Indians' have a habit of remaining underinsured. Insurance is not just about buying ULIPs or endowment plans. It's primarily a tool meant for protecting your family in your absence. You can decide on the company and the product mix, but ensure you are adequately insured.
How to calculate you insurance need?
One ballpark figure is to insure at least 10-15 times of the annual income. One way of arriving at this number is to assume a complete discontinuation of your income and evaluate the expenses of your family. This self-assessment, coupled with the current life stage and the responsibilities towards the family — for example, child's education, marriage, retirement plans etc and various liabilities like home loans etc — will help you know the insurance needs.
Cover your liabilities
If you have a large home loan, it's a wise option to cover the liability. A borrower wouldn't want to pass on the financial burden to his/her family members in the case of an unexpected demise or a job loss. Life insurance companies have designed home loan insurance covers in alliance with banks to cover this risk. However, a simple term plan could be a better back-up than these home loan insurance cover, financial advisors say.
Let's assume the home loan amount is around Rs 30 lakh. Now, for a term cover of Rs 30 lakh, the annual premium would work to around Rs 8,000 for a 35-year old individual.
In the case of home insurance, you have to pay an upfront amount of Rs 1.52 lakh as an insurance cover on the Rs 30-lakh home loan. Now, this could prove to be loss to a customer if he prepays the loan within 10 years.
Second, the insurance amount is calculated on a reducing balance basis. So, the value of the cover falls with every passing year.
Step up your insurance needs
It's not necessary that you lock into a high sum assured a higher premium amount when you are single. You can always step up your insurance over a period of time. But you have to sign up for one such product. There are three kinds of term insurance available in the market today. One is a standard term insurance which is fixed contract till the policy expires. The customer doesn't have the option to enhance the term cover as his needs increase. Some policies give the policyholder a flexibility to increase the sum assured by 5% every year to account for the increase in inflation. There are other variants, which allow customers to increase the sum assured by 20-25% every 5 years till the effective date of the policy. You have this provision even in ULIPs. The charges on top-up premiums are in the range of 1-3%. But increasing the investment component doesn't mean a higher protection cover unless you opt for it.
Don't ignore you health
Healthcare costs are on the rise and one has to provide for it. Mediclaim covers offered by general insurers are popular among customers to meet their healthcare expenses. If you want to cover your family as a whole, you can opt for a family floater. So, if you take a policy of Rs 4 lakh, each member of your family — who is covered under the policy — can utilise the entire amount and the premium is up to 50% lower than buying separate policies.
