Must-have insurance policies

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FC gives you few tips to help you to navigate any unforeseen turbulence, meet goals

Any financial planning is incomplete without buying financial protection for yourself and your family in case of unforeseen events. Insurance plans are the most critical financial instruments that could save you and your dependants against adversities. Here are the key insurance policies you must have in your portfolio to navigate any unforeseen turbulence and meet your financial goals.

Term insurance: This is the most basic type of life insurance cover, you could ask for. While the terms are quite simple for policyholders to understand, the premiums are also low. A term plan pays the total sum assured to family members or nominee in case the policyholder dies before the tenure of the plan is over. Supposing a 30-year-old individual takes a term insurance policy for 25-year tenure, with coverage of Rs 50 lakh and dies before the term gets over, then the nominee would be entitled to the insured sum of Rs 50 lakh. The annual premium for such a policy would range between Rs 4,500 and Rs 7,500, depending on your age and the insurance company you choose. Many insurers may offer you the cheapest product, but have poor claims payment history. Look at the insurer’s claims payment ratio, brand, reputation, promoters and solvency ratio before zeroing on the product. Many private insurers offer term plans online.

While buying the policy, individuals must declare correct information related to the health of themselves and their family members, so that there are no problems at the time of claim settlement. Also, should the insurer ask for certain medical tests, it is advisable to oblige.

Another important factor is to calculate adequate amount of life cover. While some insurance advisers suggest a minimum of five-times the annual salary, this is only a bare minimum coverage due to rising inflation. An individual should ideally get a term insurance plan covering his income till retirement. For a 40-year-old, earning Rs 10 lakh every year, planning to retire at 60, then the adequate sum insured should be Rs 2 crore.

“Before making investment decisions on child’s education or marriage, one should secure the family’s future against any unforeseen event, such as death. It is best to opt for term plans at an early age since the premiums are low and liabilities like home or car loans are high,” T R Ramachandran, chief executive officer and managing director, Aviva Life Insurance told Financial Chronicle.

Health Insurance: Healthcare cost has gone up quite significantly over the past few years due the rising inflation and advancement in medical science. The annual premium varies depending on the type of health cover and family members to be covered. Your cover should not be less than Rs 5 lakh. In case you cannot afford to buy separate covers for each family member, look for a family floater policy with a higher sum insured.

Industry regulator, Insurance Regulatory and Development Authority (Irda) had also allowed health insurance portability in October 2011, so that policyholders can transfer their accrued benefits to a new insurance plan that they buy from some other insurer. This has allowed policyholders to avail benefits like coverage for pre-existing diseases and waiver of waiting period when they switch from one insurer to another.

“Individuals should not make the decision based only on the premium comparison, one should be aware of the extent of coverage (sum assured), compare features and exclusions to make an informed decision,” said Shreeraj Deshpande, head of health insurance at Future Generali India Insurance Company.

For better understanding, it is always better to go through the policy wordings before making the decision. Policy wording can be downloaded from various insurance company websites or insurance agents too can provide them on request.

Individuals should be careful while filling the proposal form and must reveal correct medical condition at the time of purchase. They should also inform the insurance company about any existing medical condition so that there is no problem at the time of registering claim.

Personal Accident: A personal accident policy pays total sum insured or part of sum insured in case the individual meets with an accident and suffers temporary, permanent, partial or total disability or dies.

The premiums are low compared with the coverage and depend on the occupation of the policyholder. Once the policy has been purchased, the premium remains constant. However, the premium is higher for those who are engaged in high-risk professions like construction workers, and mine while it is lower for those involved in administrative jobs.

Critical illness cover: An individual might choose to enhance coverage by purchasing critical illness policy. This policy pays the total sum insured if the policyholder is diagnosed with any critical illness that is covered under the policy. Generally, insurance companies offer coverage for 8-10 critical illnesses that include cancer, heart attack, kidney problems and stroke.

While buying the policy individuals must provide correct information about their health and should not avoid undergoing medical examinations that are asked for by the insurance company.

Home insurance: This policy is still not very popular in the domestic market, although it offers good cover on payment of nominal premium. An individual can cover only his residential property or may extend the cover for contents like furniture, electronic items and jewellery. Home insurance does not cover the cost of actual land on which the property is constructed, but covers the construction cost only. You will have to provide all the bills, invoices and valuation reports for the items that are to be covered under the insurance plan.

sagarsen@mydigitalfc.com

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