The basic purpose of insurance is to cover risks in your life, not offer returns. Still, most people confuse it with investment because of the products in the market that offer both. While you may not feel much need for any kind of cover when you are young, it's best to know about the various types at the start of your financial life. The lure of tax saving and the urgency to get tax planning components in place at the end of financial year can push one to make unwise choices.

Life insurance:

The term plan offers a big cover for a small premi um, but you do not get any returns.Then, there are traditional plans, which include endowment and moneyback policies. These offer small covers for a high premium, and low rates of return. Finally, there are Ulips, which are market linked insurance plans with a lockin period of five years and provide a low cover for a high premium, but offer market-linked returns.

The last two are typically used as a wealth creation tool because of returns, but remember that in case of traditional plans, the rate is low, usually 5-6%, and you can earn higher returns by investing in other instruments.

At this point, the only life cover you may need is a term plan, but this too, only if you have financial dependants or large liabilities in the form of debt.

Health insurance:

The broader categorisation includes the basic indemnity plan, which covers hospitalisation expenses, for an individual, and the family floater plan, which includes your entire family in a single cover. Growing incidence of lifestyle diseases and rising medical costs make it essential to have a health insurance. Also, a health plan provided by an employer may not be enough to hedge one against the rising cost of healthcare services

You should have `3-5 lakh basic health plan at this stage, depending on whether you stay in a metro or a tier IIIII city. So if your company insures you for `2 lakh, buy an independent top-up plan for `3 lakh as it will be cheaper than a regular policy. Consider a family floater plan only when you are married and have kids; don't include your parents because the premium is determined by the age of the oldest member. Also, don't just consider low premium as a criterion. Look at the claim settlement ratio, hospital network, inclusions and benefits before buying a plan.

Critical illness plan:

This provides a lump-sum benefit in case of certain pre-decided ailments and pays the costs associated with longterm care and loss of income due to prolonged recovery period. It is available both as a standalone policy or as an add-on with life and health insurance.Typically a standalone plan will offer a higher cover and more flexibility. You can avoid buying it at this stage, but consider it in your 30s given the higher incidence of such diseases at lower ages.

Accident disability plans:

This is a plan you should buy when you start working because of the sheer unpredictability of life. It covers you against mishaps that can result in complete or temporary loss of income due to partial or total disability. Buy a cover for `20-25 lakh or one in accordance with your income and nature of job.

Home contents plan:

Though you are unlikely to have a house at this stage, buy a policy for the contents if you are in another city, not with your parents. The premium for a `5 lakh cover can be `3,000 and will cover jewellery, home appliances, furniture, etc, against theft, fire and natural disasters.