Should I buy double accidental death insurance or a life cover?

I am 29 years old. Is it better for me to buy double accidental death insurance instead of buying a life insurance policy?

—Name withheld on request

While the cost of accidental death insurance is only a fraction of life insurance, coverages in both policies are substantially different. So, doubling the sum assured in one policy would not cover the risk of the second. As the name suggests, accidental death insurance only covers deaths linked to accidents. Even in such cases, the standard accidental death policy has a few exclusions. This includes adventure sports, alcohol abuse, and self-injury. In several cases of accident, the circumstances could fall in grey area of such exclusions. A common example is that of an accident while being under the influence of alcohol. Compared to this, a life insurance policy has no exclusions except suicide for the first year. This makes the policy significantly more comprehensive even for accidental risk.

More importantly, while the risk of natural death is low in young age, it is not non-existent. Apart from long-term chronic diseases that develop with age, young individuals have significant incidence of severe illness and death due to infectious diseases and cancer. It is recommended to be covered for this. Insurers recognize the low incidence of natural death at a young age. This is reflected in significantly lower premium for a 29-year-old compared to a 45-year-old. Moreover, life insurance is a long-term contract. Once the premium is locked-in, it remains the same for the duration of the contract. So, you have the option to avail the low premium rates right now.

I had taken a home insurance policy seven years ago. Since then the value of my flat has appreciated by 200%. However, I have kept the sum assured same. Is this fine or do I need to change?

—Name withheld on request

The traditional home insurance is issued on a reinstatement basis. This policy covers only the cost of reconstruction of the house and not the cost of land. While declaring the sum assured for a traditional home insurance, you should be mindful of this. Generally, the price of reconstruction of the house follows a rather linear rate in line with general inflation. So, while the cost of the property itself may have gone up by 200%, you do not need to increase the sum assured of the house in the same proportion. You should increase the sum assured to the extent of inflation in the reconstruction cost. You should do a fresh estimate of the cost of reconstruction per square foot, and then multiply that with the total area of the flat. This calculated value should be declared as the sum assured. The price of the house has little bearing on the sum assured here.

Of late, a few insurers have started offering ‘agreed value’ policies for home insurance. These policies are issued on the total resaleable value of the flat.

In case the property cannot be used anymore or total loss, because of a covered risk, the policyholder becomes entitled to the full value of the house. The title of the house in such cases gets surrendered to the insurer. In such policies, it is recommended to always consider the actual market price of the flat. If the price appreciates, then the same should be reflected in the sum assured.

Abhishek Bondia is principal officer and MD at SecureNow.in