Term insurance necessity for women, add critical illness cover: Experts

One in every three policies is sold to a woman in India, reveals a recent State Bank of India Ecowrap report. But according to PolicyBazaar, the trend witnessed on its platform is that women account for only around 15 per cent of term policy buyers.

Most insurance experts concur that women don’t buy term insurance — one policy that can provide adequate protection — in large enough numbers.

Working woman’s apathy

Working women often fail to purchase adequate term cover. “Most women who buy term insurance are single mothers or single women. Within families, the situation that largely prevails is that the male member, who is the sole breadwinner, is expected to be insured,” says Vishakha R M, managing director and chief executive officer, IndiaFirst Life Insurance.

Financial planners agree. “Many women in the formal sector rely on the group life cover provided by the employer. They don’t buy a personal cover,” says Mrin Agarwal, founder-director, Finsafe.

According to Renu Maheshwari, a Securities and Exchange Board of India-registered investment advisor and co-founder and principal advisor, Finscholarz Wealth Managers, “Even in cases where the wife has a higher income than the husband, she sometimes has equal cover.”

Policy cover should depend on contribution

Whether a person needs term insurance has nothing to do with gender. “If a person makes a financial contribution, has dependants, and his/her absence could have a financial impact on them, he/she should buy a term cover,” says Maheshwari.

Single women with no dependants can do without it (although they must buy protection against risks like disability and illness). How much cover a woman buys should be based on objective criteria. Experts use one of two approaches

One is human life value, where the cover purchased is linked to a person’s earning potential over her lifetime. The second is the insurance need analysis that takes into account the family’s current and future expenses and goals.  

Besides the main cover, women should buy a critical illness rider and a waiver on premium rider (which will ensure continuation of the policy, even in the case of disability). A separate critical illness policy and disability cover can also be purchased from a general insurer (terminating a separate policy is easier).

Don’t look for returns

Avoid purchasing insurance in combination with investment plans. “You can’t buy adequate protection in such plans. The premium for a Rs 1-crore cover would be exorbitant,” says Agarwal. “Return on premium term plans should also be avoided as they are not cost-effective,” adds Maheshwari.

Housewives: Curbs are being removed   

While housewives don’t have a tangible source of income, the duties they discharge carry financial value. Hence, they, too, need to be insured. Insurers impose limitations on the amount of cover they offer them, chiefly to avoid moral hazard. “If the husband has a policy, we offer the housewife a sum insured equal to 50 per cent of the husband’s cover,” Vishakha.

Some insurers place more limitations. “Sometimes, not only must the husband have a policy, his income should provide eligibility for both the husband and the housewife’s cover,” says Sajja Praveen Chowdary, business head-term life insurance, PolicyBazaar.

Assume the husband has an income of Rs 25 lakh. An insurer offers him a cover 5x his income (Rs 1.25 crore). What if he buys a Rs 1-crore policy? The wife is eligible for 50 per cent of the husband’s cover, or Rs 50 lakh. Together, their cover becomes Rs 1.5 crore, while the husband is eligible for Rs 1.25 crore only. The wife can get only a Rs 25-lakh cover. “The majority of term policies have a starting sum insured of Rs  50 lakh,” says Chowdary.

Recently, Max Life Insurance launched a policy for the housewife wherein if the household income exceeds Rs 5 lakh, she can purchase a cover of Rs 50 lakh, with no questions asked. Thus, her purchase doesn’t depend on whether the husband has a policy or its sum insured. More insurers could launch such plans to make it easier for housewives to get covered.