Why insurance and which insurance? Declutter, Declutter

OK. We all know that insurance is a means to financially absorb the cost of bad things that happen in life. But just look at the myriad of policies that are there - Life Insurance, Home Insurance, Travel Insurance, Critical Illness Insurance, Health Insurance, Auto Insurance, Disability Insurance........ Everything under the sun can be insured these days. Do I really need so many insurance policies? What are the basic minimums? How do I decide?

I was confronted with this question some time back and below is what I came up with. I believe, three major factors would decide the bare minimums for everyone.

  1. Savings - The higher the savings, the lower the need to insure. One can absorb small - medium financial bumps along the road.

    Lets say, xyz person has 2L savings left after keeping aside enough for daily expenditures, travels, festivals, unseen expenditures, etc. So now the question is - should he buy a 2L health insurance or should he just spend that savings if any health problem arises. Answer depends from person to person. For some it might make sense to buy a health cover while some would prefer to invest/keep the savings for many reasons - less probability of becoming sick, less clutter to manage, etc.

  2. Lifestyle - The simpler the lifestyle, the lower the need to insure. It would be very easy to weather the crisis times, if any.

  3. Beliefs and Goals - Most insurance policies are built and sold on our fear of uncertain. Rather than living in present, we worry too much about the future.
    On one end, there is this belief that we need to accumulate incessantly for our kids' future - their education,
    higher education, marriage, etc. and for our old age - our illnesses, health risks, etc.
    But on the other hand, there is this belief that our time and energy is the best investment for our kids and our health.

“Man surprised me most about humanity. Because he sacrifices his health in order to make money.
Then he sacrifices money to recuperate his health. And then he is so anxious about the future that he does not enjoy the present; the result being that he does not live in the present or the future; he lives as if he is never going to die, and then dies having never really lived.”

-- James J. Lachard

So before you rush to buy that new promising insurance cover, just re-evaluate your needs. You might as well do without it.

Category: finance