answers herself. These have been such epic taglines & marketing campaigns, that they are etched in public memory!

I started wondering what if the same creative heads were asked to make a campaign and tagline for Insurance! They might have sounded something like this:

"Some losses are irreplaceable.... For everything else, there is Insurance!"

"This risk, that risk! Insurance hai na!!"

"Insurance Power! Go get it!"

And this perfectly summarizes what Insurance really is. It doesn't prevent the risk from materializing. It cannot prevent the loss. But what it does is that it cushions us from the financial instability that might arise out of the uncertain events. And in that sense, it is a very powerful financial instrument.

Now there is a prevalent school of thought that believes in the philosophy: 'why think about the misfortune and attract it?' This is the same school of thought that prefers considering insurance as an investment instrument or a tax saving instrument. Preparing a Will is also perceived as an equally bad omen! But that's another subject altogether.

A wise automobile engineer was once asked "what is the most powerful part of the car that helps in acceleration?". He replied "Brake! As ironical as it may sound! But without the knowledge that there is a part that can help reduce the speed of the car, no one would dare to accelerate!"

Insurance is similar! It is not meant to build wealth. It is meant to protect the wealth that we work so hard to create. It is meant to protect the financial goals from derailing due to unforeseen unfortunate events of life. It is meant to give us confidence that our financial goals & wealth is secured and, thus, ensure peace of mind. And as they say, when there is peace of mind, we can focus more on creative things and enjoy life!

Having, thus, understood the purpose of any Insurance, it becomes easier to identify and look for the right types of insurance to buy. The starting point is identifying our financial responsibilities, the unfortunate events that may occur and their impact on our financial responsibilities, in particular, & financial well-being, in general.

A young adult, irrespective of gender and whether earning or otherwise, usually, has following financial responsibilities:

• Provider (& maintainer) of a certain quality of life, incremental over the years, for the family that may consist of spouse, kids, parents and parents-in-law
• Ensuring good education for the kids
• Medical responsibilities
• Support kids to settle in their lives as they try to gain independence
• Marriage of kids
• Ensuring enough capital for financially independent retirement

And, the uncertain unfortunate events we are talking about here are:

• One certain event, the timing of which is uncertain, is death
• Sickness - Long-term and Short-term
• Terminal or life-threatening disease
• Accidents, resulting in disability - permanent or temporary, total or partial, Or a third party financial liability
• Natural calamities - flood, cyclone, earthquake (and pandemic too!)
• Manmade disasters - fire, burglary, riot, terror attack, war
• Economic disasters resulting in temporary or permanent loss of livelihood

All the above events can singularly & severely impact our ability to fulfil almost all the financial responsibilities and, in general, hamper the financial well-being of the family. Of course, psychological impact resulting out of any of the above unfortunate events cannot be mitigated. At the same time, it cannot be ignored that the financial implications of these events compound the psychological impact. It is important, hence, even from that perspective that we try & minimize the financial impact of such events. Good news is that for most of the above stated uncertain events there are insurance products available in the market. For instance:

1. Term Life Insurance to cover for risk of death while still having unfulfilled financial responsibilities
2. Accident Insurance cover for risk of disability while still having unfulfilled financial responsibilities
3. Accident Insurance cover for risk of third party liability
4. Financial Liability cover for unpaid financial liabilities in case of risk of death or disability
5. Property Insurance covering risk to property due to natural calamities or manmade disasters.
6. Health Insurance to cover for risk of sickness causing drain on financial sources & adversely impacting other financial goals and at times even the line of medical treatment. Some other variants available are:

• Top-up Health cover plans for aggravated & long term medical situations
• Critical Care Medical plans covering for terminal or life-threatening diseases

As one can see many of the risks of uncertainties can be covered through right mix of Insurance products. One should definitely have at least one of each category for the benefit of whole family. Do we need any other insurance coverage? The answer really depends on our individual situation.

Fun Fact: Bharatratna Lata Mangeshkar, also known as Nightingale of India, had insured her vocal chords when she felt they were weakening in 1960s!

Some of the risks like act of war or terror attack are not covered across many of the above products. So these risks remains open. Or that the risk of loss of livelihood due to economic disasters or economically peculiar situations is also not known to be covered independently. Hence, there needs to be another mitigation plan.

The critical questions that still remain are how should one decide the amount of coverage for each type of insurance or which Insurance Company to go for.

Can you guess which Insurance company ran the marketing campaign of "KILB - Kam Insurance Leneki Bimari"? Which famous Bollywood star featured in it? And what did it signify?

I would leave you with that thought till next week! Till then, please post your answers and thoughts in the Comments Section.