Life and Health Cover: How much coverage should one buy and factors to consider while purchasing insurance
The need for purchasing adequate life and health insurance seems to have gone up in recent times. Insurance is a tool to manage the risks arising in life. While life insurance helps in maintaining the standard of life and meeting life goals, health insurance helps one to avoid dipping into one’s investments to meet the cost of hospitalisation. Even before one starts to invest for goals, there needs to be an adequate amount of life and health insurance coverage within the family.
Life insurance coverage amount is denoted as sum assured and along with bonus it becomes the death benefit. Under insurance means one does not have enough sum assured and the surviving family members may fall short to meet their financial needs. As a thumb rule, one may look at buying a life cover of 10-15 times of net annual income, accounting for other liabilities such as home loan also.
One should undergo a proper need-based analysis. “Multiple factors help one derive an ideal cover amount that one should buy. Factors like age, financial assets, financial liabilities, annual income, lifestyle and expenses of the dependents are some of the factors which make one decide the required sum assured. It is also important to keep reviewing it after every 5 years. As one progresses in life, one should keep a check on their protection requirements in regular intervals of time and keep on upgrading their cover amount,” says Aatur Thakkar Co-founder and Director at Elephant.in, Alliance Insurance Brokers.
When it comes to buying adequate health cover, the answer may not be as simple as it is for life insurance. Several factors such as city of residence, medical history, types of hospitals in your area may help you decide on the amount of health insurance coverage amount. “The geographical location where one is residing is also taken into consideration as medical costs in the Tieir-2 or tier-3 cities are lower compared to metro cities. The premium amount can also rise if one has any existing illnesses. Waiting periods for PEDs and specific illnesses also determine the premium amount. Premiums are comparatively lower for health covers with higher waiting period for PEDs and specific illnesses,” says Vivek Chaturvedi, Head of Direct Sales, Digit Insurance.
“Considering the rising medical costs, a person can consider a sum insured of Rs 10 lakh to adequately cover themselves. They can reassess their needs and get a higher sum insured once they get married or have children. The premiums are typically higher for individuals who have pre-existing diseases (PEDs) and come with a waiting period,” adds Chaturvedi.