Five insurance covers you must have

Deepti Bhaskaran

India, Nov. 16 -- Are you married? Have kids? Have parents with meagre pension? Have a house of your own but don't have home insurance? Unaware of medical insurance? Pause for a moment, it is time to review your insurance portfolio. Here's the 5 must have's that you need to keep in your kitty.

Life Insurance

What to buy? We recommend a term plan, which only includes the cost of insurance. If you die during the term, your nominees get the sum assured but if you survive the term, you get nothing back. You can also go for unit-linked insurance plans (Ulips), money-back or endowment policies. In these plans, your premium not only includes the cost of insurance but also an investment component

How much do you need? As a thumb rule, financial planners recommend that you have a cover equal to 12-15 times your annual expenses or 8-10 times your annual income. If you have a debt, such as a home loan, factor in that too when calculating your cover.

Health Insurance

What to buy? There are two types of health policies: one that pays for hospitalisation and is called an indemnity policy and the other that pays a defined sum on defined medical procedure and is called defined benefit plan. Go for an indemnity policy. It pays for your hospital bills and also reimburses expenses incurred before and after hospitalisation.

How much do you need? Going by the average cost of major surgeries a sum insured of at least R4-5 lakh is important. However, if your policy has a lower sum insured, you can consider top-up plans.

Personal Accident Cover

What to buy? A personal accident policy has four covers: death, permanent disability, permanent partial disability and temporary total disability. For death or permanent disability, it pays you lump sum compensation, which is typically 100% of the sum insured. For permanent partial disability, it pays a portion of the sum insured and for temporary disability, it pays a weekly compensation usually up to 104 weeks.

How much do you need? Typically, the maximum cover you can get is 10 times your annual income. The premiums you pay depends upon your profession.

Householder Insurance

What to buy: There are two ways of choosing a cover. One: market value less depreciation. Two: its reinstatement or reconstruction value. For instance, if the building has 50 years of life, it will mean a depreciation of 2% every year. So if insurance policy is taken in 10th year on market value basis, then 20% will be deducted from reconstruction cost of property to arrive at the market value of the building which will be sum insured under the policy. Reinstatement cover means that the insurer will cover the cost of reinstating the damaged portion of your house. Always remember, choosing more covers give you a discount on premiums.

Cover amount: You need to adequately insure the house else the insurer will penalise you. So if the cost of construction of your house is Rs. 1 crore and you take a cover of say Rs. 50 lakh, under insurance by 50%, and make a claim of say R10 lakh, the insurer will only pay you Rs. 5 lakh

Car Insurance

In addition to taking a third-party cover, which is mandatory, you need to cover your car against any damage. The own-damage cover insures your vehicles against theft or damage and passenger cover insures the lives of the passengers of the car. Insurers don't pay the cost for replacing certain parts of your vehicle but only the depreciated value. A depreciation cover pays the remainder to replace these parts. Return-to-invoice cover applies the same logic, but to the car as a whole. In case of complete damage or theft, the insurer pays insured depreciated value or IDV. With this cover, the insurer will pay the ex-showroom price of the car. But remember these add-on benefits are not available to you for more than five years. Other covers that offer engine protection, no claim bonus protection or offer you a daily allowance or a substitute vehicle for the time your car is being repaired can also be looked at.

Illustrations: Jayanto

Published by HT Syndication with permission from Hindustan Times.