What has COVID-19 taught us about insurance?

Pandemics, in general, come with many lessons. They bring to table new ways of leading life, stimulate scientific explorations into uncharted territories and end up shaking the existing world order.

COVID-19 is no different. It has stoked a range of mental health challenges in people, including post-traumatic stress disorder (PTSD). Many are sceptical of consuming or touching the belongings of other people, fearing a lack of proper sanitisation. Some, who have lost their near and dear ones without getting a chance to save them – especially in countries like Brazil and India – would probably blame the system for their miseries – and rightfully so.

But one of the key learnings from the pandemic to have dawned upon us is – how to cover ourselves – physically using masks and financially using insurance. While insurance is one of the key components of the personal financial management – and probably the most important one – yet it remains the most ignored aspect.

What is an insurance?

Insurance is a form of personal or corporate risk management to shield you from financial loss. It is used as a hedge against the risk of a contingent or uncertain loss. To put it simply, insurance covers the uncertain and unexpected loss-inflicting events in future.  In an insurance agreement, a company or the state pledges to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium – which is usually paid in part on a periodical basis. The company that undertakes this pledge is known as an insurer. While, over the years, the sector has seen hundreds of tailor-made products on personal as well as retail level. On personal level, there are two broad categories of insurance – life and general.

https://kalkinemedia.com/definition/h/health-insurance Life insurance is an agreement signed between a policy holder and an insurer, in which the insurer promises to pay the designated (or nominated) beneficiary a sum of money – depending on the size of policy – upon the death of an insured person. However, this payment can be triggered earlier as well, in case of events like terminal illness or critical illness. However, that depends on the contract signed between the two parties. There are three types of insurances – traditional whole life, universal life, and variable universal life.

What is general insurance?

General insurance, popularly known as non-life insurance, include automobile and homeowner policies, andprovide payments depending on the loss suffered due a particular financial event. Put simply, any insurance that is not determined to be life insurance, falls under this category. There are different sorts of general insurance, including motor insurance, health insurance, travel insurance, and home insurance among many others.

Why is insurance not being talked about much – like other aspects of personal finance?

There are two primary reasons that make people ignore insurance, which is probably the most important aspect of the personal finance. One is the false sense of certainty, while another is the pure play of greed.

Let us imagine we are back to the normal pre-pandemic times. There are no lockdowns. People are going out to work. The economic activity is in full swing. In such a scenario, no one would have a slightest idea of a possibility that a virus that spread in a small market in the hinterlands of China could rip apart the world. So, there is a false sense of certainty. Along with this, there is a rat race going on. The equity markets are rallying. The greed to fear index is on a higher side. Thinking that the future is certain, people with surplus funds fall prey to the bait of making more money. Afterall, even safe havens, at most of the times, give investors higher returns than insurance – leave aside the riskier ones. In all this melee, as investors fall to the bait of greed, insurance – which sounds financially unattractive in times of greed – takes a backseat.

What has pandemic taught us about insurance?

Well, the pandemic has had lessons galore for us– both in life and general. But the biggest lesson that the pandemic has taught us is about the uncertainty of life. Even a small virus – unseen to the naked eye – can cripple about eight-billion strong global population and wipe out nearly four million people from the face of the earth. So, the pandemic has blatantly shown us how life and health aren’t certain – and why it is better to plan for it in your good days.

Individually as well, there are many learnings to be absorbed. Before COVID-19 engulfed us all, very few people took health insurance seriously. Most of them were satisfied with the group insurance cover from their employers. However, these group insurance covers are lost when a person loses his job – and job losses were huge last year. People need to buy health insurance cover individually and it is not an “unnecessary expense” as perceived widely. The cruel pandemic also taught us to cover our loved ones. Many people, who succumbed to the virus, were the sole earning members of the family and left their near and dear ones in the lurch. The pandemic has been a flagrant reminder of why one must plan insurance, not for just themselves, but also for their loved ones, in case of unexpected tragedies.