For the breadwinner

FINANCIAL PLANNING: A few must-have insurance policies, if you are the sole earning member.

As income-levels rise, so do aspirations. And an untimely demise or accident can put an end to all of that. So, it is extremely important that one has adequate insurance to cover for all exigencies. It becomes even more important when there is only one breadwinner in the family.

But the trouble is that there is no way to decide on what is the ideal mix of policies one should have. Things get even more difficult because of the endless maze of insurance policies available, each one with its own little product differentiation which is touted as its unique selling proposition (USP). Here's a guide to the insurance needs of a family breadwinner.

Term insurance
For starters, get yourself a term policy. As the name suggests, term policies provide cover for a certain time span. This could be five years, 10 years, 20 years or more. And the sum insured is payable on the death of the life assured within the policy period. But, there are no benefits payable on maturity of the policy in case the policyholder survives.

Term insurance comes at a lower cost as well. This is primarily because there is no savings element in this type of insurance. Therefore, such policies are insurance in the truest sense. Since the premiums are very low, you can go in for a high-risk cover (meaning higher amount) to substitute for lost income of the family breadwinner in case of untimely demise.

Therefore, if one takes out such a policy at a young age, say 32 and keeps topping it up as his income increases, his family can be adequately covered for possible loss of income he would be earning till retirement.

Moreover, with term insurance, there is nothing to lose if one can't afford to pay or if he decides to discontinue the policy, since it does not have any maturity benefits. Of course, the latter is not advisable as one tends to lose the insurance cover, if one stops paying the premium.

Also, it is advisable to take additional riders like accidental death and critical illness for an additional premia. The accidental death benefit rider provides the life assured a higher risk cover in case the death is due to an accident and the critical illness rider provides a lumpsum in case the life assured is diagnosed with a life-threatening disease covered under the policy, such as renal failure, heart attack, cancer etc.

These two riders are strongly recommended, since untimely death at a young age is generally due to an accident or some serious disease. An important point to note here is that the critical illness rider provides the family of the insured a lumpsum to take care of treatment in case of such major diseases, which can be quite expensive.

Accidental death/disability policy
This is a stand alone policy provided by general insurance companies. Such a policy goes a step ahead of the accidental death rider discussed above, since it also pays for permanent disability or dismemberment and comes at very low premia.

They also provide a lumpsum, which is the sum assured, in case of accidental death. If the injured survives, but suffers dismemberment of any body part mentioned in the policy, he receives a lower amount, depending on the importance of the body part.Also, there are smaller accident policies available that cover small accidents, fractures, burns etc, like the Maha Raksha policy of Tata AIG General insurance company.

Medical insurance
One should have adequate risk cover for medical insurance, given the rising costs of medical treatment. Ideally, one should go for a family floater cover, since it is cheaper than individual insurance of all family members and works on the premise that all family members would generally not require medical treatment at the same time. Therefore one can go for a higher risk cover at a lower cost.

Though such policies have been the domain of general insurance companies, of late some life insurance companies have stepped in to provide hospitalisation insurance, like the Hospital Care policy of ICICI Prudential Life, where the sum assured is paid to the insured, subject to certain limits, in case of hospitalisation for the diseases or illnesses covered, irrespective of actual costs incurred by the insured. Moreover, there are certain specific health policies geared towards diabetics and cancer care, again by the same company.

Of course, all the policies mentioned above are indicative in nature and available with different permutations and combinations. But for the sole earning member of the family, these are a must.

The writer is a financial planner and director of Touchstone Wealth Planners