The basics you need to know when buying health and life insurance

February 19, 2024

A few weeks ago, we uploaded a video of an ‘Ask Me Anything’ (AMA) session on the basics of insurance that I had done with Shrehith, the co-founder of Ditto Insurance. We did the AMA because whenever we asked investors what part of their personal finances they struggled with the most, the most common answer was insurance. This is also why we partnered with Ditto to simplify insurance for Indians. They’ve done a brilliant job at helping people with insurance without spamming or mis-selling, as you can see from all the customer love they get.

We collected questions beforehand and Shrehith spent 3 hours answering them in great detail, with context and nuance. We only decided to stop recording when he lost his voice for the day. Given how comprehensive the session was, I can confidently say that it’s the only video you have to watch to know everything you need to protect the life and health of you and your loved ones.

I had two motivations to host this AMA. One, most investors – including my friends – struggle with or are oblivious about insurance. The second was a more selfish reason. Since I was insurance illiterate, I had to learn as well. In a way, this was a masterclass on insurance. As I was listening to Shrehith speak about both term insurance (life insurance) and health insurance, the old proverb “ prevention is better than cure” was running in the back of my head.

This proverb reminded me of something I had heard on a TED talk about how Stoicism can help you lead a good life by Massimo Pigliucci, a Professor of Philosophy at the City College of New York. In the video, he talks about this beautiful Stoic concept of “dichotomy of control”. He says:

Now, I told you about the dichotomy of control being one of the two fundamental pillars of Stoicism. Here’s how Epictetus himself explains it. He says, “Some things are within our power, while others are not. Within our power are opinion, motivation, desire, and in a word, whatever is of our own doing. Not within our power are our body, our property, reputation, and in a word, whatever is not of our own doing.” And note, if you stop for a second and think about it, it’s like that is weird. He’s saying that my body, my property, my reputation are not in [my] power? What do you mean?

I can decide to go to the gym and eat healthy; of course my body’s under my power. Unless a virus strikes you down. Unless you have an accident and you break your leg. The idea is that you can do things, you can make decisions about your health, your reputation, etc. but ultimately, you don’t control the outcome. So what does that mean in practice? It means that we should try to walk through life by internalizing our goals, not worry about the outcomes, because those are outside of our control, but worry about our intentions and our efforts because those are very much under our control.

This applies to everything in life, including our personal finances and insurance in particular. Throughout the video, this notion of controlling what you can and letting go of the rest seemed central to the reason why you need insurance. You need insurance because it helps you protect yourself from unforeseen events like a health emergency or, god forbid, death. But if an adverse event like a health issue has already come to pass, getting health insurance is hard, if not impossible. Even if you could get it, you will have to pay higher premiums and deal with longer waiting periods. So, even though insurance is meant to help people deal with black swan events, the people who need insurance the most are often denied.

This is what triggered the thought about controlling what you can. The best time to get insurance is when you are young and healthy because you can get it easily and the premiums will be lower. But to be healthy, you need to take care of your physical and mental health. That means taking care of the basics like eating well, exercising regularly, and sleeping well. These are things in your control. Of course, you could still fall sick even if you did all these things, but that’s not in your control. Having said that, if you focus on what you can control, your odds of being healthy go up and that’s about the only guarantee in life.

Since I’m talking about insurance, I have an embarrassing confession to make: despite writing about personal finance for years, I wasn’t insured until I freaked out when COVID struck. I reached out to Ditto in a panic and bought a health and term life policy. Until that moment, I hadn’t thought much about insurance at all. But the more I thought, the more stupid and embarrassed I felt. I had dependents. It was reckless of me to not think about insurance. Insurance should’ve been the first thing I figured out – even before I started saving and investing. As they say, you learn everyday.

The other bonus of taking care of yourself and getting insured is the peace of mind. To me, the real benefit of the insurance is the knowledge that me and my loved ones will be taken care of if something bad were to happen. That peace of mind, to me, is priceless.

We’ve added detailed timestamps in the video for each aspect of insurance we discuss and I can’t recommend the video enough. Having said that, here are some key takeaways that stood out to me.

  • Term insurance is crucial if you have dependents. The goal of term insurance is to create a financial replica of yourself. The policy cover should be enough to help your loved ones lead a comfortable life if something were to happen to you.
  • Insurance is the first thing you need to take care of. Savings and investments come later. If you start investing first without insurance, then your investments and savings become your insurance. As Nithin keeps saying, most Indians are just one health incident away from ruin. Health insurance helps you avoid financial hardship.
  • If you have the ability to purchase insurance, not buying the policies immediately is stupidity.
  • If you can afford a Netflix subscription, you can afford to pay for insurance.
  • Insurance is for protection, not generating returns. Except term insurance and health insurance, any insurance product that promises returns+insurance is useless. Never mix investments and insurance. Buy a pure term life policy and then invest in direct mutual funds.
  • Always get advice on insurance unless you know insurance in and out. An advisor will help you in the case of any claims because it’s in the interest of the insurance companies not to accept claims
  • Your corporate insurance cover is not always sufficient. Getting an individual cover is prudent.
  • During the purchase process, disclose everything. If you lie and get caught, you will lose all the premiums you have paid and your claims will also be rejected. Make sure to disclose everything

Watch the full conversation here:

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Financial analyst and researcher at Zerodha

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