By Kamalji Sahay
The need for life insurance protection through different types of life insurance plans is a dynamic proposition that changes not only with the age of the life assured but also with his or her financial status. A policy purchased at the beginning of one’s career may become not only redundant in its features but also grossly inadequate in respect of the sum assured by the time the policyholder reaches the middle of his working life.
The sum assured is the amount payable to the family on death of a policyholder. But need analysis by policyholders at different stages of career is advisable as certain policies become inadequate to take care of the purpose for which policies are bought. Some additional policies need to be taken to match one’s progress into different life stages and higher financial status.
Periodic review of policies
A review may reveal that what was considered as an adequate sum 10 years ago is today grossly inadequate to protect a family’s financial needs. A life insurance policy with Rs 10 lakh sum assured was considered more than adequate protection 15 years ago for a person in the middle income group. But today, this amount won’t be sufficient even to meet outstanding loan liability if the policyholder dies.
The recent experience of those who lost their family members during the pandemic raises several questions on the very idea of life insurance. Most of the victims who lost bread earners are feeling disenchanted with insurance as what they received as claims money was not enough even to pay off credit card dues or the EMI for certain consumer goods. Repayment of house property loan or car loan just couldn’t be managed leaving the family in utter helplessness.
While taking the policy the sum assured was decided on the basis of perceived risk at that point of time but everything turned out to be highly deficient when insurance protection was needed most. The only folly was that there was no review of policy cover even after 10 to 15 years. A good advisor could have told such people to buy a few more protection oriented policies or the person himself could have bought a term plan online to cover liabilities for the next 15 years.
One must review and assess financial liabilities created by way of loans, specially housing and vehicle loan, and estimate financial needs of his or her spouse and their children till they become financially independent. Everyone must estimate the value of such financial needs and take such life insurance policies which can provide the family necessary funds for meeting such liabilities.
Since taking the first policy there may be new products in the market more suitable for your changed needs, hence the review may enable you to discard an outdated plan of insurance and adopt a product matching your altered needs. Even if you are comfortable with the first policy, you must consider enhancing coverage by buying another policy for a higher sum assured. Do explore children policies in the market. Such policies provide the child enough funds to continue education even if he loses his parents.
Many policyholders may on review find that their employers provide for adequate life cover through employer funded schemes. In such cases one may surrender the ongoing policy that may not be serving any protection purpose and rather buy an annuity plan with life cover to take care of his post retirement cash flow.
The writer is former MD & CEO, Star Union Dai-ichi Life Insurance