YEAR-END REVIEW OF INSURANCE
PORTFOLIO
Boost term cover with rising income and liabilities
Increase health cover tackles rising medical costs; consider super top-up and critical illness plan
A robust insurance portfolio provides the foundation upon which a strong investment strategy is built.
Reviewing term coverage
If you have started working and have dependants who
rely on your income, you must buy term insurance at the earliest. Premiums are
lower when you are younger. Premium in a term policy remains unchanged
throughout the policy tenure so a lower price is beneficial. He adds one ages,
the onset of health conditions can cause insurers to charge higher Premiums.
A good rule of thumb is to purchase term cover
amounting to 7-10 annual income, plus outstanding liabilities.
While choosing the cover, select an appropriate
tenure. The term cover should last until your liabilities are paid off and your
children have stared earning.
When to enhance cover: If there has been a significant change in your income over the past year, review the sum insured. Your family gets accustomed to a higher standard of living, which means you need a higher cover to help them maintain that lifestyle. New liabilities, such as a vehicle, home, or education loan, should also be factored into your insurance needs. Lifestyle changes, such as marriage, the birth of a child, and other significant milestones, are also important triggers for reassessing coverage.
When to reduce coverage: one may reduce coverage after
repaying a significant liability, such as a home loan.
Before reducing the cover, consider whether you wish
to use the term plan to transfer wealth to your children. Maintaining coverage
can be beneficial as a tax-efficient way to leave a legacy for the next
generation.
Should you switch? Stay with your insurer unless there are serious issues, such as consistently poor claim settlement ratio or delays in claim processing compared to industry standards. Discontinuing your existing policy resets the three-year protection provided under Section 45 of the Insurance Act, which mandates claim settlement after three years. If new policies with better features or more attractive pricing become available, buy a supplementary policy instead of replacing the current one.
Reviewing health cover
Is sum insured enough? Healthcare inflation in India is around 14 per cent. If you purchased a policy a few years ago, the sum insured might no longer be sufficient to cover rising medical costs. If you are under 30, plan your health insurance cover with an eye on your 50s and beyond, when hospitalisation risks typically peak. He emphasises upgrading your coverage early, as enhancing it later may not be possible if health issues arise.
Major life events also necessitate adjustments to
coverage.
Life events like marriage or childbirth can increase healthcare
needs, warranting an adjustment in coverage.
Why consider a super top-up? For those seeking more comprehensive coverage, a super top-up policy can be useful.
A super top-up is often a more cost-effective option
as it provides additional coverage beyond the specified deductible amount at a
lower premium compared to increasing the base policy’s sum insured.
Purchasing the
super top-up from the same insurer to streamline claim processing and minimise
the risk of conflicts or delays.
The case for a critical illness cover: Individuals
with a family history of serious illnesses, those in high-risk professions and
those with lifestyle issues (like smoking) should evaluate the need for a
critical illness policy. These plans provide a lump-sum payment upon the
diagnosis, which can be used to meet expenses other than those covered by the
base policy.
Reduce coverage? Reducing the sum insured is generally not advisable due to rising healthcare costs. However, in rare cases, it may be necessary. If the rising premium of your base policy makes it unaffordable, consider reducing the sum insured on your base policy while adding an affordable super top-up policy to maintain overall protection against large medical bills.
Identify gaps in coverage: Understand what your policy covers and excludes. Ensure it includes hospitalisation, day-care treatments, and pre-and post-hospitalisation expenses. Check for sub-limits on room rent and specific treatments, as these can reduce the claim amount.
Also, verify the insurer’s hospital network so that
you can avail of cashless treatment. Review the waiting periods for
pre-existing conditions as well.
Should you consider porting? Porting health insurance policy may be useful if you are unhappy with claim settlement, service quality, or significant premium hikes. It is also advisable if the insurer has a limited hospital network in the new city you have moved to.
For More Details: Pooja Manoj Gupta, visit www.giia26.com