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Business News/ Money / Personal Finance/  Should I continue with life insurance plans?
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I have been purchasing health and life insurance policies for the last many years just to save on taxes. I have never made any claims from my health policy so far. Currently, I have seven life insurance policies. Do I need to continue with them?

—Name withheld on request

The primary objective of buying insurance should be protection against unforeseen events, which can lead to huge financial loss. The probability of occurrence of such events is very low. That’s why premiums charged are a small fraction of the sum assured.

You should keep the health insurance policy but check it for adequate sum assured. As a rule of thumb, your health insurance sum assured should be equal to your annual income.

You should put together information on all the 7 insurance policies. If these are traditional endowment plans, you should check the expected return from these plans. Often the tax-adjusted return for traditional plans are lower than alternative investment avenues. In such a case, you could surrender these life insurance plans. Do ensure that you have a term insurance plan. Such a plan would pay a lump sum in the event of your death to your nominee. The sum assured of term insurance should be at least equal to 10 times of your annual income.

I have a floater health policy of 5 lakh for the last five years, and now I have some health issues. Can I take a top-up plan any time during the year or only at the time of renewal to increase my sum insured?

—Name withheld on request

The start date of a top-up plan is independent of the base plan. It is not necessary to wait for the renewal of the base plan or purchase a top-up plan from the same insurer.

Top-up plans work like regular health insurance plans, except they carry a deductible. Claims up to the deductible amount are not covered under the top-up plan. Any amount exceeding the deductible can be reimbursed from the top-up plan. For example, you could buy a top-up plan with a deductible of 5 lakh. Claims up to 5 lakh can be claimed from the base plan, and any excess claim can be filed with the top-up plan.

There are two types of deductibles prevalent: one applied to each claim, and the other based on aggregate claims of the year. The latter option is significantly better. For instance, if you are hospitalized three times in a year, with an average bill of 2 lakh each time, you will be reimbursed 1 lakh from the top-up plan if the aggregate deductible is applied. However, if the deductible were to be applied on each claim, then nothing would be payable.

You should also consider enhancing the sum assured in your existing plan. Many insurers offer to increase the sum assured to the next slab without any fresh medical underwriting.

Abhishek Bondia is principal officer and managing director, SecureNow.in.

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Updated: 10 Apr 2023, 01:27 AM IST
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