Are Indians under insured?
It is customary to say 'Indians are under insured' see the Americans. Of course right. Indians are under insured — says who? the Insurance industry! Remember WB saying 'never ask the barber whether you need a haircut'. L O L.
So is it true that Indians are under-insured?
The answer is not so easy. Indians are surely wrongly insured. Most of them have LIC's endowment policies. They stink. The returns are more to please the government. LIC is a big investor in government bonds — at rates decided by the Government of India. This is a sub optimal solution. The more endowment policies that we buy, the better it is easy for the government — easy money for Raja, Kalmadi, Holy cow, …..
Do you think the Chairman of LIC will ever have the guts to tell his super boss (Finance Minister) what rates of interest YOU AS A POLICY HOLDER SHOULD GET? Never.
Let us come to the private sector players. Just like LIC they also have products where the distributor's margin is 55% — let me repeat — 55%. Then there are products where the margins are 25%. Of course there are some products which have 2%. Do you need even a penny to guess what they sell? If you picked 2%, I am happy to have readers in 2nd standard!
Then of course there is Medical insurance. Let us face it, you cannot be prepared for everything. Cancer treatment costs Rs. 30 lakhs, a fire accident can cost Rs. 20 lakhs. A heart attack — surgery costs Rs. 5 lakhs. Yes Cancer is likely to overtake heart attack as the biggest killer soon.
Then there is something called 'critical illness' insurance — it is supposed to pay when an illness mentioned in the policy strikes. I made a huge attempt at understanding the policy. Unless if you are a great lawyer, underwriter, actuary, doctor or a judge, do not make that attempt. I was not convinced that it will pay. The wordings are too complicated. 'Heart attack arising out of a pain in the shoulder' — 'attack leaving a permanent …on the heart', 'paralytic attack leaving an impact on the brain', or 'kidney failure means both kidneys have to fail' — to me (and my poor doctor friends!) it did not look like 'critical illness' it looked like 'surely dead' ! So I was (and am) convinced that these policies will not pay except with a High Court intervention (remember the ombudsman has a jurisdiction of Rs. 20 lakhs and this figure will not change for the next 430 years, making a mockery of the ombudsman!).
Then there is life insurance sold to non earning people (housewives) and in the name of the children. These policies are another set of useless policies. Insurance is supposed to compensate for a financial loss created by an earning money. The life insurance for a housewife (and an earning husband) is justified only when she is insured AND HER
PARENTS ARE THE NOMINEES — in case they are dependent on her. Makes no sense if she is not earning, and the policy is taken with her husband as a nominee. However India is full of such policies.
What am I driving at?
Well go and take a term insurance on the life of the earning member — and be liberal here. Take enough to cover expenses for the next 10-12 years, big capital expenditure — kids education (if they get the feeling that there is not enough money, they stop dreaming, and that would be sad and a big mistake), major repairs, big and small mortgages, etc. If it means 10 X your annual income, do so.
Take a medical insurance for say Rs. 5 lakhs — if you want a higher cover for say Rs. 10 lakhs, take Rs. 5 lakhs from 2 companies — like New India, Oriental…AND MAKE SURE YOU FILL THE FORM TRUTHFULLY. A policy taken with lies is such a stupid expense it is not worth talking about. It will not pay. Stop cheating your wife! The insurance company just will not pay. You will look stupid.
As you build wealth, and your kids start earning, throw away the term insurance (anyway take it only till your age of 55 — for most normal people)….
this is MHO on the insurance that a person needs.
The author P V Subramanyam is a Chartered Accountant by qualification and a financial trainer by profession. Writing being a passion he also regularly pens his thought in his blog www.subramoney.com
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