This is the fifth article in the personal financial planning for seafarers series by the very experienced Chief Engineer Rajeeve Kaushik. You can read the previous articles of the series here – Importance of Financial Planning for Seafarers , 10 Common Financial Mistakes Seafarers Make , Little Know Facts About Magic Of Savings Seafarers Should Know & 4 Types of Investments That Kill Seafarers’ Hard Earned Money .
Insurance – I am sure you must have heard about the word at various places even if you are a cadet. From the two wheeler that you own, to the ship that you are on- everything is INSURED.
However, when it comes to insurance directly connected to our lives we prefer to avoid any form of knowledge or action. We mainly depend upon other people to suggest various forms of insurances to us. They eventually get our signatures as well as the cheque and then they leave us alone in peace for the next few years until someone else comes along and sells us another something. The more aware amongst us might go deep into calculations regarding how much is the insurance coverage, the money that he or she will get back- and then get convinced that the plan is good and again sign the dotted line.
Let me give you INSURANCE in one line of five words: INSURANCE IS COVERING YOUR RISK. It is not for profit or any gains. If someone tells you otherwise – investigate because he is not telling the truth.
Insurance is a contract between the Insurance Provider (or Insurance Company) and the individual by which the company agrees to COVER a SPECIFIC RISK of the individual for a certain SMALL sum of money called premium. In this sentence each word is important and I am going to base my explanations on these words.
There are broadly two types of Insurance: Life Insurance and Non-Life Insurance.
Life Insurance: includes plans like Money back, Endowment, ULIP and Term Plans.
Non Life Insurance Plans: include Health Insurance, Critical Illness Insurance, Vehicle Insurance, Travel Insurance, Home Insurance etc.
Insurance was started with the sole purpose of providing a support for a person or business in case something adverse happened. The money sought in return by the Insurance company was called “premium”. This premium was based upon the evaluation of risk by the person or business that was being insured. In case something adverse happened, the company gave the promised money otherwise the plan expired after the agreed term (however many months or years it was for).
Life Insurance went on quite fine till the Insurance Companies felt that their business was not growing sufficiently. So they introduced certain plans which gave some money back to the person insured after the Insurance Plan completed, but in return they charged a very heavy premium. This is where the exploitation of the innocent/ignorant people started. Specialist called were hired, a separate branch of Mathematics called Actuarial Sciences were developed and different ways were propounded to extract maximum premium from the public, while giving minimum in return.
Slowly the public was made to believe that when they were getting themselves insured, they were also investing. In India, since 1960, some Insurance Companies have propounded a big lie by peddling schemes which were taking from the Insured Person, more than was being given back. The print on the document was so fine that it could only be read by a good lawyer. The word “SUM ASSURED” took different meaning. Instead of referring to the Sum for which a person was insured, the insurance agents are trying to tell people that it is what they will get back once the insurance period was over. The concept of Life Long Risk Coverage was lost somewhere.
ULIPs (Unit Linked Insurance Plans): were again a big Financial Torture and fraud thrust upon the hapless investor. Almost 35% of the premium was taken away for expenses which essentially meant commissions for the agent. These were most Non-Transparent plans which had very little risk coverage and a defined sum of the premium was invested in the Stock Market through mutual funds.
TERM INSURANCE
This is the product which most of the people need and must go for; even the seafarers. This is available in various countries with different names. However the details of this insurance are as follows:
The Insured Person gets a Risk Coverage of a reasonably LARGE sum for a SMALL premium and can be taken for a VERY LONG term (even upto the age of 75 years).
If the Insured person survives the term of the insurance (which is for every year for the premium paid), then he or she does not get any money. If in an unfortunate incident the Insured person does not survive then the SUM ASSURED is paid to the NOMINEE of the Insured person.
With the above brief description it is important to note that the Insurance must be taken only for the Bread-Winner of the family on whom the family is DEPENDENT financially. This is very important to note because nowadays the market is abuzz with schemes which aim at Insurance of wives, children etc. It is alright to insure oneself as a Junior Officer or a young Rating even if there are no dependents on you. This will help you in locking into a low Premium rate early in life which will be applicable to you throughout life if you Insure yourself for a long time, say an age of 65.
NON LIFE OR GENERAL INSURANCE
In this section there is very little that you may already not know about. There are also very little chances of making mistake except in case of taking Health Insurance and HOME INSURANCE which I will discuss here.
HEALTH INSURANCE
As I had mentioned in my First article, even if your company covers you medically while on board you must make arrangements to insure yourselves, spouse, children and also parents if they are dependent on you.
There are one or two companies that provide comprehensive insurance coverage for seafarers and their families, excluding children, throughout their period of service. Seafarers who are confident of remaining with such an organization for an extended period may choose to forgo this insurance. However, if they leave the organization, they must immediately secure medical insurance for themselves and their families.
Health insurance is crucial for the entire family, and there are floater plans available that cover the entire family at a lower cost than individual plans. Super top-up plans have also been introduced, where individuals agree to a deductible amount and insure themselves and/or their families for a higher sum in case of medical expenses exceeding the deductible. These plans have significantly lower premium rates compared to regular health insurance plans, making them a cost-effective option, especially for seniors who can afford to pay the deductible.
Home insurance, also known as household insurance, protects your house against natural disasters and theft. These plans are affordable and should be purchased as soon as you own a house. Tenants can also insure their belongings inside the house against damage and theft.
For seafarers, it is recommended to purchase term insurance before joining their first ship, as well as floater medical insurance once they start earning onboard. Critical illness cover can also be added as a rider to medical or term insurance. Additionally, new homeowners should consider buying home insurance for protection against natural disasters and theft.
It is essential to ensure that your family is aware of the insurances you have taken and familiarize yourself with the claim procedure. By finding suitable insurance plans and understanding the actual cost of risk coverage, you can save money and avoid expensive plans that may not provide adequate coverage.
In the next article, the focus will be on savings and investments, highlighting the difference between the two. It is important to research and find suitable financial products in your country, as products and terminology may vary across different regions. Your feedback and comments are appreciated in helping improve financial knowledge for seafarers worldwide. It will help us to spread awareness and enhance your own knowledge about your future planning. The importance of being informed and prepared for the future cannot be overstated. By increasing awareness and knowledge about future planning, we can make better decisions and ensure a more secure and stable future for ourselves and our loved ones. Planning ahead is key to achieving our goals and aspirations, and by staying informed and educated, we can navigate the uncertainties of the future with confidence and clarity. So, let’s take the time to learn and understand more about our future plans and make informed decisions that will benefit us in the long run.