Insurance and risk management
In this chapter: Life, health, general insurance integration · Sum-assured calculations
Insurance is risk transfer — the client pays a small premium to transfer a low-probability, high-magnitude loss to the insurer. Pure term covers life. Health insurance covers hospitalisation. General insurance covers property, motor, liability. Combining insurance with investment (endowment, ULIPs) is almost always worse than buying both separately.
Sum-assured calculations: 10× annual income (rule of thumb), or needs-based (outstanding loans + future expenses + dependants' targets minus existing assets). Term cover for the breadwinner is the highest priority. Health: ₹10-15 lakh family floater + ₹25-50 lakh top-up for metros; lower for tier-2/3. Disability and critical illness riders add value at low cost. Motor: third-party mandatory by law, comprehensive recommended. Home insurance is heavily under-bought in India and worth recommending for all owned property.
Practitioner nuance: don't under-insure on the wrong end. A common mistake — high life cover, low health cover. Statistically, hospitalisation risk is far higher than premature-death risk. A 35-year-old with ₹2 crore term cover and ₹3 lakh health cover is mismatched; the right balance might be ₹1 crore term + ₹15-25 lakh health. RIAs need to model both risks against family circumstances rather than apply default formulas.