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Insurance portfolio review: Up term cover with rising income, liabilities

A good rule of thumb is to purchase term cover amounting to 7-10 annual income, plus outstanding liabilities

Bs_logoLife insurance firms adjust term premiums by 5-10% ahead of FY25 end
Illustration: Ajay Mohanty
Sanjay Kumar SinghKarthik Jerome
5 min read Last Updated : Dec 23 2024 | 10:30 AM IST
Harsh Kumar (name changed on request), a 54-year-old Bengaluru resident, meticulously reviews his investment policy in December every year. This year, at the suggestion of a golfing buddy who is a financial planner, Kumar also turned his attention to his insurance portfolio. “A robust insurance portfolio provides the foundation upon which a strong investment strategy is built,” his friend said. Considering this, Kumar reviewed his policies and discovered significant gaps in his term and health insurance coverage. 
Reviewing term coverage
  If you have started working and have dependants who rely on your income, you must buy term insurance at the earliest. “Premiums are lower when you are younger. Premium in a term policy remains unchanged throughout the policy tenure, so a lower price is beneficial,” says Srinivas Balasubramanian, chief of products, ICICI Prudential Life Insurance. He adds that as one ages, the onset of health conditions can cause insurers to charge higher premiums. 
A good rule of thumb is to purchase term cover amounting to 7–10 annual income, plus outstanding liabilities. 
While choosing the cover, select an appropriate tenure. “The term cover should last until your liabilities are paid off and your children have started earning,” says Rhishabh Garg, head of term insurance, Policybazaar. 
When to enhance cover: If there has been a significant change in your income over the past year, review the sum insured. Your family gets accustomed to a higher standard of living, which means you need a higher cover to help them maintain that lifestyle. “New liabilities, such as a vehicle, home, or education loan, should also be factored into your insurance needs,” says Balasubramanian. According to him, lifestyle changes, such as marriage, the birth of a child, and other significant milestones, are also important triggers for reassessing coverage. 
When to reduce coverage: According to Garg, one may reduce coverage after repaying a significant liability, such as a home loan. 
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Before reducing the cover, consider whether you wish to use the term plan to transfer wealth to your children. “Maintaining coverage can be beneficial as a tax-efficient way to leave a legacy for the next generation,” says Balasubramanian. 
Should you switch? Stay with your insurer unless there are serious issues, such as consistently poor claim settlement ratio or delays in claim processing compared to industry standards. “Discontinuing your existing policy resets the three-year protection provided under Section 45 of the Insurance Act, which mandates claim settlement after three years,” says Balasubramanian. If new policies with better features or more attractive pricing become available, buy a supplementary policy instead of replacing the current one. 
Reviewing health cover
  Is sum insured enough? Healthcare inflation in India is around 14 per cent. If you purchased a policy a few years ago, the sum insured might no longer be sufficient to cover rising medical costs. “If you are under 30, plan your health insurance cover with an eye on your 50s and beyond, when hospitalisation risks typically peak,” says Aayush Dubey, co-founder and head of research, Beshak.org. He emphasises upgrading your coverage early, as enhancing it later may not be possible if health issues arise.
  Major life events also necessitate adjustments to coverage.  
“Life events like marriage or childbirth can increase healthcare needs, warranting an adjustment in coverage,” says Ashish Yadav, head of products and operations, ManipalCigna Health Insurance. 
Why consider a super top-up? For those seeking more comprehensive coverage, a super top-up policy can be useful. 
“A super top-up is often a more cost-effective option as it provides additional coverage beyond the specified deductible amount at a lower premium compared to increasing the base policy’s sum insured,” says Yadav.  
Dubey recommends purchasing the super top-up from the same insurer to streamline claim processing and minimise the risk of conflicts or delays. 
The case for a critical illness cover: Individuals with a family history of serious illnesses, those in high-risk professions, and those with lifestyle issues (like smoking) should evaluate the need for a critical illness policy. These plans provide a lump-sum payment upon the diagnosis, which can be used to meet expenses other than those covered by the base policy. 
Reduce coverage? Reducing the sum insured is generally not advisable due to rising healthcare costs. However, in rare cases, it may be necessary. “If the rising premium of your base policy makes it unaffordable, consider reducing the sum insured on your base policy while adding an affordable super top-up policy to maintain overall protection against large medical bills,” says Dubey. 
Identify gaps in coverage: Understand what your policy covers and excludes. Ensure it includes hospitalisation, daycare treatments, and pre- and post-hospitalisation expenses. “Check for sub-limits on room rent and specific treatments, as these can reduce the claim amount,” says Yadav.
  Also, verify the insurer’s hospital network so that you can avail of cashless treatment. Review the waiting periods for pre-existing conditions as well. 
Should you consider porting? According to Dubey, porting a health insurance policy may be useful if you are unhappy with claim settlement, service quality, or significant premium hikes. It is also advisable if the insurer has a limited hospital network in the new city you have moved to.

Topics :Insurance policyPublic health insuranceinsurance plans

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