In view of life and health uncertainties, insurance is a must for everyone’s financial plan. It offers the much-needed financial cushion should an unfortunate event occur. However, salaried employees often face a dilemma as to what percentage of his/her salary should go towards payment of life and health insurance premiums. More so in the wake of rapidly rising cost of living across cities.
Experts say that buying insurance with low sum assured will not help in the long run. When it comes to health insurance, the thumb rule is that 2-5 percent of your monthly income should go towards health insurance coverage. But this is just a thumb rule and one can vary it according to their current requirement based on members in the family, especially elder members.
“While buying health insurance, it is important to take the future value of money into account. Any treatment that costs Rs 5 lakh today, may cost over Rs 50 lakh 18-20 years later, given the skyrocketing medical inflation. It’s advisable to go for a minimum sum insured of about Rs 10 lakh, and this can go up to Rs 25 lakh. If your pocket allows, you could go much higher as well,” Vivek Chaturvedi, Head of Direct Sales at Digit Insurance, told FE Online.
Experts say that that a higher sum insured does not translate to a proportionate rise in premiums.
“As a rule of thumb, we would advise going for a sum insured that is equal to your annual income. If you buy a Rs 10 lakh cover at age 25, you’re likely to spend anywhere between Rs 700-1,200 a month based on the insurer you opt for,” said Chaturvedi.
“It’s also important to look at top-ups to enhance the cover and maximize benefits if you only have an employer-offered cover or a cover with lower sum insured. Top-ups are an affordable way of enhancing your health cover,” he added.
Rakesh Goyal, Director at Probus Insurance, said one needs at least Rs 10 lakh cover for the family and top-up or super top-up if needed. Generally policyholders should spend around 8-10% of their income on insurance need.
Life insurance
Experts say that buying the insurance for lower sum assured will not solve long term purpose in their financial planning.
“While looking at buying the life insurance, one should not just look at the affordability of the premiums. Policyholder should ensure that the cover is enough to meet family’s financial requirement as well as repay all debt when he is not around. Typically, life insurance should be around 10-15 times your annual income. So if someone is earning Rs 10 lakh per annum he should have a life insurance cover (term plan) of Rs 1-1.5 crore,” Goyal said.
However, premium should not be the only factor to be considered while buying a life plan.
“Premium should not be the only factor to arrive at the coverage, other factors like pre-existing conditions, medical history, and hereditary ailments that may crop up in the future matters. For life insurance again, the premium should not be based on the percentage of salary but on the existing and future liabilities such as home loans, education for children, and so on,” said Vijay Singhania, Chairman, TradeSmart.
Motor insurance
When it comes to motor insurance, third-party insurance is mandatory for plying on Indian roads. Other than a third-party cover, it’s also important to buy an own-damage cover that protects you and your vehicle against any damages caused due to accidents, fire, natural disasters, theft and so on.
“Ensure that the sum insured you opt for is as much as the market value of your car. Based on the make and model of your vehicle, you may have to shell out anywhere between Rs 10,000-20,000 a year. When it comes to non-life insurance, the complete insurance needs of a family can be fulfilled by spending 3-4% of the family’s income if the household earning is Rs 12 lakh per annum,” said Chaturvedi.
from | The Financial Express https://ift.tt/VOxpmWe
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