Articles 465 views November 13, 2019

What Percentage of Salary Should One Invest in Insurance

Insurance is one of the most vital requirements of life. From life insurance to health insurance to auto insurance home insurance, an individual needs to get various types of insurance covers to ensure he has a smooth day-to-day life. The insurance industry in India is buzzing and growing at a very positive pace. As a result, customers have many options when they go shopping for insurance. There are many good life insurance companies in India as well as general insurance companies that offer some of the best insurance policies at excellent rates. This makes it easy for people from all walks of life to buy insurance.

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Importance of buying insurance

Before we discuss the amount of money you should spend on different types of insurance, let us comprehend why insurance is needed. You will then be able to understand that even though it costs money, it is an absolute must to have insurance. Here are some reasons why you need to get insurance:

  1. For the wellbeing of your loved ones – When you buy a life insurance plan, you assure the well-being of your loved ones. If anything happens to you, life cover can take care of their financial needs and they can carry on with their existing lifestyle. When you buy a health insurance plan for the entire family, you secure their health. Even if someone falls ill, they can get treated at the best hospital and become fit very soon. When you buy a home insurance plan, your loved ones are assured of having a safe house at all times. These are some of the main reasons why you must invest heavily in insurance.
  2. To cover mortgages – If you take some loans and die without repaying them, the liability shifts to your loved ones. This is very unfair and no one should be put in such a situation. To avoid this, you must buy life insurance, specifically a term insurance cover. If you die, your nominees can use the death benefit to clear your loans without having to pay it off on their own.
  3. To stay safe – Insurance allows you to stay safe. When you have a health insurance plan, you can stay safe by seeking treatment when needed. When you have auto insurance, you can get your car serviced and repaired when needed. When you have home insurance, you can keep your house protected against thefts and other damages. To sum it up, insurance keeps you safe in all possible ways.
  4. To keep your money safe – Insurance pays you when you have an emergency. This is the entire logic behind getting insurance. It can be a health requirement, an automobile-related requirement, a travel requirement, a home requirement, etc. in the absence of insurance coverage, you have to address the issue with your own finances. Whether it is paying the hospital bills, repairing your car, paying for a home fire damage or paying for a missed airline, you will have to shell out a huge amount. This can deplete your savings instantly. Get proper insurance coverage and keep your money safe at all times.
  5. To be a responsible citizen – When you have insurance coverage of yourself, you are less of a liability on others. You can afford to get treated at a good hospital and the government does not have to spend money on you. The money can be utilized to treat the poor. Then, certain types of insurance, such as motor insurance, is a legal compulsion. When you buy it, you prove yourself to be a responsible citizen who abides by the law.

Percentage of salary invested in life insurance

To begin with, we have life insurance. Life insurance is one of the most important forms of insurance that everyone must-have. You can buy life insurance online or offline. According to experts, the life insurance premium should be a maximum of 7% of your income. So if you earn Rs 1 lac a month, you should have a life cover that costs around Rs 7000. Now, you can have various life insurance plans, depending on what your requirements are. You can have a pure term plan as a pure life cover. You can have a child plan for the financial wellbeing of your kids. You can have a retirement plan for your future. The total amount you spend on all these plans should not exceed Rs 7000 a month, or Rs 84,000 a year.

Percentage of salary invested in health insurance

Health insurance is another crucial form of insurance to own. In today’s day and age, you simply cannot afford to live without health insurance. The health insurance industry is also growing and has many interesting covers on offer. You need to understand what your needs are and then buy a cover suitable for yourself as well as your family members. A good health insurance plan will pay for your hospital expenses and help you to stay fit in an overall manner. Experts suggest that one needs to invest about 2-5% of their salary in health insurance. So, if you earn Rs 1 lac a month, get a health insurance cover that costs between Rs 2000 and Rs 5000. Here too, you can buy multiple plans to secure multiple health factors. Check with your insurance company to see which policy would be of best use to you.

Percentage of salary invested in other insurance plans

Next, we have other forms of general insurance like motor insurance, home insurance, travel insurance, etc. let us begin with motor insurance. Motor insurance is a type of insurance that a vast majority of the people in India buy. Motor insurance is available for two-wheelers as well as four-wheelers. You need to assess your needs and then spend accordingly. Thankfully, motor insurance is very affordable in India. You can get a comprehensive insurance cover for just a few hundred rupees. The same holds true for travel insurance and home insurance. These plans are people specific, so you need to analyze your own needs to understand how much you can spend on different policies.

