Are you adequately insured

Updated: Oct 22 2013, 08:00am hrs
Manish Shah

The Insurance Regulatory and Development Authority (Irda) has pushed the implementation of new guidelines for a certain category of savings products to January 1, 2014. A lot has been written about whether its better to wait for the new products, or to buy while the old ones are still on offer.

However, a key question that is not being asked as often as it should be is that in the absence of any meaningful safety nets afforded to the middle class, are we, as consumers, prepared for lifes many uncertainties

Many of us consider term insurance or a basic life insurance product where dependents get the sum assured only if and when the person insured dies to be a waste of money. An oft-asked question is what happens to my money if I dont die Well, its gone and you should be happy youre alive.

Term insurance premiums are much lower than premiums of savings-cum-insurance policies for the obvious reasons that in one case, the insurance company pays you only when you die whereas if its a savings product, then the company must pay you either way.

Mohan Bhatt, age 38, a middle manager in an IT company, is an excellent case in point. Broadly, his details are:

Net monthly salary: R50,000; savings after meeting all expenses (including EMIs on a home loan of R20 lakh): R10,000; Dependents: wife (who doesnt work) and two young children.

With a view to protect his family, he buys a life insurance-cum-savings policy with annual premium of R36,000 (or R3,000 a month), which will give his family 20 times his annual premium as insurance cover in the case of his death or else a savings return on the total premium paid over a 15-year period at maturity.

Like a lot of his countrymen, Mohan is grossly underinsured. If he dies, his family will get R7.2 lakh that will not pay back even half the outstanding home loan, let alone pay for household running expenses.

Now, if only Mohan bought a term plan available online, he would get an insurance cover of over R2 crore at the same premium (it helps that he does not smoke). Given his liabilities, he might choose to get a pure insurance cover of R1 crore at less than half of what hes currently paying for only R7.2 lakh of life insurance.

He could then be rest assured that he does not leave behind debt and stress if something were to happen to him and set about saving for his other goals like his childrens education and his retirement in earnest with returns maximisation (while balancing risk) as a key driver of those savings.

* The writer is co-founder & CEO of www.Bigdecisions.in