More dependants, increased liabilities should prompt hike in term cover

Boost health coverage periodically to cope with double-digit medical inflation & access premium healthcare facilities

Just like investments, your insurance portfolio too needs an annual check-up. Every year, you should assess if the current coverage amount is adequate, and in harmony with the medical inflation.

And you should evaluate whether porting to a new policy that offers the latest, improved features would be good for you or not.

Term insurance

Increasing term insurance coverage is advisable in the following situations: One, if there has been an increase in the number of dependants due to marriage or the birth of a child; two, if liabilities, such as a home loan, have increased; and three, if there has been a significant change in the financial requirements associated with an existing goal.

“(Like) Your child, for instance, earlier wanted to pursue a degree within India. But now he wants to go to a foreign university. If this new goal needs to be supported by a loan, it should be backed by more insurance coverage,” says Arvind Rao, founder, Arvind Rao and Associates.

Four, according to Kapil Mehta, co-founder, SecureNow Insurance Broker, an increase in family income leads to a change in lifestyle. This warrants increased coverage so that the lifestyle can be maintained even in the breadwinner’s absence.

Conversely, a reduction in life insurance coverage can be considered if a dependant, such as a child, has become financially independent, or if a liability, such as a home loan or an education loan, has been paid off.

Determining life insurance coverage involves calculating the difference between the total value of responsibilities and liabilities needing coverage and the total worth of the investments or assets an individual possesses to meet them.

“Life insurance coverage can also be reduced if assets have grown or a person has come into a lot of wealth, say, by way of inheritance,” says Mehta.

Insurance prices tend to fluctuate. “It is at times possible to secure the same level of coverage at a lower cost,” says Mehta.

Health insurance

How much cover is ideal? 

Many families have older policies where the sum insured is barely Rs 2 to 3 lakh. “A family of three living in a metro, whose eldest member is 35 years old, should have a cover of between Rs 10 lakh and Rs 20 lakh,” says Siddharth Singhal, business head-health insurance, Policybazaar.com.

A higher coverage can be achieved cost-effectively by combining a base plan with a super top-up.

When to hike cover?

Additions to the family (through marriage or birth) should lead to an increase in coverage. “Sometimes, a medical emergency within the family highlights the inadequacy of the existing cover. Such an event should prompt an increase,” says Rao.

Health insurance coverage should also be hiked periodically to keep pace with medical inflation, or increase in healthcare costs.

“When a person’s standard of living improves, they prefer to be treated in higher-end hospitals and avail of better facilities, like a single room instead of a shared one. These considerations, too, should lead to a revision in coverage,” says Rao.

Mehta says that a change in location, such as a shift from a tier-two town to a metropolitan area, should also lead to a hike in coverage, to cope with higher treatment costs in the latter.

Shift to better-quality products: Policyholders with older policies may want to port to newer ones that offer features not available previously.

For instance, earlier policies for seniors came with mandatory co-payment. “Co-payment has now become optional and can now be avoided by paying a higher premium,” says Singhal.

The no-claim bonus feature has become more attractive in newer plans. “Maternity and OPD (out-patient department) coverage have also become more comprehensive,” adds Singhal.

Individuals with pre-existing diseases (cardiac ailments, diabetes, etc.) can now reduce the waiting period and even enjoy day-one coverage by paying a higher premium. Frequent travellers can purchase policies offering global coverage.

A person who feels the need for any of these features should consider porting to a newer plan.