By A P Singh
A good financial advisor will always discuss the importance of life and health insurance as part of financial planning. This is so because if an individual suddenly falls sick or meets with an accident and incur huge medical expenses, all investments may vanish and he can even go under huge debt. And if an untimely death takes place, the entire family can face extreme financial distress.
Term plan for protection
Term insurance is a type of life insurance which provides an individual with a life cover for a defined period. It is the simplest and purest form of life insurance. In case of an unfortunate event, the nominees will receive the pre-defined death benefit. The primary purpose of term insurance is to provide financial security to the insured’s family against the loss of income arising due to the insured’s death.
The need for term insurance depends upon the family’s financial goals, responsibilities, financial dependents, and liabilities like loans. Factors considered while buying term insurance are as follows:
As soon as an individual has dependents, family goals or liabilities, he or she should get a term insurance plan. Individuals must buy an online term plan at an early stage of their life, as soon as they start earning and are financially independent. Since a term plan is purely an insurance plan without any investment component, the premiums are very low. The individual can get a high sum insured at a very low premium by purchasing an online term plan. For example, a 25- year-old nonsmoking individual with Rs 5 lakh yearly income can purchase 35 years duration (up to 60 years age) online term plan of Rs 1 crore sum insured by paying Rs 5,000-Rs 7,000 premium yearly.
One should choose appropriate sum insured in term insurance by using a simple multiple of salary method. Ideally, a term insurance cover should be in place at least till retirement age, or till the time an individual has financial dependents or financial liabilities like loans. If an individual thinks that he should leave some legacy for his children, then he can choose policy duration up to 85 years of age. It is advisable to go with the insurer with the highest claim settlement ratio (98% or above).
Term insurance plans come with riders/add-ons which should be definitely considered while buying a policy. This is an extra benefit with extra premium. Some of the major riders available include additional cover for death due to accident, cover for critical illness, waiver of premium on disability, and waiver of premium on critical illness. Out of these riders, the waiver of premium rider comes at a low premium. So, depending on your need you can choose a rider.
The inflation in the healthcare industry is 15% a year compared to overall inflation of 6-7% in the past few years. So, it’s very important for an individual to purchase a good health insurance plan with adequate sum insured. Then he or she will not have to worry about arranging money for medical expenses. If the individual is unmarried, he should take cover for himself and parents. If married, he or she should take cover for himself, spouse, parents and children with a family floater plan. If parents are senior citizens, it is advisable to have separate senior citizen health insurance plan as premium in family floater plan is calculated on eldest member’s age. Before taking a plan, compare policies based on specific features like coverage, exclusions, waiting period, room rent limit, cumulative bonus, sum insured, type of plan, day care procedures, etc. At an early young age the individual has to pay less premium.
Apart from having the basic family floater health insurance plan with the above mentioned features, the individual should enhance his policy sum insured at a later stage. He may consider the separate top up (deductible) plan. A top-up plan increases the insurance coverage over and above your existing base policy at a comparatively lower cost as compared to increasing the sum assured in the base policy. The top-up or deductible plan will come to the rescue in case one’s medical insurance claim crosses a threshold.
The writer is director ASIBAS, Amity University and former executive director, LIC of India