Should I continue with life insurance plans?

Name withheld on request

The primary objective of buying insurance should be protection against unforeseen events that can lead to huge financial losses. The chances of such incidents happening are very less. Hence the premium charged is a small fraction of the sum assured.

You should have a health insurance policy but check it for adequate sum insured. As a rule, your health insurance amount should be equal to your annual income.

You should keep the information of all 7 insurance policies together. If these are traditional endowment plans, then you must check the expected returns from these plans. The tax-adjusted returns for traditional plans are often lower than those of alternative investments. In such a situation, you can surrender these life insurance plans. Make sure you have a term insurance plan. Such a plan will pay a lump sum to your nominee in the event of your death. The sum assured of term insurance should be at least 10 times your annual income.

I have a floater health policy 5 lakhs from last five years, and now I have some health issues. Can I take a top-up plan any time during the year or only at the time of renewal to increase my sum assured?

Name withheld on request

The start date of the Top-up plan is independent of the base plan. It is not necessary to wait for renewal of the base plan or buy a top-up plan from the same insurer.

Top-up plans work like regular health insurance plans, except they have a deductible. Claims up to the deductible amount are not covered under the top-up plan. Any amount over and above the deductible can be reimbursed from the top-up plan. For example, you can buy a top-up plan with a deductible of 5 lakhs. claims to 5 lakh can be claimed from the base plan, and any additional claim can be filed with the top-up plan.

Two types of deductibles are in vogue: one applicable to each claim, and the other based on the total number of claims for the year. The latter option is much better. For example, if you are hospitalized three times in a year, the average bill 2 lakh each time, you will be reimbursed 1 lakh from the top-up plan if the total deductible is applicable. However, if the deductible were to be applied to each claim, nothing would be payable.

You should also consider increasing the Sum Assured in your existing plan. Many insurers offer to increase the sum assured to the next slab without any fresh medical underwriting.

Abhishek Bondia is the Principal Officer and Managing Director of SecureNow.in.