Do you have enough insurance? This is what you need to do to be prepared for the coronavirus in 2021

ET Wealth reached out to experts to know how investors can safeguard their finances from the volatility that raged in 2020 and the uncertainty that looms in the horizon. This week’s cover story explains 11 steps that one should take now to improve one’s finances in the New Year.

Here are the smart money moves to make while reviewing your insurance policies.

Enhance health cover for your family

Possibly the only positive impact of Covid has been the rise in awareness about health insurance. “As per a Max Bupa survey, only 10% people were interested in buying a health plan in the pre-Covid phase to cover new diseases, but now, 71% consider it a priority purchase,” says Bhabatosh Mishra, Director, Underwriting, Products and Claims, Max Bupa. “It has also changed the outlook towards aspects like coverage for hospitalisation at home and PPE kits,” says Ankit Agrawal, CEO and Co-Founder, InsuranceDekho.

“Typically, one must evaluate risk appetite, family size, age group of family members, affordability of plan, and medical inflation before buying a health cover,” says Sanjay Datta, Chief, Underwriting, Claims and Reinsurance, ICICI Lombard General Insurance. In case of Covid protection, consider two parameters: cover size depending on where you live, and whether it covers Covid and its specific requirements.

If you are single, young and in a metro, buy at least a Rs 5 lakh indemnity plan. If cost is a factor and you need immediate protection, opt for Corona Kavach, a Covid-specific plan, but consider porting to a more comprehensive plan at the earliest. While disease-specific plans are more affordable due to limited coverage of risks, it is not advisable to replace a basic cover.

To be prepared for Covid, what to do if…

If you are in a high-risk area, consider buying a bigger cover of Rs 10-12 lakh. Even though the average claim size for Covid hospitalisation is Rs 1.2 lakh, you may need a higher cover if the entire family is hospitalised or the costs escalate due to severity of problem. Alternatively, you could consider buying a smaller base cover of Rs 3-5 lakh and a bigger top-up plan of Rs 20 lakh as it will prove more cost-effective. If affordability is a factor, you could buy Arogya Sanjeevani, which offers attractive features at a reasonable price and also covers Covid.

While most of the earlier plans cover Covid-related hospitalisation expenses, they don’t necessarily include specific requirements like PPE kits, oxygen meter, masks, ventilators, home treatment, etc. These are covered by newer, post-Covid plans that have come in the market. So, if you don’t have any insurance, you could consider one of the new plans. “But if you already have a plan, don’t try to buy another policy. Increase the cover at the time of renewal or buy a top-up plan,” says Dr S. Prakash, MD, Star Health and Allied Insurance. You could also port to a plan that covers Covid-related medical needs.
If you have a family are in a metro ensure that you have a family floater plan of Rs 10 lakh, or buy a smaller base plan and a bigger top-up plan. If you are above 35 years, buy a critical illness plan of at least Rs 25 lakh besides Covid protection.

Review your life insurance cover
With Covid showing no signs of abating, it’s crucial not only to secure your lives, but also of your loved ones. One way to do so is by buying term insurance. An income replacement tool for earners, it ensures that if you were to die, your dependants would not be left struggling to make ends meet or achieve their financial goals. So, if you don’t have a term plan, buy it; if you do, review it to ensure that the sum is adequate.

As per a 2019 Swiss Re report, India has a protection gap of 83%, which means that for every Rs 100 of insurance needed, a policyholder is covered only for Rs 17. So how do you decide the optimum size of term insurance? “There are many academic methods to decide the quantum of life insurance needed and they all have advantages & shortcomings,” says Subhasish Acharya, Chief Distribution Officer, Future Generali India Life Insurance.

“You need to take into account your liabilities in the present as well as the foreseeable future. The Human Life Value (HLV) calculations help assess the future financial requirements based on one’s age, earning capability and incremental earnings and liabilities over the years,” says Venky Iyer, EVP & Chief Distribution Officer, Tata AIA Life Insurance.

How much life insurance do you need?

Since these calculations may not be easy to make, you can, as a thumb rule, take a cover that is 10-12 times your existing annual income. Given the current Covid circumstances, you can increase this amount to 15 times the annual income. A simple way to arrive at the cover amount is to add up your current household expenses, any loans or debts, your future financial goals, the money your spouse or dependants are likely to require in retirement, and subtract from these your assets and investments. The figure you arrive at should be the term insurance you need.

If you have already bought a plan, the coverage can be enhanced by taking additional policies or appropriate riders.

“You can also opt for an increased sum assured, which raises the cover size by a specific percentage year on year. This checks and balances inflation and ensures a compounding cover each year,” says Anil Kumar Singh, Chief Actuarial Officer, Aditya Birla Sun Life Insurance.

Also make sure that you review this cover periodically. “With an increase in income, life cover should grow proportionately. Hence, it is important to review the cover, if not every year, at least once in two years,” says Karthik Raman, CMO & Head, Products, IDBI Federal Life Insurance.