+91-98111-67809Do I Really Need Insurance? Guide for First-Time Buyers in India
For several young Indians, insurance appears to be that thing that parents always keep harping on something expensive, complicated, and best left alone for "some other time." However, such a strategy usually backfires at the most inconvenient moments.
Owing to the number of myths surrounding insurance, this decision often becomes a tough one for new buyers. Read our blog on Common Insurance Myths You Should Stop Believing where we bust these myths to help you understand correct facts.
Here is your crash course explaining what insurance means and why it is important for all independent-minded Indians buying it for the first time.
What Exactly is Insurance?
Insurance is a financial tool. It entails entering into a financial agreement with an insurance provider in which the latter takes care of financial risks faced by the former.
Specifically, an individual agrees to make premium payments, and the insurance company provides protection against specified losses like medical costs, damages, injuries, etc.
The truth is that none of us ever plan on getting ill, injuring ourselves, meeting an accident, or dying. Yet when any of those happen without having enough money to cover the expenses, the results can prove catastrophic, from losing all savings to getting into debt or even having no means of survival for those dependent on you.
Insurance does not protect against problems but against the financial impact of such issues.
Reasons Why First-time Buyers Forego Insurance
First-time buyers often forego purchasing insurance due to:
1. "I'm young and fit; nothing can happen to me"
Health emergencies do not pick their victims based on age. Anything could happen at any point in time to anybody.
2. "I'll purchase insurance after I start earning more"
Premiums become substantially lower the younger you purchase your plan. Waiting every year will increase premiums drastically.
3. "It is complicated"
Today's insurance market is nothing like back then. Online purchasing takes minutes.
4. "I don't have dependents yet"
This is the only logical reason for delaying the purchase of some insurance plans. However, health and accident policies remain relevant irrespective of having no dependents.
5. "It is pointless since I won't ever make a claim"
Such thoughts fail to grasp the basic concept of an insurance policy. Non-claims show that nothing happened, a perfect result of an insurance policy.
Insurance Types that Every Young Indian Needs to Be Familiar With
1. Health Insurance
Things Covered
Depending on the plan the scope includes:
- Medical care costs
- Surgeries
- Laboratory tests
- Intensive care unit costs
- Expenses before and after hospitalisation
Why This Can't Be Avoided
- It could cost anything from ₹50,000 to ₹5 lakh, even more, for a single hospitalisation, depending on the condition and the hospital, in a private institution in India.
- The annual rate of inflation in healthcare in India is about 14% which is much higher than other sectors' inflation rate.
- Even entry-level jobs provide health cover as part of the benefits package, but the amount covered (₹1-3 lakhs) is insufficient and terminates upon unemployment. Insuring pre-existing diseases becomes increasingly difficult with age.
Important Considerations
- Sum insured minimum of ₹5-10 lakh for individuals; higher in case of a family plan
- Covers daycare procedures (and not only overnight stays)
- No-claim bonus (if there is no claim, then the sum insured gets enhanced)
- Hospital network in the buying area
- Waiting period for any pre-existing illness
2. Term Life Insurance
What Does It Cover?
- Under this plan, the nominee receives a one-time sum insured at the event of the policyholder’s demise during the tenure of the policy.
- This is known as a pure term plan because there is no maturity benefit.
Who Requires It?
- People who have financial obligations towards their parents, spouse, siblings, or children and whose expenses depend on their income
- People with existing loans like home loan, educational loan, or personal loan. They will not vanish post your death, but get transferred to your loved ones.
Why You Should Buy Early
- Purchasing a ₹1 crore cover at age 25 would cost you merely ₹6,000 to ₹8,000 annually
- At 35 years, the same would cost ₹12,000 to ₹18,000 annually
By buying early, you lock in lower premiums for the entire tenure of the plan (usually 30-40 years).
3. Motor Insurance
Legislation
- According to the Motor Vehicles Act, 1988, all cars registered in India must have third-party insurance, failure to do which attracts penalties of fines and even jail time.
- For new or finance-bought cars, full coverage should be considered
- Features such as zero depreciation and engine insurance increase the benefits of comprehensive insurance
4. Personal Accident Insurance
What It Covers
Personal accident insurance pays out if the policyholder experiences any of the following:
- Death due to an accident
- Total permanent or partial disability (such as losing an arm, eyesight, etc.)
- Temporary total disability (temporary inability to work)
Why Youths Should Opt for This Coverage
- Statistics indicate that youths are one of the most active groups, commuting to work and traveling around
- Over 4 lakh road accidents occur in India each year, with a considerable number of youths being victims
- An injury may affect your ability to earn, and personal accident insurance covers you in such scenarios
5. Critical Illness Insurance
What Is Covered?
Critical illness insurance pays a lump sum on being diagnosed with certain critical illnesses such as cancer, heart attack, stroke, kidney failure, etc.
Why It Is Important
- While normal health insurance takes care of hospitalization expenses, it doesn’t cover the income loss due to the prolonged illness.
- Illnesses like cancer take a few months to be treated, require lifestyle changes, and incur several non-medical expenses.
- With a lump-sum payment from a critical illness policy, one can manage all the above and also provide some cushion against lifestyle diseases that have become increasingly common among young Indians in urban areas.
