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Personal accident insurance vs life insurance: What should a young earner opt for?

Avneet is a chartered accountant who has just started working. He has no financial commitments except those related to his own needs. He is single, has managed to save a small amount and wants to keep saving consistently.

He knows about the importance of insurance and is considering taking a life cover. Has he considered all aspects before making this decision?

Avneet is right in considering insurance an important aspect of his financial stability and security. However, the type of insurance he requires depends on his specific present needs. His primary requirement at this stage is protecting himself against loss of income, or a large, unexpected expense, which can derail his income and savings. Since he has no dependants, life insurance may not be necessary at this point. So, he should consider covers that are more relevant for him.

Personal accident insurance will cover loss of income in case an accident leads to temporary disability or inability to work. Avneet will receive an income, according to policy terms, till such time that he is able to resume work. Life insurance provides protection to income, but only in case of death, though it may have riders that also offer accident cover.

However, it may be less comprehensive and will also translate into a higher cost since he will pay premium for life insurance, which he does not require, as well as for the rider. The other cover that Avneet must consider is health insurance to take care of medical costs. He will be able to get one at a low cost since he is young and healthy. If he renews it regularly and on time, he will have access to a low-cost cover even at a later stage when there may be health complications.

Being over-insured will result in a higher cost than Avneet needs to incur, while being under-insured will leave his income open to risk. His insurance decisions have long-term consequences and he must evaluate these before committing to them.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
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