Insurance Uncovered

I stopped investing in insurance after a bad experience a few years ago. But now, I am looking for a life insurance policy and a health cover for myself (aged 39), spouse and my two kids, aged five and two.

What’s your suggestion? As I keep moving to new cities on work, I am looking for an insurer who has a good network and can support claim from anywhere in the country.

RajaPrabu Jayaraman, Goa

Insurance should always be looked as a risk cover. If you approach it as investment tool, there will only be disappointment. Products that mix insurance and investment are expensive and give low returns.

For life insurance, you can look at a plain-vanilla term cover that pays the sum insured as one lump-sum on death. Insurers such as from LIC, MAX Life, HDFC Life and ICICI Prudential have high claim settlement records.

If you are looking for plans with the lowest premium, policybazzar.com has options. Make sure you take a sum insured (cover amount under the policy) that is at least 20-30 times your annual income.

Remember life insurance is not just to cover loss of the bread winner’s income, it is also to cover any liabilities that are outstanding. For a cover of ₹1 crore, the annual premium will work out to ₹25,000-27,000 in case of private life insurers. If you go for critical illness or accidental death cover riders, the premium may increase.

For health insurance, it is suggested you go for a floater (a single policy that covers all members of the family) policy to cover yourself, your spouse and kids. There are a few aspects that you need to keep in mind here. First, look for a policy that has no sub-limits (caps the claim that you can make).

Health insurance policies from public insurers are cheap on premium but have caps on charges such as room rent, ICU and, sometimes, on ambulance too. Today, most private health insurers offer at least one plan where there is no limit on room rentals or ICU charges.

Religare Health’s Care, Apollo Munich’s Optima Restore and Max Bupa’s Health Companion are some policies with no sub-limits on room rent. Second, look for the right ‘no-claim bonus’ (NCB) feature.

This is necessary to take care of the medical cost inflation that is rising in double-digits. All health policies in the market today offer NCB benefit, but each one comes with little variations.

The common NCB feature works thus: For every no-claim year, the SI will increase by a fixed percentage — usually 10 per cent. This will continue till the cumulative bonus reaches the cap specified under the policy — usually 50 per cent of SI. However, note that after the first year of claim, the NCB will start reducing at the same rate as it increased.

In Religare Heath’s Care, for instance, NCB is 10 per cent of SI, with a maximum benefit of 50 per cent of SI. So, in a ₹5-lakh policy, for every no-claim year, the SI will increase by ₹50,000. After five years of no-claim, the SI will be ₹7.5 lakh. But if there is a claim in any year, the cover will begin to reduce — it will drop by ₹50,000 every time. There are policies in the market where the NCB benefit is higher.

If you go for a ₹5-lakh SI policy with Apollo Munich’s Optima Restore (offers NCB of 50 per cent for every claim-free year, accumulating up to 100 per cent), the annual premium works out to ₹18,177, including taxes.

This policy also offers SI restoration benefit. So, even if one person uses up the entire cover of the policy, the other can still file a claim. All the health insurers suggested here have a good hospital network across the country, where you can take cashless treatment.

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