Covid-19: How protected are you?

When the going is great, we rarely think of eventualities. When we are young, we don’t think of getting a life insurance; when we are employed, we don’t think of getting a personal medical cover; and until our home gets burgled or short-circuited, we don’t think of home insurance. You could say that’s human nature. But we build a better future for ourselves when we emerge out of our “default” mode and take steps to de-risk our lives.

So, now that the Covid pandemic is raging on, the question to ask ourselves is, how well covered are we with the right kinds of insurance? There are different kinds of insurance available in the market today, but I will try to identify a handful that everyone must have. Here is my list:

–       Life insurance

–       Personal medical insurance

–       Personal accident/disability insurance

–       Home insurance

I am not including things like car/bike insurance or some other types of insurance that are available because the former is mandatory, while something like a renter’s insurance can be taken care of in a well-drafted rental agreement itself.

Life Insurance

Unless you are a sworn bachelor or spinster with no plans of ever being responsible for anyone else, you need a life insurance. A sudden demise of the sole bread winner or even one of the two in double-income households can severely impair the family’s future. The family may need to downsize the house they are living in, children’s education may be imperiled, and sometimes even basic day-to-day needs may be hard to meet.

So, how much life cover does one need? That depends on your income, your family size, your current lifestyle, and your life goals. The simplest way to think of it is that the insurance money is essentially replacing you. It is going to make sure that your family’s current lifestyle is maintained and all of the family’s dreams are met in the future, keeping in mind inflation as well. Let us say you make 12 lakh rupees a year. So, a recommended cover would be a minimum 20x of that—namely, Rs 2.4 crore. You should buy the policy as early as you can, say, when you start your job and choose a duration that lasts till your retirement. Starting early will ensure your premium is low and, therefore, you can afford a bigger cover. And don’t be shy to buy additional cover as your income and family grow.

Personal Medical Insurance

Most companies these days offer some form of group health insurance. But that is no reason for you to not get a personal health insurance of your own. Because, for one, the company insurance tends to be small, albeit with a top-up option that the insured must pay for. Even then, it may not be enough to cover severe medical emergencies for the family. So, you should have a personal medical cover of your own. That will cover you when you are in between jobs or are on a sabbatical or are temporarily unemployed. A medical emergency, especially when you are unemployed, can quickly burn through your savings, tipping you over into a financial crisis.

Personal Accident/Disability Insurance

 You may ask why bother with an accident insurance if you already have a term life cover. The answer is simple: without riders, most life insurance plans will not pay you anything if you meet with an accident and are disabled temporarily or permanently. Life plans only pay if you die. Accident insurance, on the other hand, is designed for a scenario where you meet with an accident and are unable to work for a short time or indefinitely. In such cases, some of the insurers will pay out 125% of the sum insured in case of permanent total disability or 100% in case of partial disability due to accident. Keep in mind that an accident insurance will pay nothing in case of natural, non-accidental death. So, even if you have a life insurance, it makes sense to get an accident insurance because they are cheap to buy.

Home Insurance

For most of us, a home is our biggest goal and also our biggest asset. Yet, the reality is few Indians buy home insurance to protect their biggest asset. I would urge you to buy a home insurance that protects your house or apartment from natural disasters like earthquakes and floods or man-made causes like accidental fire or terrorism, and burglary. That means, you should buy a home insurance that covers both the structure of the house and its contents.

When it comes to any kind of insurance, the most important thing to do is to read the fine print. Pay close attention to exclusions. If you want a particular clause to be removed or added, then don’t hesitate to negotiate with the insurer or shop around. With some luck, you may never have to call in any of your insurance policies. But if you do need to, then you will be happy that you had a cover to begin with.