Insurance basics: health, life and vehicle

Money & Finance · 7 min read

Insurance is not an investment and it is not exciting, but it can protect a family from financial disaster. A single hospital stay can wipe out years of savings, and a car accident can bring a huge claim. This guide explains the three most common types of cover in plain language, so you can ask the right questions before you buy.

How insurance works

You pay a regular amount called a premium to an insurance company. In return, the insurer promises to pay for specified losses, up to a limit called the sum insured. Many people pay a small cost each year so that nobody has to pay a huge sum in a crisis. A few terms appear everywhere:

• Premium: what you pay, monthly, quarterly or yearly.
• Sum insured: the maximum the insurer will pay.
• Deductible or co-pay: the part of a claim you pay yourself.
• Exclusion: something the policy does not cover.
• Waiting period: time after buying before certain claims are allowed.
• Nominee: the person who receives the money if the policyholder dies.

Health insurance

Medical costs rise faster than most incomes, and hospital bills can reach lakhs. Health insurance covers hospitalisation costs such as room rent, doctor fees, surgery, medicines and tests, often including some expenses before and after admission.

What to look at

1. Sum insured: For a metro-city family, many advisers suggest at least 10 to 20 lakh rupees, and more as medical costs grow. A top-up or super top-up plan can raise cover cheaply above a base level.
2. Family floater or individual: A floater shares one sum among the family and is cheaper, while individual policies give each person their own cover. Parents are often better on their own policy.
3. Network hospitals: Check that hospitals near you accept cashless claims.
4. Room rent limits and co-payment: A cap on room rent can reduce the whole claim proportionately. Prefer no or low limits and zero co-pay.
5. Waiting periods: Pre-existing conditions typically have a waiting period, commonly between one and four years depending on the policy and regulations. Shorter is better.
6. Claim settlement record: Look at published claim settlement ratios and customer reviews.
7. Restoration and no-claim bonus: These features increase or refill the cover.

Tip: Buy early. Premiums rise with age, waiting periods start from the day you buy, and a new diagnosis can make cover costlier or harder to get. Do not rely on employer cover alone, because it ends when you leave the job.

Term life insurance

Life insurance exists to replace your income if you die while others depend on you. The simplest and cheapest form is term insurance: you pay a modest premium for a fixed period such as until age 60, and your nominee receives the sum assured if you die during that time. There is generally no payout if you survive the term, which is exactly why it is cheap.

How much cover

A common rule of thumb is 10 to 15 times your annual income, adjusted for loans, number of dependants, children's education and your spouse's own income. Add outstanding home or personal loans to the total. Choose a term that lasts until your key responsibilities end, often your early sixties.

Things to check

• Disclose your age, income, health, habits like smoking, and existing policies honestly. Hiding facts can lead to claim rejection.
• Look at the claim settlement ratio and how long the insurer takes to settle claims.
• Consider riders such as critical illness or accidental death benefit, but compare their cost and keep the base cover adequate.
• Tell your family where the policy documents are and who the nominee is.

Be careful with plans sold as "insurance plus savings", such as endowment or money-back plans. They usually have higher premiums and lower cover than a term plan, so many advisers suggest buying term cover and investing the difference separately.

Vehicle insurance

In India, at least third-party insurance is compulsory for any motor vehicle on the road. Beyond the legal minimum, you can choose broader cover.

Type	What it covers	Note
Third-party (liability) only	Injury, death or property damage to others	Legally required, but does not cover your own vehicle
Comprehensive	Third-party plus damage to your vehicle from accidents, theft, fire, floods and some natural calamities	Recommended for most owners
Standalone own damage	Only your own vehicle	Available if you already have a long-term third-party cover

Key points when choosing:

• Insured Declared Value (IDV): the vehicle's assessed value, which decides the maximum payout. Too low an IDV reduces your claim.
• Add-ons: zero depreciation, engine protection, roadside assistance and return-to-invoice can be worthwhile for newer or costly vehicles, though each adds to the premium.
• No Claim Bonus (NCB): a discount on premium for each claim-free year. It belongs to you and can transfer if you switch insurers or vehicles.
• Personal accident cover: for the owner-driver is mandatory with most policies.
• Renew on time: a lapsed policy means a new inspection, a loss of NCB and the risk of an uncovered accident.

Common mistakes to avoid

1. Choosing a policy purely for the lowest premium and ignoring exclusions and limits.
2. Not reading the policy wording, especially exclusions and waiting periods.
3. Hiding medical conditions, habits or earlier claims.
4. Mixing insurance with investment and buying an expensive plan with weak cover.
5. Not updating cover after marriage, a child or a new loan.
6. Delaying a claim: inform the insurer promptly and keep documents, bills and photos.

Buying and claiming smartly

Compare plans on the insurer's website and reliable comparison portals, read the policy brochure, and check you are dealing with an insurer regulated by IRDAI. Take the free-look period (usually around 15 days) to review the policy after receiving it. For cashless health claims, inform the insurer or the hospital's insurance desk before planned admission. For vehicle accidents, take photos, file a police report where required and inform your insurer quickly.

Final thoughts

Get health cover first, add pure term life insurance if people rely on your income, and keep your vehicle policy comprehensive and current. This article is general information and not financial advice. Product features, tax rules and regulations change, so read the policy documents and consider speaking with a licensed adviser for your situation.