I’ve just returned from the 25-year reunion at my alma mater. It was a fabulous turnout of over 100 well-placed business executives from across the world. I was intrigued, though, by the number of them who asked me what insurance protection they should buy. This seemingly simple question is difficult to answer because there are so many risks to guard against. The right insurance protection for you depends on your personal circumstances. However, in many situations, I find these five insurance covers absolutely necessary.
Term life insurance
This pays a pre-determined amount to your nominee if you die prematurely. You must buy term insurance if your family depends on your income or if you have a large loan to be repaid.
Buy term insurance as early as possible because as you grow older, the premium you pay increases. Also, it does become more difficult to get insurance if you develop chronic diseases such as hypertension or diabetes. The sum assured you select should be at least 10 times your current income. This ensures financial security to the family for 8 to 10 years after you die.
Pick the term plan that is most economical, from an insurer whose claim settlements are over 90 per cent. Details of claim settlements in respect of each insurer are available in the insurer’s public disclosures.
Health insurance
Mediclaim, or medical insurance, covers the cost of hospitalisation and most daycare surgeries. The settlement of the hospital bills is often made directly with the hospital, which is called cashless settlement, but in some cases, you may have to pay the hospital and seek a reimbursement from the insurance company later. This is an important insurance cover to have because the cost of medical treatment is increasing rapidly. For several critical diseases, treatment costs can go up to ₹20 lakh.
Buy health insurance, too, as early as possible for the same reason that you ought to buy term insurance early on. Current regulations mandate that health insurance, once bought, is renewable for life, and the premiums cannot be increased just for you. Deciding on the sum assured is important. Take the cost of treating a cardiac procedure, such as a bypass, in the hospital that you would visit and double that cost to estimate your minimum sum assured. This doubling helps factor in the inflation of about 15 to 20 per cent in the cost of medical treatment. Typically, you ought to have health insurance of ₹15 lakh or more. The important factors to consider while buying health insurance are the insurer’s claims settlement rates, the number of years for which pre-existing diseases are excluded and the premium you pay. The longer you hold a Mediclaim policy, the less likely that your claim will be rejected.
Home insurance
Your home is probably the most valuable physical asset you own. Yet, fewer than 1 in 1,000 homeowners typically insure it for damage. A standard home insurance pays for damage to your house due to many perils, including fire, flooding, earthquakes, riots, malicious damage and storms. The amount paid depends upon the type of home insurance you buy. If it is ‘reinstatement insurance’, you will be paid the full cost of repairing. However, if it is based on book value, the insurer will pay a depreciated value. Do also buy a ‘contents insurance’ cover along with the home insurance and make sure it covers theft.
While buying home insurance, opt for the reinstatement option and pick a sum assured that is approximately the cost of constructing your home today. Do not opt for a low sum assured (with an eye on lowering your premium) because any claim will be proportionately reduced by the extent of under-insurance.
Motor insurance
The law requires you to buy third-party liability motor insurance. If you seriously hurt or kill someone with your car, the Motor Accident Tribunal decides the amount of compensation and damages you pay. There is no maximum limit for this, which is why you must insure.
While buying motor insurance, look for a company that gives you the best price, offers cashless settlement of claims and throws in useful add-ons like 24x7 roadside assistance. For expensive vehicles, consider add-ons like engine seizure, zero-depreciation and tyre burst cover.
Critical illness cover
This is an excellent supplement to your Mediclaim insurance. This insurance pays a fixed amount if you suffer from any of the listed critical illnesses. In that sense, the insurance covers costs that are not covered in a Mediclaim — for example, cost of travel of caregivers or loss of income arising from lost days at work. Another significant benefit of the critical illness plan is that it can cover costs for treatment of diseases and conditions such as paralytic stroke, blindness and Alzheimer’s, which may not require extensive hospitalisation but are expensive nonetheless.
While buying a critical illness plan, keep the sum assured about the same as the sum assured on your Mediclaim cover. Search for plans that cover over 20 diseases, and which include diseases that may not require extensive hospitalisation.
Buying these five insurance covers should not take you more than a month to complete. But having them will help you confidently deal with the uncertainties ahead.
