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Life Insurance - Five insurance covers you should have

01 Jul 2013

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The average Indian’s disaster preparedness typically involves hoping and praying that no catastrophe befalls him or his loved ones. However, calamities, man-made and natural, have an uncanny knack of striking when they are least expected. The tragedy that unfolded in Uttarakhand recently proves the fact. While you cannot prevent such disasters or influence their magnitude, you can certainly contain the financial impact by buying adequate insurance.

Contrary to common perception, this will not burn a hole in your pocket as long as you do not fall prey to your agent or bank’s sales pitch. Here are five covers you must invest in because, combinedly, they will constitute an ideal protection portfolio and insulate your family from any crisis.

Term insurance

Annual premium for a sum assured of Rs 1 crore: Rs 6,000-8,000 per year for a 30-year old non-smoking female with a policy tenure of 20 years. Approach a financial planner to formulate an investment strategy and chances are you’ll be asked to buy a term cover first. Though it’s the simplest and most cost-effective type of life cover, it does not promise a maturity corpus unlike the more popular endowment plans and unit-linked insurance plans (Ulips). It kicks in after the policyholder’s death, which means your premium will not ’earn’ you anything. The sum assured is handed over to the insured’s nominees, ensuring their financial security— and your peace of mind.

The cost, too, is very less. For instance, a 25-year-old (male, non-smoker) can buy a Rs 1 crore cover for an annual premium of nearly Rs 6,000. The term policies sold online are cheaper than their offline counterparts. "Most people build huge liabilities, close to the present value of their future savings, during their working years. At any point, they have liabilities in the form of mortgage loan, car and personal loans, and credit cards. Besides, they have significant regular expenses for their kids’ education and lifestyles. These necessitate an adequate life cover to shield the insured’s dependants financially in his absence," says Sunil Sharma, appointed actuary, Kotak Life. As a thumb rule, you should buy a life cover equivalent to your expected income for five years, plus any outstanding loans.

Personal accident insurance

Annual premium for Rs 10 lakh: Rs 1,500 As the name suggests, this cover is restricted to accidental deaths. However, it can come to a policyholder’s rescue in the face of disabilities caused by an accident since it also covers income loss due to absence from work. "An accident and disability cover is, perhaps, the most underrated product in the insurance space," says Mahavir Chopra, head, ebusiness and personal lines, Medimanage.com, a health insurance consultancy firm. "The risk of an accident and the resultant disability is huge. The latter could put you out of action for several days, leading to loss of income. In this context, a disability cover is more important than a health insurance policy," adds Chopra. While choosing such a policy, experts suggest that you should make sure it covers four eventualities— death, permanent total disability, temporary total disability and permanent partial disability.

Health cover

Annual premium for a Rs 5 lakh health cover: Rs 6,000-7,000 for a 30-year-old. "Given the rising healthcare costs, a health insurance policy is indispensable for everyone," says Neeraj Basur, CFO, Max Bupa. "For an individual, the first step is to have a comprehensive indemnity-based cover in place," he adds. This is true even if you have just started earning and do not have any dependants because you will have to shell out a much higher premium if you buy it when you are older. Besides, you should not depend on the cover provided by your employer since a change of job could leave you vulnerable. You can also enhance your cover by adding a fixed benefit plan, which hands over a predefined amount when a claim is made. "Such plans can help replace loss of income due to absence from work. Since the amount is paid to the insured, he can use it to meet expenses other than hospitalisation, such as those on food and travel, recuperation, and so on," says Basur. Home insurance Annual premium for a structure cover of Rs 20 lakh: Rs 1,200 Most home loan borrowers are familiar with home loan insurance, thanks to their lenders, but home insurance is different. While the former protects a family from loan liabilities in case of the policyholder’s demise during the policy term, home insurance protects one’s property from manmade or natural calamities. "During floods, like the one in Uttarakhand, all possessions, including houses, are swept away and very few people are in a position to rebuild their homes on their own.

Home insurance

can provide financial support for resurrecting their dwellings," says Joydeep Roy, CEO and whole-time director, L&T Insurance. The scope of coverage could include damage due to terror attacks, too, whereby policyholders receive a compensation for the value of their property and other articles.

Critical illness

Annual premium for a standalone cover of Rs 25 lakh: Rs 1,500-2,000 If you have bought health insurance, you might question the need for this cover, but experts recommend it. This is because while a health cover takes care of hospitalisation bills and related expenses, a critical illness covers long-term medical care needs for life-threatening diseases like multiple sclerosis and cancer. Most health plans offer a maximum cover of Rs 10 lakh. "One needs to worry more about managing a critical illness rather than death. The developments in medicine have helped prolong life, but funding the treatment costs of critical illnesses remains a challenge," says Chopra. "A critical illness cover can also come in handy if the policyholder is unable to resume work after the treatment, say, for cancer. The payouts will help maintain one’s lifestyle during the recuperation period," explains Sharma.

You also have the option of buying a critical illness rider attached to your term plan.