Our insurance requirements keep changing through different junctures in our lives - changes in family composition, changes in income and expenses, changes in liabilities and assets, etc. It is essential to intelligently design one’s insurance portfolio and review it at regular intervals.
Why reviewing your Health insurance portfolio becomes necessary:
As assets increase with age and passing time,it is better to decrease life insurance. This is because as you grow older and climb up the career rung, you meet your financial goals and accumulate more wealth and assets.
A 24-year working individual’s insurance needs differ from those of a 50-year old. The latter has accumulated enough wealth/assets to support dependents, while the 24-year old has just started out.
With increase in liabilities, there should be an increase in life insurance portfolio. This is an important stage to do an insurance portfolio review. If you take on additional financial commitments, extend your life and disability insurance proportionately.
If you avail a home loan, ensure your life cover is sufficient to square it. Also, buy a mortgage cover simultaneously.For those who take a joint loan with their spouse, both earning members must purchase an adequate life cover.Your family should not have to pay the EMIs if you are not around, or the bank should not end up auctioning your house to recover its dues if you cannot repay.
While evaluating human life value (HLV), it is prudent to consider all outstanding financial liabilities and take a sufficient cover. The best way to cover financial risks is to take a term insurance policy.
Did your pay cheque just get fatter? Did you get anew, higher paying job? If yes, you need to perform a life insurance and health insurance review. Increased earnings mean increased spending, though not necessarily in the same proportion. Either way, with income increase, the sum assured on your insurance policy should be upped in tune with your current net worth.
Life insurance cover must be taken after an evaluation of the HLV. Having a life cover seven to ten times one’s current net worth is considered ideal.
In case of job or business loss, shrinking your insurance portfolio makes sense. With decreased cash flow, you could assess the insurance plan to check if the premium payment can be skipped altogether. In a worst-case scenario, you could surrender the policy.
Insurance covers must change as per one’s lifestyle.A rise in income usually translates to higher standard of living. For instance, one may shift to an up market locality, involving a steeper cost of living.
Rents, maintenance charges, nearby school fees, hospital treatment charges- all overall monthly expenses go up. You may purchase a car for which you pay EMIs, fuel expenses, servicing and maintenance. Hence,if you want your family to enjoy a high standard of living, the life insurance cover must be increased accordingly.
Regular home insurance policies provide limited cover for exclusive items. For instance, if you purchase a new home theatre, get a cover for it by having it added to your home contents insurance.
If requirements exceed existing sub-limits, have the insurer add a rider for extra cover. Since home insurance usually does not cover items like collectibles and fine arts, buy specific covers for them.Elaborate home renovations also require extension of the home cover.
It is important to re-assess one’s insurance portfolio and have regular life and health insurance reviews to fulfill long-term financial objectives like buying a home, financing a child’s future, building a retirement corpus, etc.
As inflation increases, it becomes imperative to increase life insurance. The sum assured in a life or health insurance policy taken five years back may be insufficient towards managing your financial responsibilities today.Also factor in medical inflation and increase your medical insurance cover from time to time.
Those getting married must check if the spouse has life cover. If the spouse is employed, compute a combined HIV, expected (lifelong) earnings, and modify the life cover accordingly. One can either take a joint life cover or apportion the cover and purchase individual policies as per current income.If the spouse is not earning, it is best to double the life cover.
Having a child requires more life insurance to raise the child comfortably. Include the child in list of beneficiaries and in the family-floater health policy as well.
With growing inflation and rising education costs, start planning early for your child’s future requirements. It is a good idea to purchase child insurance plans designed to tend to long-term goals like your child's education and marriage.Make a note of the important milestones in the child’s life, along with the corpus that would be needed at each stage, then select the best insurance plan.
Money back policies provide periodic lump sum cash paybacks. Plans offering premium waiver benefits ensure that the child insurance plan does not lapse even if premiums cannot be paid due to any mishap. In this way, children are assured of a secure financial future even when parents are not around.
Once your children become financially independent, reshuffle your insurance portfolio. It makes sense at this stage to take larger health insurance coverage. Additional life insurance riders like critical illness and disability plans guard against accidents and ailments that may impede you from working.
For divorcees who wish to remain single and do not have any dependents, the cover can be reduced.However, for those with parents and/or children, it is best to keep the cover same or increase it.
Note: Nomination in life insurance is essential for both married and divorced individuals. Post marriage, one may want to nominate the spouse in the life insurance policy. After a divorce, it would be better to perform a life and health insurance review and change the nomination to another family member.
Simply buying insurance is not where it ends - Timely reviews are crucial. Considering all the above life situations, it is wise to get your insurance portfolio reviewed by a Certified Financial Planner every three years.
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