Ways in which you can save insurance money

Here are some very handy ways in which you can save your precious money when you buy insurance. In this way, you can get a higher amount of insurance and pay less as well:

  1. Assess your requirements – As mentioned above, insurance needs differ from person to person. You must make a list of all your needs before you buy insurance. When it comes to life insurance, assess your family’s lifestyle, the amount of loan you have, the other sources of income for the family, etc. You will then know what kind of life cover you need and in what volume. Similarly, when buying health insurance, understand the type of health coverage that would suit you the best. If you already have an employer-provided group health plan, get a smaller individual health plan. If you have a history of cancer, get a critical illness plan. Analyzing your requirements will allow you to understand your exact needs and prevent unnecessary spends.
  2. Make a budget – Keeping all the points mentioned above in mind, make a solid budget before you begin your insurance shopping journey. You need to know what your salary is and how much you can spend on each type of insurance plan. Do not exceed your budget, no matter what the situation is. You may be persuaded by an insurance agent or insurance company to buy a higher-than-required insurance policy. Do not fall for such offers. Get what you need and what you can afford. If the insurance plans are too expensive, you will struggle to pay the premiums. You will end up as a defaulter and lose your insurance coverage altogether. This is an extremely dangerous thing and you must avoid it at all costs.
  3. Look online – A very good way to make economical insurance purchases is by shopping online. The various online insurance plans are much cheaper than their offline counterparts. You can get the same cover at a much lower rate online. This is because an online purchase is made directly from the insurance provider. The involvement of the insurance agent is not there. The customer, therefore, saves the entire brokerage amount. Then, since the work is done digitally, there is very little human interference involved. The paperwork is also negligible. This allows companies to save a lot of money. They transfer this profit to their customers by offering the various insurance covers at lower rates.
  4. Compare – A very handy tip to save on your insurance money is to compare insurance quotes. The different life insurance companies in India, as well as the general insurance companies in India, offer their products at different rates. Once you know the type of plan you need, run a comparison between the available options. You will notice the different plans are available at different rates. Choose a good plan from a good insurance company at a good price and stay adequately and economically covered.
  5. Get policies from the same insurer – Oftentimes, insurance companies offer discounts to their loyal customers. This happens mainly in the case of general insurance plans such as car insurance policies and home insurance policies. Try to get all your general insurance plans from a single insurance provider. If you already have a car insurance plan and health insurance plan from a particular insurer, get your next insurance plan, which may be a travel insurance policy, from the same company. You may then get a discount on the insurance premium and save some money in the process.
  6. Look for deals and discounts – The insurance companies offer deals from time to time. You get deals on the insurance plans at special times like Christmas and Diwali. Some companies even offer deals to stay ahead of the competition. Also, as a policyholder, you are entitled to certain discounts such as the no claim bonus and the voluntary deductible amount. Make sure the math is done properly so that you get the insurance plan at the lowest possible price.
  7. Maintain a healthy lifestyle – And finally, try to maintain a lifestyle that is as healthy as possible. Cut down on unhealthy habits such as smoking and drinking alcohol. Get enough exercise and keep your weight under control. Get enough rest so that your blood pressure levels are maintained. Doing these things will make your insurance plans cheaper for you. This is most applicable to the life insurance plans and the health insurance plans. The healthier you are, the lower your life insurance and health insurance premium will be. This is a sure-fire way to get the insurance plans at lower rates. It is also a good move to stay healthy for your own benefit.

Give these tips a try and see if you can make some profits in your insurance purchase. You need to pay the right price for the insurance covers, as paying too much can be redundant and also very taxing for you. In addition to that, you must remember to get the right amount of insurance for yourself and your family members. While too little insurance is harmful, too much insurance is useless. It will be of no benefit to you and you will also end up paying extra for it. Get the right coverage at the right price and make a wise purchase.

In conclusion

Everyone looks for a good deal when buying insurance. While it is important to have insurance, it is equally important to have a good plan at a good rate. Keep all the points mentioned above in mind and invest in the various insurance plans accordingly. Do not go over your budget and spend too much on life insurance, health insurance or any other form of insurance. Pay the premiums on time in a comfortable manner and stay covered insurance truly wholesome manner. Insurance is a saviour and you must make good use of it.

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