We regularly get mails from perturbed readers asking a way out of an insurance policy they have but don’t really need—they are obvious victims of mis-selling. The sheer number of mis-selling cases is disturbing, but what is more disturbing is that even senior citizens figure in the list.
The gullible 60 year-plus customer is an easy prey. The spiels run along the same old themes: saving tax, ensuring financial security and leaving behind a legacy for the heirs. But is a life insurance policy the best way to achieve any of the above targets? And to take the argument forward, do senior citizens need insurance at all? While the answer to the first question is no, senior citizens do need insurance—not for their lives, but for their health and assets.
What they don’t need
Life cover: The purpose of taking a life cover is to ensure that your family or financial dependants are not left in the lurch after your death. It is for this reason that we nudge you to evaluate your insurance needs at important milestones such as when you get married or take a home loan.
But typically financial liabilities are taken care of by the time one retires—loans are paid off or are about to end and children are on their own. It’s only in rare cases that financial liabilities continue even after retirement. Says Veer Sardesai, a Pune-based financial planner: “A person needs life insurance if he has dependants. Typically, that happens during the working life of an individual.”
Also, buying a pure life insurance becomes difficult once you cross 60 years of age. Not only do you have to undergo rigorous medical underwriting, the period for which you are covered is limited—usually, you get covered up to 65-70 years of age. We browsed two insurance portals that provide comparison and only around three insurers offered term plans to 60-year-olds for a term of 15 years.
Whole-life plans: Even as pure life insurance makes little sense in the sunset years, insurers see insurance-cum-savings plan as a legacy building tool. Says Rajeev Kumar, vice-president (product and pricing), Bharti AXA Life Insurance Co. Ltd: “Whole-life plans are very good for individuals who are looking to leave behind a legacy for their heirs.”
A whole-life plan typically insures you for lifetime, where you pay premiums all your life and your nominees get the sum assured and any additional bonus after your death. However, some plans have a limited premium-paying term, too.
But numbers tell a different story. Typically whole-life plans are traditional products and invest most of the corpus in debt products. Hence, the returns are conservative. Costs, which are not mentioned explicitly in a traditional policy, dent the returns further. We took an illustration from a whole-life policy. For a sum assured of Rs 10 lakh, a 60-year-old will have to pay an annual premium of Rs 79,590 till 100 years of age. Upon death, the sum assured plus any accumulated bonus will be passed on to the beneficiary. Assuming the death happens at age 70, the beneficiary would at least get Rs 10 lakh, which is the guaranteed sum assured or a return of 4%. However, assuming the fund grows at 6%, the total death benefit will amount to Rs 12.99 lakh or a neat 8% return. However, at 80 the return drops drastically. Assuming the bonus accumulates at 6%, the death benefit would come to Rs 19.88 lakh or a return of just 2%. Says Sardesai: “Whole-life plans rarely make sense. This is because the returns provided by them are so little that it does not even cover inflation.”
Building a legacy: In order to accumulate wealth, you could look at other investment vehicles such as the Public Provident Fund, or PPF. It gives an assured 8% per annum tax-free returns and the contribution qualifies for a tax deduction under section 80C. You could also look at 80C fixed deposits if you are a conservative investor looking for assured returns.
For those who can take some risk, a diversified equity-linked savings scheme will save tax as well as give higher returns.
Says Pankaj Mathpal, a Mumbai-based financial planner: “Buying insurance to pass on a legacy on death is not a good idea. Instead, an individual should accumulate wealth in his lifetime for his family. Individuals actually don’t need whole-life plans because insurance should be bought for a fixed term when there are financial liabilities. When financial liabilities are over in an individual’s life or the individual has accumulated sufficient wealth to take care for his dependants, he doesn’t need life insurance.”
Exception: Financial planners recommend insurance through a term plan only in rare cases. Says Sardesai: “A retired person may buy a term plan if he still has some loan outstanding that is being paid by his pension or any other source of income that will stop in case of his demise.”
What they need
Health insurance: While we maintain that not everyone needs life insurance, especially senior citizens, almost everyone needs a health cover. In fact, when you are old, it is more crucial for you to have a health cover.
The good news is as per regulations, insurers can’t refuse health insurance to individuals till 65 years of age, but shopping for a policy becomes difficult as you grow older. A few policies cover you after 65 years of age, but the sum insured is limited to Rs 3-4 lakh with the insurer trying to limit its risks.
What to buy: If you are a senior citizen and want a health cover now, look for a policy that can be renewed for lifetime. Typically, stand-alone health insurance companies offer policies that can be renewed till the time you live. Also, look at the co-payment clause, according to which the policyholder has to bear a predetermined percentage of the claim amount from his own pocket. Most health policies for senior citizens have a co-payment clause. Opt for a reasonable co-payment limit. You could also look at a critical illness policy to bump up your cover. Says Sudhir Sarnobat, CEO, Medimanage Insurance Broking Pvt. Ltd, a health insurance brokerage firm: “A critical illness policy is usually cheaper than a basic health insurance policy since it caters to only specified ailments. Senior citizens are offered very low sums insured and they can bump up their cover by adding a critical illness policy.”
Insurance for assets: If you own a house, a householder’s policy is a must for you. A basic householder’s policy is primarily consists of fire insurance that covers your house and its contents against fire and allied perils such as flood, earthquake, lightening and storm. You could also terror-proof your house by paying a little more. Terrorism cover comes as an add-on and costs about 10 paise per Rs 1,000 of sum insured.
Do not stop at taking the mandatory third-party cover for your car. A comprehensive car insurance policy covers not only your liability towards a third party, but also pays for the damages to your car and to the passengers in case of death.