Insurance has two major purposes:
- Protection against Liabilities & Uncertainty
- Wealth Creation
Insurance needs is not a constant, but a variable. It is recommended that insurance needs are reviewed once a year or when ever there is a drastic change in need.
Some examples of change in needs are:
Since change is a constant, change in needs cannot be prevented, but insurance can be reviewed. However, to prevent proposing multiple insurance policies at different points in time, it is recommended that one or two policies are chosen which have the flexibility to adapt to the changing needs.
- Substantial salary hike, resulting in change in life style
- Emergencies resulting in depletion of assets
- Increase in liability
Improved lifestyle would mean the family needs more money. Hence, the life cover should also increase proportionately to protect against eventuality.
Emergencies resulting in asset depletion would result in rebuilding assets to meet different financial objectives. A fine line is to be drawn between Risk and Returns while rebuilding assets. Investment-linked insurance plans provide a fine balance between risk and returns and also provides for financial protection in case of eventuality. Increase in liability exposes the family to creditors in case of eventuality. The prime objective of increase in liability is to ensure the family is secure. The whole purpose of family being secure will be defeated if liability is not covered.
More importantly, any of these can happen suddenly, with out any prior information. A single insurance plan if chosen correctly will ensure all these changing needs are taken care of adequately with minimal discomfort.