Life insurance: Homemakers must have a term cover of least Rs 20-50 lakh

Homemakers Insurance: Declaring any form of income, like rent, that the homemaker earns can help her get a higher sum assured

In India, the breadwinner of the family usually purchases a life insurance cover for himself. Most homemakers remain uninsured. However, things are beginning to change now. A recent online survey of 5,000 respondents conducted by Policybazaar in April 2022 found that around 15 per cent of the active policies are independent term plans meant for homemakers. Independent term plans targeting homemakers have become available only recently.  

Few homemakers covered

Households generally ignore the need to buy a term cover for the homemaker because they underestimate her contribution. Sajja Praveen Chowdary, business head-term life insurance, Policybazaar says, “In India, a person’s economic contribution is measured solely in terms of financial earnings. Since homemakers don’t earn an income, their contribution is vastly underestimated.”

But a homemaker’s contribution does have economic value. She manages the household and takes care of domestic finances. She is the primary childcare provider. In many households, she also looks after the elderly, and even cooks for the family.  

As V Viswanand, deputy managing director, Max Life Insurance says, “A woman’s contribution as homemaker is essential and irreplaceable.”

Experts say if one were to ascribe an economic value to all the contributions a homemaker makes, it would easily amount to Rs 45,000-50,000 per month in the case of an average middle-class family in urban India.

Add-on to spouse’s cover

Currently, most plans offering term cover to homemakers do so typically as an add-on to the earning spouse’s cover. Kapil Mehta, co-founder, SecureNow Insurance Broker says, “Life insurance options for homemakers are restricted. If both the earning spouse and the homemaker buy life insurance together, then the latter’s sum assured is restricted to 50 per cent of the former’s sum assured.”

Due to this 50 per cent limit, the spouse must buy a life cover of at least Rs 1 crore to allow the homemaker to buy a decent cover.

Life insurers say they limit the sum assured offered to homemakers to prevent the risk of moral hazard. In the past, many cases have occurred where the husband purchased a high-value cover for the wife, only to murder her later for the insurance money.

Limited standalone covers available

Only a couple of insurers offer an independent, standalone term plan for homemakers. One is TATA AIA Life and the other is Max Life Insurance. The latter offers a cover to homemakers aged between 18 and 50 years. If the homemaker is a graduate, and the household income is at least Rs 5 lakh, then the homemaker can buy a term cover of Rs 50 lakh. Chowdary says, “This policy has completely removed the homemaker’s dependency on the spouse’s income.”

What should homemakers do?  

Homemakers should first try to get a term cover. Dilshad Billimoria, board member, Association of Registered Investment Advisors (ARIA) says, “A plain vanilla term plan is the best form of insurance.”

If a homemaker is unable to get it, she may purchase a low-premium endowment policy. Most other forms of insurance-cum-investment products should be avoided as they will not be able to offer sufficient cover at a cost-effective premium.

The homemaker should purchase at least a Rs 20-50 lakh insurance cover. Experts say that if the children are young, the spouse will need at least Rs 4-6 lakh a year for their care for the next ten years, until they become independent.

Billimoria says, “When buying a term cover for the homemaker, ensure that the coverage lasts for as long as she has the capacity to work.”

While purchasing a policy, a homemaker should make the right declarations. Mehta says, “Declare clearly that you are a homemaker. Also, if you have any financial income, such as rental income, declare it. This could help enhance the sum assured offered to you.”