The insurance business in India isn’t just growing, but it is also becoming more sophisticated in terms of product offerings. To help readers keep ahead of developments in this business, Mint features a Q&A on insurance every Monday.
I am in the process of finalizing an insurance policy. The agent who recommended the policy has also advised me to take additional riders. What are riders? What are the benefits of taking a rider?
A rider on the insurance contract provides additional protection against risk. You can buy a basic insurance policy and add riders to the policy to include extra protection, such as additional accidental death cover, disability cover, critical illness cover and hospitalization benefits.
Although you need to pay an additional charge (premium) towards rider coverage, these additional charges are normally lower than individual polices that provide the same benefits. If the event that has been insured against through rider coverage occurs, you or your beneficiaries will be paid rider benefits.
Premiums on riders are lower than the same cover bought as a specific policy because the insurance company’s administration costs are lower. In other words, riders provide low-cost, pure risk cover. However, they have to be bought along with the base policy at inception,?you?cannot keep adding riders through the tenure of a policy. Riders, if selected properly based on your insurance needs, can add great value to your life cover.
I am a 35-year-old married male earning about Rs15 lakh per annum. I have one whole-life policy and am also planning to invest in pension. Do you think I need to make any further additional investments in insurance?
Insurance needs are specific to each individual, depending on his financial responsibilities and liabilities both pre- as well as post-retirement. Many experts recommend that you purchase insurance worth 5-10 times your current annual income. This is an old thumb rule that does not take into consideration current assets and any special needs you and your family may have. The most logical way todetermine the amount would be to undergo a financial health check (FHC).
A need-based analysis of your long-term savings and insurance needs, the FHC is a free service administered by Aviva’s expert Financial Planning Advisers. Depending on your life stage and earnings, the check assesses and recommends the right insurance product for you.
You may want to start by determining the amount of income that you would like to replace and the number of years you need to replace this income. In addition, you may want to consider funding future expenses such as college education, retirement, and any special needs your child or family member may have.
Readers are welcome to write in with their queries to email@example.com. The questions will be answered by senior executives from leading insurance firms.
This week’s expert is Bert Paterson, managing director, Aviva India.