The last thing you would want to hear or expect this Diwali is an accident of any kind. But as unpleasant as it may sound amid festivities, we would like you to be prepared for any eventuality. Accidents involving fireworks are common during the festival. This Diwali we bring you three important insurance covers you must have to ensure peace of mind.
Life insurance cover
If you are the only earning member of your family, a life insurance policy is a must to provide a financial cover to your dependants upon your death. A term plan is your best bet since it only charges for the cost of insurance. If you die during the term, you get the sum assured or death benefit, but you get nothing back if you survive the term.
But sadly, despite the reforms in the last couple of years, what gets pushed are savings plans or market-linked investment plans. In these plans, your premium not only includes the cost of insurance, but also the cost for the investment component. Usually, both the elements of insurance and savings come at a huge cost. Stick to a term plan which is the cheapest way to buy life insurance.
Illustrations by Shyamal Banerjee/MintHow much do you need? Life insurance is a moving target. Typically, term plans are available till 60-65 years of age. You need to factor in your age, number of dependants and lifestyle changes when arriving at the sum assured. As a rule of thumb, financial planners recommend that you have a cover equal to 12-15 times your annual expenses or 8-10 times your annual income. However, if you have a debt, such as a home loan, you should factor in that too. In order to cover your loans, you could consider buying a decreasing term plan. This policy is cheaper since the sum assured in this plan decreases over time and so does your outstanding loan amount.
How to buy? If term plan is your choice, buy it online. Apart from the convenience of buying a policy from the comforts of your home, you will save on cost. Online term plans are cheaper since they pass the agent and administrative costs they save to you. Insurers such as Aegon Religare Life Insurance Co. Ltd, ICICI Prudential Life Insurance Co. Ltd, Kotak Life Insurance Co. Ltd, Future Generali India Life Insurance Co. Ltd and Aviva Life Insurance Co. India Ltd offer online terms plans. Much of the process happens online, but know-your-client check and medical tests take place offline.
Health insurance cover
Unlike a life insurance policy that is paramount for the earning members of a family, a health insurance cover is a must for all the family members. An accident and resulting hospitalization can cause a serious dent in the wallet which is why you need a policy that will cover your hospital bills.
Even in this space, we recommend the basic health insurance plan. It is an indemnity policy that pays your hospital bill and also reimburses expenses incurred before and after hospitalization. Most health insurance policies these days are cashless in their network of hospitals. If you are getting treated in a network hospital, then all you need to do is show your health insurance card and your hospital settles your bill with the insurer directly. But if you go to a hospital that is not in the insurer’s network, you need to pay up initially and produce the bills later for reimbursement.
How much do you need? No rule of thumb works here. Unlike a life insurance policy, where the sum assured can be assessed by your income, cover in a health insurance policy is subjective. However, if the average cost of major surgeries is any reference, then a sum insured of at least Rs 3-4 lakh is important.
Begin with buying an individual policy. If you have a family, you could top it up with a family floater policy. This plan considers the family as one unit and covers all the members of the family. So if one member makes a claim, the sum insured is reduced by that amount for the entire family. Usually under the floater policy, even a newborn can be covered.
How to buy? Health insurance policies can be bought online, too. Says Akshay Mehrotra, chief marketing officer, Policybazaar.com, an insurance portal that facilitates online buying of insurance policies: “The customer will need to fill up the proposal form and pay the premium. The payment gateway is that of the insurer so if the insurance company has an online system, the customer can be covered instantly in case of a clean proposal. Other companies may insist on a verification that may take a couple of hours. If the company does not have a virtual format then issuing a policy may take a day’s time. If the customer has a medical condition or the sum insured is huge, then the policy will be issued after a medical check up.”
Companies such as Star Health Allied Insurance Co. Ltd, Apollo Munich Health Insurance Co. Ltd and Max Bupa Health Insurance Co. Ltd take about an hour to issue the policy, according to Policybazaar.com.
Once you are covered, the policy will cover hospitalization on account of accidents immediately. However, there is an initial waiting period of 30 days before hospitalization from ailments or other medical conditions can be covered.
Personal accident cover
An accident can claim your life or may leave you hospitalized. While the two policies mentioned above will insulate you and your dependants from financial worries, you will still need an income stream for the period you are unable to work. A personal accident policy is important for an earning member of the family. It offers a financial compensation against an accident that may leave you permanently or temporarily crippled.
A personal accident policy has covers for four situations: death, permanent disability, permanent partial disability and temporary total disability.
For death or permanent disability, the policy pays you a lump sum compensation, which is typically 100% of the sum insured. For permanent partial disability and temporary disability, the policy pays a percentage of the sum insured.
Says Sudhir Sarnobat, CEO, Medimange Insurance Broking Pvt. Ltd: “In case of permanent partial disability, the benefit ranges from 2-100% of the sum insured, depending upon the disability. In case of temporary total disability, the benefit is 1% of the sum insured and is paid weekly for up to 104 weeks. This weekly compensation should not be more than the weekly salary a person earns. In that case, the amount equal to the weekly salary is paid.”
In order to pay you this weekly benefit, the insurer will need a period of disablement, which means the period from the date of accident to the date of fitness certificate as given by a doctor. But in order to avoid the misuse of the policy, insurers typically have an overall cap on the benefit. Explains T.A. Ramalingam, head (underwriting), Bajaj Allianz General Insurance Co. Ltd: “In case of a temporary total disability, the weekly compensation is limited to Rs 5-10 lakh. This limit is in order to avoid misuse of the policy.”
How much to buy? Your income and profession determine the maximum personal accident cover that you can get and the premium that you will need to pay.
Typically, the maximum cover you can get is 10 times your annual income. Says Gaurav Garg, CEO and managing director, Tata AIG General Insurance Co. Ltd: “Insurers typically apply the thumb rule of 10 times the annual income as the maximum cover. The idea is to ensure that the cover is not disproportionate to the income. It is advisable to take the maximum of this cover, especially if you are a young earning member.”
The premiums depend upon your profession. There are three risk categories that grade your profession. For instance, a pilot will pay a higher premium than a corporate employee because his profession is seen as riskier. Despite the gradation, a personal accident is an affordable policy. Adds Ramalingam: “For a death-only cover, the premium is around Rs 45 per lakh of the sum insured. However, for all the four covers the premiums will vary from Rs 150 to Rs 250 per lakh, depending upon the profession of the insured.”
How to buy? Personal accident policies often come as bundled covers along with credit cards or as riders with life insurance policies. You can also get personal accident covers with auto insurance and home loan covers. But remember to understand what covers are available to you in the name of personal accident policies. Often these bundled policies cover only death and permanent disability. Choose a policy that covers all four casualties.
While we wish you a safe Diwali, you must ensure your family’s protection.