I have been buying health and life insurance policies for many years just to save on taxes. I have never made any claim from my health policy so far. Currently, I have seven life insurance policies. Should I continue with them?
I have been buying health and life insurance policies for many years just to save on taxes. I have never made any claim from my health policy so far. Currently, I have seven life insurance policies. Should I continue with them?
—Name withheld on request
—Name withheld on request
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The main purpose of buying insurance should be protection against unforeseen events, which can lead to huge financial losses. The probability of occurrence of such events is very low. This is why the premiums charged represent only a small fraction of the sum insured.
You should keep the health insurance policy, but check it for an adequate sum insured. As a general rule, the amount of your insured health insurance should be equal to your annual income.
You need to gather information on all 7 insurance policies. If it’s traditional endowment plans, you need to check the expected performance of those plans. Often, the tax-adjusted return of traditional plans is lower than that of other avenues of investment. In such a case, you could redeem these life insurance plans. Make sure you have a term insurance plan. Such a plan would pay a lump sum upon death to your nominee. The sum insured for term insurance must be at least 10 times your annual income.
I have a floating health policy of ₹5 lakh for the past five years, and now I have health problems. Can I subscribe to an additional formula at any time of the year or only at the time of renewal to increase my insured capital?
—Name withheld on request
The start date of an additional plan is independent of the basic plan. It is not necessary to wait for the renewal of the basic plan or to subscribe to an additional plan with the same insurer.
Supplemental plans work like regular health insurance plans, except they have a deductible. Claims up to the deductible amount are not covered by the supplemental plan. Any amount exceeding the deductible can be reimbursed by the supplementary plan. For example, you could purchase an add-on plan with a deductible of ₹5,000,000. Claims up to ₹5 lakh can be claimed from the basic plan, and any excess claim can be filed with the add-on plan.
There are two types of common deductibles: one applied to each claim and the other based on the overall claims for the year. This last option is much better. For example, if you are hospitalized three times a year, with an average bill of ₹2 lakh each time you will be refunded ₹1 lakh of the add-on plan if the blanket deductible is applied. However, if the deductible were to be applied on each claim, then nothing would be payable.
You should also consider increasing the sum assured in your existing plan. Many insurers offer to increase the sum insured to the next installment without new medical underwriting.
Abhishek Bondia is Senior Director and Managing Director of SecureNow.in.