Insurance Basics Complete Guide

1. Why Do You Need Insurance?

• Transfer Financial Risk

  A serious illness or accident can cost tens or hundreds of thousands of dollars. Insurance transfers these catastrophic risks to the insurance company

• Protect Your Family's Finances

  If the primary breadwinner suffers an accident or illness, insurance ensures the family doesn't face financial ruin

• Supplement Public Safety Nets

  Government social security programs have limits and caps. Commercial insurance fills the gaps that public programs don't cover

• Pursue Goals with Confidence

  With basic protection in place, you can start a business, invest, or pursue dreams without fearing that one setback will wipe you out

2. Common Types of Insurance

3. Golden Rules of Insurance Planning

• The 10/10 Rule

  Annual premiums should not exceed 10% of your annual income, and coverage should be at least 10 times your annual income. This ratio ensures premiums don't strain your finances

• Insure Big Risks First

  Prioritize risks that are low probability but high impact (critical illness, death), then address smaller risks

• Insure Present Before Future

  Ensure adequate current health and accident coverage before planning long-term retirement protection

• Protection Before Savings

  Don't buy savings or investment-linked policies until your basic protection needs are fully covered

• Review Regularly

  Reassess your insurance portfolio every 2-3 years or whenever major life changes occur (marriage, children, home purchase)

4. Insurance Needs by Life Stage

5. What to Check Before Buying Insurance

• Read the Policy Terms

  Focus on 'exclusions' (what's not covered) and 'waiting periods' (how long before coverage begins). These are the most commonly overlooked details

• Understand Claim Requirements

  Different policies may define conditions differently. For example, 'critical illness' definitions can vary between insurance companies

• Confirm Payment Structure

  Annual payments are usually cheaper than monthly. Make sure you can sustain payments long-term to avoid losing paid premiums from lapsed policies

• Compare Multiple Providers

  For the same coverage, different insurers may charge 20-30% more or less

• Consider Inflation

  A fixed coverage amount will have significantly less purchasing power in 20 years. Look for policies with inflation adjustment options

• Note Waiting Periods and Deductibles

  Shorter waiting periods are better. Lower deductibles mean higher premiums — find the right balance for your needs

6. Common Insurance Myths Debunked

• 'Government health coverage is enough'

  Public health programs typically cover only basic care. Out-of-pocket expenses, advanced treatments, and income loss compensation all require private insurance

• 'More expensive means better'

  An expensive policy isn't necessarily the best fit for you. What matters is whether the coverage matches your specific needs, not the price tag

• 'Young people don't need insurance'

  Premiums are lowest when you're young, and accidents and illness don't wait until you're ready. The earlier you buy, the better protected you are

• 'Endowment plans can replace term life insurance'

  The death benefit of endowment plans is typically far lower than term life insurance at the same premium. If your goal is family protection, term life is more cost-effective

• 'Insurance is a waste of money'

  Premiums feel wasted when nothing happens, but when disaster strikes, insurance payouts can equal decades of your income