Life Insurance and Health Insurance: Why to get insured and which cover is essential?
The aim of taking insurance is getting financial protection against a risk, where uncertainty is there about timing and/or occurrence of an insurable event. For example, death is certain, but no one knows when. This uncertainty causes two types of risks – the risk of dying early and the risk of living too long.
The risk of dying early would put the financially dependent persons in great financial difficulty and make their life miserable.
On the other hand, the risk of living too long may result in a person ending up using all the retirement corpus resulting again in financial difficulty for the person himself/herself.
While the risk of living too long may be managed by buying a life-long pension plan and other plannings for best utilisation of the retirement corpus, the risk of dying early poses a greater uncertainty.
This is because a person can’t accumulate enough corpus to replace his/her entire future earnings. Moreover, with the uncertainty of how early a person would die, it is also uncertain how long would be the remaining earning life to start accumulating a corpus.
As insurance companies are in a better financial position to manage such risks, by taking insurance, a person transfers the risk to the insurer. To accept the risks, insurance companies charge premiums from the insured persons.
So, for every individual having financially dependents, it’s very important to take life insurance cover.
As term life insurance products cover only pure risk of death, it’s the cheapest life insurance product. So, it’s advised to take term insurance to solely cover the risk of dying early.
People fall ill with communicable diseases – like common cold, viral fever, lose motion, malaria, etc – as well as with non-communicable diseases – like diabetes, hypertension etc.
However, there are uncertainties over how frequent a person may get sick and how seriously ill a person may become.
The uncertainties over getting ill, coupled with the rising cost of treatment in private hospitals, make it a necessity to take health insurance cover.
With the rising cost of hospitalisation, the uncertainty of getting ill poses a great risk of running out entire savings due to some serious illness resulting in repeated hospitalisation.
The purpose of taking health insurance is transferring the risk of cost of hospitalisation – which is uncertain – by paying premium – which is certain.
So, unless covered under a health scheme that covers entire life, everybody should take adequate health insurance cover to protect their savings in case of hospitalisation.
Life vs Health Insurance
Compared to life insurance, taking health insurance cover is necessary for every individual, while a life insurance cover is necessary for those having financially dependents.