Annual insurance review: Why you must boost term cover at key life stages

Your health policy's sum insured also needs periodic enhancements to keep pace with medical inflation

Most investors review their investment portfolios annually but often neglect their insurance portfolios. Reviewing the latter is essential to ensure your family is protected financially.
 

Reviewing the term cover
 

Ensure that the amount of protection you have aligns with your family’s evolving lifestyle and financial goals. “Life situations keep evolving, so an annual review of coverage is essential,” says Peuli Das, chief insurance officer, Future Generali India Life Insurance.
 

Scenarios for increasing coverage

At each significant milestone of your life, increase the coverage. One is marriage. “Financial responsibilities amplify after tying the knot and so should the term cover,” says Das.

The arrival of a child is another. A third milestone is home purchase, which is usually accompanied by a home loan. Your income grows as you advance in your career. “Your family’s lifestyle automatically adjusts to your current income, calling for an enhancement in term cover,” says Madhu Burugupalli, senior executive vice president and head of products, Bajaj Allianz Life Insurance.


 

Scenarios for reducing coverage

If you’ve recently cleared your home loan or other debt, consider reducing your term cover. “As dependants achieve financial independence and are no longer reliant on your income, you can reassess the necessity of high coverage,” says Das. Term cover can also be reduced after achieving financial stability.

Maintain the cover, however, if you wish to pass on money to heirs or enable them to pay your medical bills.

 

Points to heed

Check the policy duration to ensure the coverage will be available until you have financial responsibilities. “If you are going to work till, say, 70,  and someone in the family will depend on that income, then your cover should last until 70,” says Burugupalli.
 

Das adds that you must examine the premium to ensure it is affordable and can be sustained over the policy term.
 

Increasing the sum assured of your existing term policy is not possible. “If you feel your current sum assured might not suffice, buy a second policy,” says Naval Goel, chief executive officer (CEO) and founder, PolicyX.com.
 

Riders can, however, be added on the policy anniversary date. “If you work in a risky job environment or have a history of a critical illness in your family, consider adding an accidental death benefit, disability, and a critical illness rider,” adds Goel.

The coverage amount can also not be reduced. “Instead of buying one large cover, buy three policies, each one of which terminates at, say, five-year intervals,” says Burugupalli.
 

Riders can also be detached from the policy on its anniversary.


 

Assessing health insurance coverage Sum insured

Evaluate the adequacy of your sum insured by considering family size, city (healthcare costs are higher in metros), and the grade of the hospital you wish to be treated in. Account for double-digit medical inflation. A floater cover for a three-member family (eldest aged 35) should be at least ~15-20 lakh.
 

Says Nayan Ananda Goswami, co-founder and head of sales and service, Sana Insurance Brokers: “Plan for the future. While you are healthy and have not made claims, increasing the sum insured is easy. Once you have health issues and start making claims, the insurer may not allow you to raise coverage.”
 

Hike base sum insured or buy super top-up?

Increasing your base policy’s sum insured is preferable as the policy terms remain unchanged. “A super top-up could have different terms and conditions. Availing the benefits and receiving the claim becomes more difficult,” says Manish Dodeja, head-claims and underwriting, Care Health Insurance.
 

A super top-up, however, costs less. “The base plan should cover common ailments while the super top-up should handle the critical, lower-probability ones,” says Goswami.

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New features

Insurers keep adding new features, some of which are valuable. Consider porting if your current plan lacks them. “Policies now provide coverage for teleconsultation, outpatient department treatments and annual health checkups, which are valuable features,” says Dodeja.
 

Another key feature is the recharge benefit: If one family member depletes the sum insured, it is replenished in plans having this feature.
 

Companies also offer super non-claim bonus (NCB). Earlier, each year’s bonus NCB was limited to 10-20 per cent of the sum insured. “Companies now offer up to 100 per cent bonus on the sum insured for no claim, capped at 600 per cent. And the NCB is non-reducing: it remains even after a claim,” says Dodeja.
 

However, distinguish between the base sum insured and the bonus sum insured. Says Goswami: “In some policies, the add-on sum insured can reduce once you make a claim. The base sum insured is always available. Moreover, the recharge/restore benefit may only come in handy for the next hospitalisation. For the current hospitalisation you may only be covered up to the base sum insured.”