By making life insurance review a part of your year-end checklist, you can align your policy coverage, the sum assured, and the overall protection needs to the family’s financial goals effectively.
A financial plan is a must for every individual with responsibilities. Experts say one of the first steps of a financial plan should ideally be that of purchasing insurance. The pandemic has highlighted the need for life and health insurance like never before.
Aalok Bhan, Director and Chief Marketing Officer, Max Life Insurance says, “When it comes to life insurance, it is imperative to keep a constant check of the policies’ value. Hence, the end of the year is an excellent opportunity to review the relevance of your insurance policies.”
When buying life insurance, it is often done to financially protect the family in the absence of the policyholder. Having said that, with each passing year, you might experience new life events that may call for some readjustments to life’s relevant goals. For instance, life events such as buying/moving to a new house, getting married, having a baby, or changing jobs could be some events in life that change the protection requirement of you and your family.
Srinivasan Parthasarathy – Chief Actuary and Appointed Actuary, HDFC Life says, “Having term insurance acts as a financial safety net that protects the family in the absence of the breadwinner. However, the need for life cover changes with age, income and responsibilities, hence, the need to review it from time to time.”
Why reviewing your life insurance should be part of your year-end financial checklist?
An individual invests in life insurance to financially safeguard his loved ones in case of unforeseen circumstances such as the death or disability of the breadwinner. Hence, in order to adequately protect his/her family, an individual needs to select the ideal life cover, based on his Human Life Value (HLV). Over the years, with the increases in income of an individual, the life cover would also grow proportionately. Hence, it is important for an individual to periodically review his life cover, and purchase additional cover if necessary.
Karthik Raman, CMO and Head – Products, IDBI Federal Life Insurance, says “It is likely that a person’s financial worth increases annually as his income grows year-on-year along with additional financial liabilities like loans plus a possible increase in dependants. Hence, it is prudent to review one’s life insurance cover, if not every year, once in two years.”
Also, financial needs change at different life stages. According to a Swiss Re report, in India people are extremely under-insured – there is a protection gap of 83 per cent, which means that for every Rs 100 of insurance cover needed, the policy-holder is covered only for Rs 17.
Venky Iyer, EVP and Chief Distribution Officer, Tata AIA Life Insurance says, “At the time of purchasing, many people grossly underestimate their future financial needs. Given the shifting health indices too, it is important to ensure that individuals are covered for critical illnesses. This can be accomplished via critical illness riders that cover hospitalisation expense too, as an attachment to the base policy.” Additionally, certain key milestones such as marriage, childbirth, buying a home, all of these require one to be adequately covered.
Bhan, Max Life Insurance says, “A life insurance policy check is a must, as it helps keep a track of protection needs and must be reviewed from time to time. By making life insurance review a part of your year-end checklist, you can align your policy coverage, the sum assured, and the overall protection needs to the family’s financial goals effectively.” Against this backdrop, you might have to revisit your coverage to ensure that the policy matches the financial protection requirements according to your current times.
What are the things to keep in mind while reviewing your life insurance policy?
As a first step, calculate and assess whether you are adequately insured or not. There are HLV computation tools (Human Life Value) that can help you assess the future financial requirements based on your age, earning capability and incremental earnings and liabilities over the coming years. Iyer, of Tata AIA Life Insurance, says “A thumb rule states that a person at the age of 32, should have a cover of at least 15-20 times the current yearly income.”
The next thing to do is ensure that your premiums are paid regularly, as experts say continuing with the policy is as important as purchasing it. This can be done by opting for electronic payment or standing instructions.
While reviewing one must consider the family’s current and future financial needs, living standards, and your health through each of your life stages. Bhan, Max Life Insurance says, “While the requirement of life insurance may change with an increase in income or change in lifestyle or additional financial liabilities, the goal must never change – that is to have an optimal level of protection for the family in your absence.”
Experts say this is also a good time to evaluate the need for disease and disability cover too and assess for unforeseen situations. Parthasarathy, HDFC Life says, “Ensuring the presence of a critical illness cover for diseases such as cancer and heart ailments is also necessary for self and for the family. With changing lifestyles, increasing life span and the rising cost of health care, one needs to be prepared to face medical emergencies else they could wipe away a family’s fortune.”