Arguably the first step in financial planning is to deal with uncertainties of life. Unless one is equipped to face risk, the best laid plan can come a cropper. One can deal with risk by creating, among other things, an ‘emergency fund’, and obtaining adequate and appropriate insurance cover.

Apart from general insurance cover to protect various assets such as, motor vehicle, house, factory, etc., it will be necessary to cover health related risks. Further, adequate life cover is necessary when one is in the initial to mid stages of his/her earning phase in life.

There is a plethora of risk cover products  on offer. There are individual health covers or family floaters, specifically covering cancer or other specified critical illnesses and then there are basic health covers or enhanced covers etc. Which of these best answers the needs of the individual has to be carefully assessed.

When it comes to life cover, again there is a bewildering array of products. There are whole life policies, money back policies, there are ULIPs and there are annuities. It is important to understand that a life insurance company mainly offers four types of risk covers, though in practice the risk covers on offer are a permutation and combination of these basic types. These basic type of risk covers are:

While first three seek to provide protection against untimely death, the fourth one covers risks that come with long life!

Which of these covers are to be are to be taken up by whom is an issue that deserves careful consideration. The extent of cover, or the quantum of Sum Assured (SA) has to be decided on a rational and viable basis rather than on various features that are that highlighted in the marketing brochure. The tax treatment of the premium paid and the redemption proceeds under any insurance cover  has to be clearly understood, vis-à-vis competing products.