Do you have enough insurance? The insurance you need

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Do you need more coverage?

If you don’t have adequate life insurance, you are putting the future of your dependents at risk.

Determining the size of the coverage is the primary concern of an insurance buyer. A general estimate is that he should be six to seven times his annual income. This, however, is not set in stone. A person earning Rs 9 lakh per year (Rs 75,000 per month), for example, might need more coverage than the Rs 54 to 63 lakh suggested by this approach.

Don’t let yourself be lulled into thinking that Rs 60 lakh coverage is enough. Even if you assume returns of 9% and inflation of 8%, an inflation-adjusted monthly withdrawal of Rs 30,000 will deplete the entire corpus in less than 20 years.

Life insurance coverage should be large enough to generate income that can cover family expenses until your dependents become self-sufficient. If your spouse is dependent, the coverage should also cover their retirement needs. Next comes the issue of debt. The money received is expected to pay off all outstanding loans, especially high priced home loans. Insurance should also provide for critical financial goals, such as higher education and child marriage. These are one-time expenses and their current cost should be taken into account when determining the size of the coverage.


Choosing the right coverage

The policy must cover you at least until the age of 60 to 65. Don’t take a 15-20 year short term policy that will end when you turn 50. At this age, buying a new policy will cost you a bomb. You might even be denied coverage if your health is not good.

Insurers have also designed new variations of temporary plans. While some of these innovations offer real added value to the buyer, others are just marketing gimmicks that are best avoided. For example, reducing coverage plans to cover loans is not very helpful. These are single premium plans and are tied to the outstanding loan amount. However, most borrowers tend to prepay their loans or switch to another lender.

Insurance companies are supposed to reimburse part of the premium in the event of foreclosure or make an endorsement on behalf of the new lender if the loan has been refinanced. In reality, they are just deceiving the client by saying that the contract has been terminated.

Do not avoid medical tests

Contrary to popular perception, rigorous medical testing helps the buyer. Once you have gone through them, there is no chance that the application will be refused due to pre-existing conditions. The stricter the test, the lower the premium.

Be honest

You must also disclose your social habits to the insurer. If you smoke or chew gutkha, your premium will be around 25-30% higher than that of a non-smoker. Hiding these crucial facts can put your insurance coverage at risk. If the insurer discovers that a policyholder has withheld information that has affected the risk to his life, the claim is canceled. Most companies have forensic experts who scan claim documents for any attempts to mislead. Besides health and social habits, you should also be completely honest about your age, occupation, income, and other insurance coverages.

Insurance

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The insurance you need for every stage of life

25 years old: single and salaried

  • Life Insurance: Rs 20 lakh online term plan for 30 years.
  • Health insurance: Rs 3 lakh basic coverage (annual).
  • Accidental and disability covers: Rs 25 lakh
  • Property insurance: None
  • Salary: Rs 30,000 / month

30 years old: Married, no children

  • Life insurance: increase to Rs 30 lakh via a recharge plan. Spouse who works Rs 20 lakh.
  • Health Insurance: Keep coverage of Rs 3 lakh; convert to family floating plan.
  • Accidental and disability covers: Rs 25 lakh
  • Property insurance: Rs 5 lakh to cover household contents.
  • Salary: Rs 45,000 / month; spouse’s salary: Rs 35,000

35 years old: Married with children

  • Life insurance: Rs 80 lakh for 25 years; spouse Rs 45 lakh for 30 years.
  • Medicare: Increase the family float to Rs 5 lakh. Purchase a critical illness plan of Rs 3 lakh.
  • Personal accident and disability coverage: Continue with existing coverage.
  • Property insurance: Buy Rs 50 lakh coverage for a Rs 40 lakh house. Review the content.
  • Salary: Rs 75,000 / month; spouse’s salary: Rs 55,000. Rs 30 lakh mortgage loan; Car loan Rs 4 lakh; 2 children

45-50 years: middle age, older children

  • Life insurance: Continue with existing coverages.
  • Health insurance: increase the family float to Rs 7.5 lakh and the critical illness plan to Rs 5 lakh.
  • Personal accident and disability coverage: Continue with existing coverage.
  • Property insurance: review for inflation and rising content

60 years old: Retirement

  • Life Insurance: No coverage required after age 60.
  • Health Insurance: Increase coverage to Rs 10 lakh.
  • Personal accident and disability coverage: do not buy new coverage.
  • Property insurance: increase coverage to Rs 60 lakh

This article originally appeared in Economic times and has been reproduced with permission.

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