knowledge Centre for Insurance Planning
Many times people get confused about how much insurance and what kind of insurance cover they need to cover financial loss.
There are many factors that are relevant before going for insurance cover.
- Do I need Insurance?
- The first thing to do is to determine if you need insurance at all or not. The answer to that is straightforward – if you have people who are financially dependent on you then you need insurance, else you don’t.
- How much cover?
- Though insurance needs vary for individuals and it depends on various factors. But ideally one should have insurance cover on their life 10 times of annual income.
Or
Calculate as per HLV approach (Human Life Value) which defines as the expected life time earnings of an individual, i.e. what is the total income that the individual is expected to earn over the remainder of his working life, expressed in present Rupee terms.
- How much premium should I Pay?
- You should not pay more than 6 to 8% of your annual income.
- For how many years I should continue my policy?
- An insurance cover is basically for replace the income of the policyholder and should, therefore, cover him for his entire working life. If the policy ends before he/she retires, it won`t be of much help when he needs it most. Buying a fresh cover later will be costly.
- What type of policy you should buy?
- Buy term plans to cover your insurance requirement. Buy only term plans where you don't get your money back, since these are the cheapest. And buy them early in life - the later you wait, the higher the premiums are (but it's never too late, unless you are 55+).
An endowment policy appears attractive because of the projected corpus on the maturity of the plan. But one must factor inflation into account. In 25 years, a moderate 8% inflation will reduce the value of 10 lakh to a mere 1.24 lakh.
Caution: Insurance is not investment:
You should always remember that life insurance is a protection and not really an investment because financial returns are rather meager.
If you take inflation into account, there could even be a negative rate of real return at the time of maturity of your insurance policies. So, while it's important to secure your family's well-being through adequate insurance of the lives of the earning members, over-investing is a mistake.
Mediclaim / Health Insurance
- Why we need Health Insurance?
- Health insurance provides you the cover against the medical care costs arising from disease or accidental injuries. Medical care costs are shooting up and in return it bars layman to get best treatment. Health insurance is a crucial financial product that every individual must have irrespective of their age. It allows you to focus on getting the best treatment without bothering about the financial costs of the same.
- How does Health insurance work?
- In health insurance payout by the insurance company can be claimed in two ways:
- Reimbursement Settlement-After the charges have been paid by you upfront. Claimed as a reimbursement where in you bear the costs first and then file a claim to the insurance company and it’s paid back to you.
- Cashless settlement – where if the treatment is sought in a hospital which is associated with the insurance provider, the insurance company pays the hospital directly.
- How much Health insurance cover we need?
- There is no as such thumb rule that how much one should take health insurance cover for their family. It would depend on several factors like age, health condition, and lifestyle and so on. Ideally you would want to cover costs of the big surgeries and operations. In order to decide the amount of cover, you would have to take a good look at your medical history and check how vulnerable you are to certain patterns of illnesses.
- What are the different kinds of health insurance?
- Individual Mediclaim Policy
This is the plain vanilla mediclaim or health insurance policy for an individual protecting this person from the expenses incurred due to disease or injury.
Floater Policy
A floater health insurance policy covers your entire family under one policy with one sum insured and one premium. It covers all the expenses as covered under mediclaim only the cover is now extended to the family instead of one person. This cover can be used by any member of the family any number of times. The advantage of this policy is that saves money by spreading the cover across family members.
Critical Illness Policy
Insurance companies define certain specified illness or diseases as “critical”. If you have a critical illness policy, then the insurance company will pay you a lump sum payment if you are diagnosed with a critical illness as defined by the insurance company.
Some of the diseases/conditions which are usually deemed critical are Cancer, Heart Attack, Kidney Failure, Major Organ Transplant, Stroke, Paralysis and Heart Valve Replacement Surgery.
Overseas Mediclaim Policy
An Overseas Mediclaim Insurance policy provides cover for medical expenses incurred abroad for treatment of illness and diseases contracted or injury sustained during the insured period of overseas travel. Anyone who is traveling abroad for business or pleasure or for educational purposes should have this policy.
Student Mediclaim Policy.
Student Medical insurance covers the cost of health care while studying abroad. It is an essential requirement of many foreign universities for its overseas students. Students are generally advised to buy it in India as it is substantially cheaper than buying it abroad.
Senior Citizen Mediclaim Policy
Senior Citizen Mediclaim Policy has been designed to cater to the needs of our Senior Citizens. It covers Hospitalization and Domiciliary Hospitalization Expenses as well as expenses for treatment of Critical Illnesses. If opted for.
- How much does health insurance cost?
-To avail of the benefits of health insurance, you need to pay a yearly premium or the cost of insurance. This premium mainly depends on the following factors:
- No. of people to be covered
- Amount of coverage required
- Age of the oldest family member who is proposed to be covered
- Benefits
Things to watch out for:
Health insurance will not cover all the costs that you might incur for medical related reasons. Even after buying health insurance it is essential that you set aside some part of your savings for health related expenses as the product inherently has some limitations that one should be aware of when planning for the future.
- No coverage for routine medical expenses, checkups or medicines.
- Insurance company covers only upto the inpatient sum insured within the policy. No matters how much one incurs in treatment.
- Some policies restrict insurance cover after certain age.
- Exclusion in policies
- Waiting periods & Cooling off period.
- Copayment, Excess and deductible clause.
Caution:
Many times it has been seen that people ignore health insurance because either they have such benefits from their employer or through social security schemes offered by government. But they forget about the situation when they leave current employment and join new. For that transition period they don’t have such cover and the cover if they have as a social security schemes is meager. So everyone must have health insurance on their life and their family members through individual or floater policy from their own. The policy which you takes in the initial years benefit you in later years of your age by relieving various waivers.
- Why Disability Insurance?
-An insurance contract wherein an insurer undertakes to pay money in the event that the insured becomes disabled or unable to engage in his/her occupation as a result of bodily injury, disease or mental disorder. It protects workers against the loss of earnings due to temporary or permanent disability.
In case the insurance policy holder, at any time during the term of the policy, becomes incapacitated due to illness or injury, which prevents him from leading a normal life and earn for the survival of self or family, the company provides disability insurance in relieving the financial pressure. However, if he becomes permanently incapacitated due to the illness or accident, then he is benefited with the total & permanent disability (TPD) insurance. This insurance is often combined with life insurance as an option
It covers Permanent total Disability, Permanent Partial Disability and Temporary Total Disability.
Types of disability insurance
Disability insurance plans come in three basic varieties:
- Employer-sponsored group plans in which an employer pays all or part of the yearly.
- Group plans that you purchase through an employer.
- Individual policies that you purchase on your own.
- How much disability insurance do you need?
- Consider your estimated spending, income, and bills are a few examples of what should be considered when determining your disability benefit amount. You also need to consider what you currently have available financially such as investments, social security disability benefits and your partner's income.