Why women must get proper insurance cover, even if they are not employed

In life insurance, ensure flexibility so that coverage can be reduced when circumstances require doing so

Life insurance penetration in India is low at 3.49 per cent (2016-17 figures from the Economic Survey, 2018). In addition, women lag behind men in the purchase of life insurance — the ratio is almost 1:2. According to the recently published annual report of the Insurance Regulatory and Development Authority of India (Irdai), the total number of life policies sold in 2017-18 stood at 28.2 million while the first-year premium stood at Rs 92,135 crore. Women accounted for only 32 per cent of both number of policies purchased and first-year premium contribution. These numbers underline the need for women themselves, and their families, to ensure that they are adequately protected. 

Homemakers need life insurance

One reason why women account for a much smaller percentage of life insurance policies purchased is that many families do not consider it essential to buy an insurance policy for women who do not work. Experts, however, say that life insurance should be bought even for homemakers. In case of her premature demise, the husband will have to pay for a variety of domestic duties. "Even though the household’s cash inflows will not be affected, outflows will rise if she is no longer there," says Deepesh Raghaw, founder, PersonalFinancePlan.in, a Sebi-registered investment advisor. 

In India, life insurance is often purchased for tax saving, and not for protection. “When there is no income, there is no need to save tax, and hence families don’t buy life insurance,” says Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisors. 

Sometimes, insurance companies are reluctant to issue term cover to a non-working woman (due to issues of moral hazard). They may be more willing to offer her a traditional plan or unit-linked insurance plan. However, it is advisable to keep insurance and investment apart. “If a non-working woman finds it difficult to get term insurance, she should first explore the option of buying a joint term cover along with her husband,” says Raghaw. 

Working women, of course, do need to buy life insurance to act as a replacement for the income they bring in. Only in a couple of cases do women not need life insurance. One could be when a woman is single and has parents, but then she would be wealthy enough to take care of her financial needs. The second could be when her family is affluent enough for all her financial goals to be met. 

Get adequate life cover

Many people go by the rule of thumb of buying life cover worth eight or 10 times the annual income. This is not advisable. "The proper rule is that the net worth of the family plus the sum insured of its life insurance should be adequate to take care of financial goals, square off liabilities, and meet expenses," says Raghaw. Once the sum insured is decided, the amount of coverage that the wife and the husband buy may be split proportionate to their salaries. For a non-working woman, get a sum insured that will replace the economic value of her contributions. 

Alter cover with changing circumstances

If a woman's family takes a home loan, or children are born, she might have to increase her term cover. If her daughter decides to go for an international education, the family would have to save more towards that goal, and also buy more cover to protect that goal. Once the home loan is paid and the education goal is met, she might reduce her term cover. Also, when a woman decides to move from full-time to part-time employment, say, to raise children or to take care of aged parents, she might have to reduce her cover. Insurance companies are at times reluctant to reduce the sum insured on a term cover, which is why buying two or three covers instead of one is advisable. She can just close down one policy when she needs to reduce cover. Next, let us turn to how women should take care of their health insurance needs. 

Integrate health insurance post marriage

Before marriage, a woman may be part of her parents’ floater health cover. After marriage, she should move into a floater cover bought for her nuclear family. Says Bhaskar Nerurkar, head, health administration team, Bajaj Allianz General Insurance: “The common practice is to add the newly-wed spouse in the husband’s policy. Alternatively, she can continue in her parent’s policy till renewal and opt for a new policy along with her spouse at renewal. All continuity benefits can be transferred to the new policy for herself and spouse. She needs to remove her name from her earlier policy and get herself added to the new policy with the portability benefit.”

After marriage, both wife and spouse should check whether their employer's health cover includes family members, and get their spouses’ names added to the list of those covered. 

Consider class of hospital and medical inflation

When deciding on amount of health cover to buy, take into account the cost of treatment at the class of hospital you would like to go to. "Costs can vary widely across hospitals. The young family should select a family floater with a sum insured that will cover most diseases. When choosing the sum assured, also take into account medical inflation. Re-assess the sum assured every five years," says Dhawan. With growing age and income, the family should supplement this basic cover with super top-ups and critical illness plans. 

Weigh pros and cons of maternity benefit

Nowadays, health policies are available that offer maternity benefit feature. Besides covering the cost of delivery, such policies also cover a newborn child from day one. Do a proper cost-benefit analysis before deciding to opt for this feature. The cost can be considerably higher than in a policy from the same insurer without this feature. There are limits on the amount of benefit paid and number of deliveries for which it is paid. Once the family has had children, it might want to shift to a policy without the maternity feature from the same insurer (to avoid paying the higher premium), but the latter might not permit it. The only option then is to port to the health policy of another insurer, but porting comes with its own complexities. "Try to save the money required for this purpose, or depend on the insurance cover offered by your employer, which usually covers maternity," says Raghaw.