We always hope for the best, but have you ever asked yourself the question- Will my demise cause financial loss to anyone? If the answer is yes, then it is time to consider a term insurance plan keeping this risk in mind. This suggestion is from Amit Malta, Chief Distribution Officer, ICICI Prudential Life Insurance.
These plans act as an income replacement on the death of the primary member. Usually the next question would be, how much coverage should one get? In short, the answer is that there is no exact or one formula.
The calculation should take into account the individual’s family lifestyle, long-term financial responsibilities such as a healthcare commitment for retiring parents, the cost of higher education for the children, as well as any financial liabilities such as home or vehicle loans. In the event of the death of the policyholder, the life cover should be calculated to cover all these. Individuals up to the age of 40 years should take a life cover equal to 20-30 times their annual income. For individuals between 40 and 50 years, it is recommended to offer a life cover of 10-15 times the annual income, and for individuals above 50, the life cover is ideally 5 times their annual income should.
According to the recently released annual report of the Insurance Regulatory Authority of India (IRDAI), the penetration of life insurance in India is 2.74% of the GDP, as compared to the global average of 6.31%. The number of claim takers is very less in comparison to the number of deaths due to the epidemic in the country. It is clear from this that life insurance is accessible to very few people.
What is the reason for people’s reluctance to buy a term insurance plan? Thinking about all these things, the most common difficulty people face is that they will not achieve anything personally in the end. Apart from this, many people buy term insurance policies only till the age of 60 years or 70 years. As life expectancy in India has increased steadily and most of the people are living till the age of 70 and 80. More people are outlining their policy term, which only frustrates the policyholder. Keeping these issues in mind, insurance companies are also offering innovative term plans to meet the growing / diverse / allied needs of the customers.
Critical Illness Benefit: The lifestyle of the 21st century has given rise to diseases like diabetes, hypertension, cancer, heart diseases and many more. According to the report of India’s National Cancer Registry Program, ‘by the year 2020, the number of cancer victims in India was 679,421 (94.1 per 100,000) among men and 712,758 (103.6 per 100,000) among women. One in 68 men (lung cancer), 1 in 29 women (breast cancer), and 1 in 9 Indians will suffer from cancer in their lifetime.
The Million Death Study (MDS) report prepared by the Center of Global Health Research in collaboration with the Registrar General of India said that in 2015, 2.1 million deaths were due to heart diseases alone. The cost of just one chemotherapy session in India ranges from Rs 1 to 2 lakhs. According to the National Health Authority of India, 64.2% of the total health expenditure by households is out of pocket expenditure. Understanding this pain of customers, life insurance companies have introduced term insurance plans with in-built critical illness features. Policyholders can include these as riders at the time of purchasing their term plan with an additional cost.
The claim is paid to the policyholder upon diagnosis. ICICI Prudential Life Insurance offers coverage against 34 critical illnesses and customers can consider the disease history of their family and choose a plan that suits their needs.
Whole Life Option: Whole life option offered by the life insurance industry is designed to give an extra buffer to those who are concerned about outlining their policy term. With this option, people can extend their insurance coverage till they turn 99. Buying a term insurance plan is not enough. Policyholders should tell their dependents about the policy and how to use the life cover income properly.
Term insurance should be the first step towards building your long term financial plan. If properly planned, it can give the necessary financial assurance to the beneficiaries, and benefit the policyholder in critical care. Starting early and taking a right decision is vital for the safety of one’s health and long term finances.