The Hidden Cost of Being Unprotected: Stories From Everyday Life
Scenario 1: Uninsured Hospitalization
A 27-year-old software professional from Pune is admitted to a private hospital for appendicitis surgery and spends four days there. Total expenses amount to Rs. 1.8 lakh. Without health insurance, the expense almost depletes four months of savings. With a health insurance plan worth Rs. 5 lakh with an annual premium of Rs. 6,000, the bill is settled in cash.
Scenario 2: The Young Breadwinner
A man aged 29 in Chennai is the breadwinner for his elderly parents. He dies in a road accident without any life insurance cover. He was earning enough to support his parents after retirement. Had he taken a ₹1 crore term plan for ₹10,000 annually, the security of his family would have been ensured.
Scenario 3: The Insured Car
A woman aged 24 in Delhi has insured her 3-year-old car with third-party liability coverage. The vehicle suffers hailstorm damage, resulting in broken windshields and dented roof requiring repair worth ₹45,000. If she had bought comprehensive insurance along with a natural disaster rider, then the entire claim amount would have been payable.
Insurance vs. Investment: Settling the Debate
The most common misunderstanding among novice buyers is regarding insurance and investments. While both are financial products, each serves its unique purpose:
- Insurance is about protection: it compensates for any monetary loss due to adverse conditions
- Investment is about building wealth: it multiplies your money through time
Hybrid products combining both types of coverage like endowment policy, ULIPs, money-back policy, etc., are known for poor returns and ineffective coverage in comparison to buying a term plan separately and investing elsewhere (in MF).
How Much Insurance Coverage Should You Have?
1. Health Insurance
- Minimum of ₹5 lakhs for a young single person in a tier-2 city
- Recommended between ₹10-15 lakhs for people living in metro cities or have family history of diseases
- Opt for a super top-up policy to increase coverage effectively beyond the basic sum insured
2. Life Insurance (Term)
- General recommendation would be 10-15 times annual income
- Take into account debts, dependents, and long-term monetary goals
- A ₹1 crore insurance plan can be a good start for most earning young people
3. Personal Accident
- A minimum of 5-10 times annual income worth accident coverage
- Important if you have to travel long distances frequently
Things to Consider Before Buying Any Insurance Plan
- Claim Settlement Ratio: It represents the proportion of claims settled annually by the insurer and hence, higher the better. Above 95% would be ideal
- Number of network hospitals/garages: Greater the number, easier the claim settlement process
- Exclusions: Just like coverages, read what the insurance policy does not cover in detail
- Waiting period: Most health plans have waiting periods related to some conditions
- Value for money: Cheapest may not be the best in terms of coverages
- Regulatory approval: IRDAI registration is required for all insurance companies
Ready to Get Covered? Policywings Makes It Simple.
Choosing the right insurance policy can feel overwhelming, especially with dozens of insurers, hundreds of plans, and confusing jargon. That is where Policywings comes in.
Policywings is a trusted insurance platform that helps first-time buyers:
- Compare policies across leading insurers in minutes
- Get unbiased recommendations based on individual needs and budget
- Buy with complete transparency on features and exclusions
- Access claim support when it matters most
Whether it is a first health policy, a term plan for a growing family, or comprehensive motor cover for a new car, Policywings simplifies every step of the insurance journey.
Visit Policywings today and get covered before life gets complicated.
Frequently Asked Questions (FAQs)
Q1. At what age should someone buy their first insurance policy?
The moment one starts earning is the ideal time to buy health and term insurance. The younger the buyer, the lower the premium and the fewer the medical conditions to disclose. Ideally, the first health policy should be in place before leaving the parental cover.
Q2. Is it better to buy insurance online or through an agent?
Both have merits. Online purchases are typically cheaper (no agent commission) and allow easy comparison. Agents provide personalised advice and claims support. Insurance platforms that combine both, offering digital comparison with expert guidance, often provide the best experience for first-time buyers.
Q3. What is the minimum health insurance cover one should have?
A ₹5 lakh individual health plan is the bare minimum recommended for young adults. In metro cities, ₹10 lakh is more appropriate given higher hospital costs.
Q4. What happens if a claim is rejected?
If a claim is rejected, the policyholder can approach the insurer's grievance cell, escalate to the Insurance Ombudsman, or file a complaint with IRDAI's Bima Bharosa portal. Maintaining complete documentation always strengthens a claim.
Q5. Is term insurance worth it if there are no dependents yet?
For someone with zero dependents and no liabilities, term insurance can wait briefly. However, buying young locks in lower premiums permanently. Even those without current dependents may have parents who could need support in future.
Q6. Can insurance premiums be claimed as tax deductions?
Yes:
- Health insurance premiums: Deductible under Section 80D of the Income Tax Act (up to ₹25,000 for self; additional ₹25,000-₹50,000 for parents depending on age)
- Life insurance premiums: Deductible under Section 80C (up to ₹1.5 lakh combined with other instruments)
Q7. What is the difference between cashless and reimbursement claims?
- Cashless claims: The insurer settles the bill directly with the network hospital. The policyholder pays little to nothing at discharge.
- Reimbursement claims: The policyholder pays the hospital first and submits bills to the insurer for reimbursement afterward. Used at non-network hospitals.
Q8. How does one compare insurance policies effectively?
Using an insurance aggregator platform is the most efficient way to compare policies across multiple insurers on premium, features, exclusions, and claim settlement ratios, all in one place, without the bias of a single insurer's agent.
