3 Such financial security could come with savings and investment but these merely give back our own money and some returns.

4 Insurance is a financial tool specially created to reduce the financial impact of unforeseen events and create financial security.

5 Insurance works on the law of large numbers where contributions by many in the form of premium pay for the losses of a few. By paying a premium for protecting against a certain type of loss, you will be protected for a certain sum of money that you will receive if you face that loss.

6 For example, if you pay a premium for hospitalisation expenses up to Rs 1 lakh, then the insurance policy will pay you up to Rs 1 lakh when you incur hospitalisation expenses.

What insurance to buy

1 So, what insurance should you buy? Insurance is available for unpredictable events such as death, accidents, sickness, loss or damage to property. These are simple you should protect yourself against and what you should buy are life insurance, accident insurance, health insurance and insurance for whatever property we are looking to protect - motor vehicle, house and so on.

2 There are more complicated risks like legal liability and various risks that commercial enterprises face. For these too there are various special policies available. While life insurance and some types of accident and health insurance are offered by life insurance companies, property insurance, health and accident insurance (again) are offered by non-life insurance companies (also known as general insurance companies).

Click here to see the list of insurance companies registered with IRDAI.

3 The insurance policy that you buy must meet your requirements. This means you must identify what your needs are first. You must choose your life insurance policy depending on which life-stage you are in and your aspirations for the future. It will differ based on whether you are about to start a family or you have growing children with education needs or want to plan for your retirement.

4 You should also join a health insurance scheme while you are young and ensure that you are continuously covered. While third party insurance for your motor vehicle is statutory, that is, it is required under the law, it would be wise to buy a comprehensive policy that covers your vehicle against own damage as well. Protecting your house and contents against the risks of fire and flood will secure your hard-earned savings.

How to buy insurance and whom to buy it from

2 You can also buy your policy directly from the insurance company and some of them can be bought on the internet. An agent or a corporate agent or a broker may also sell  insurance through using tele-marketers.

3 Whatever channel you choose to buy insurance through, please  ensure that you are dealing with an authorised channel and ask questions, get information and clear your doubts.

4 An agent or broker must hold an IRDAI licence. Check on that first. Other relevant information you should ask and get include details of the policy, the benefits, what the policy excludes or does not pay for, clarifications regarding documentation and procedures at the point of claim.