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Only four out 10 life insurance policies are renewed after the fifth year, indicating poor persistency levels. Policyholders pay huge surrender costs in the initial years of the policy term. Low persistency means that policyholders are not giving adequate thoughts to the needs of a life insurance policy for long-term protection.

The persistence ratio of all life insurance companies is measured at 13th month, 25th month, 37th month and 61st month. Data from the Insurance Regulatory and Development Authority of India’s (Irdai) Handbook of Indian Insurance Statistics show that the 61st month persistency for life insurers in 2019-20 was 38% as compared with 35% in 2016-17. Persistency ratio is calculated on the basis of the number of policyholders paying the premium divided by net active policyholders, multiplied by 100.

Surrender value by insurers
Life insurance companies reported an increase in payout because of surrender of policies. In 2019-20, insurers paid Rs 1.22 lakh crore for surrender as compared to Rs 1.11 lakh crore in 2018-19. The state-owned Life Insurance Corporation of India (LIC) accounted for 57.51% of the total surrender payouts. For private insurers, in 2019-20 unit-linked insurance plans (Ulips) surrenders accounted for Rs 38,327 crore or around 74% for the surrender amount paid as compared with Rs 35,949 crore or 86% of the surrender amount paid by private life insurers in 2018-19. Only products such as endowments and Ulips that have a savings component will partly return the amount invested for a life cover. However, a term plan on surrender lapses and no money is paid to the policyholder.

Tax benefit reversed
Premiums paid for life insurance—first year or renewal—are eligible for tax deduction under Section 80C of the I-T Act for up to Rs 1.5 lakh a year. However, if the individual surrenders the policy within two years, then the deductions claimed in earlier years would become taxable in the year in which the policy is discontinued. Apart from the tax outgo for discontinuing a life policy, the insurance company will also deduct the full amount of the premium if it is discontinued after one year. If one surrenders after year two and three, then the insurer will pay back only 30% of the total premium.

Insurance for protection
Purchasing an insurance cover is protecting one’s family in the long run. The total sum assured of all life policies put together must adequately cover one’s dependents in the long run, should something happen to the breadwinner. Continuity in life insurance would enable a policyholder to reap the benefits of the policy as according to the Insurance Laws Amendment Act, all commitments will be honoured if a policy has been active for three years without any breaks.

Individuals should look at a term insurance plan which provides coverage for a defined period of time. A term plan is a protection product that everyone with assets and dependents must buy to meet the financial needs arising from unexpected tragedies of life. If the policyholder dies during the term of the policy, then the nominee is paid the sum assured. A policyholder can customise the term plan to include critical illness cover, return of premium option, whole life cover and cover for spouse and child education cover among others.

Return of Premium (RoP) of end of the policy tenure is gaining popularity in term plans. In such RoP plans, the insurers pay a guaranteed amount at the end of term tenure, irrespective of the life status of the insured. A term plan with critical illness benefits pays a lump sum amount of money to the policyholder on being diagnosed with major illnesses like cancer, stroke, heart attack or multiple organ failure.

A critical illness plan can be bought as a rider with the term plan for comprehensive protection. Term plans can protect the income of the life insured in the case of disability because of a critical injury. So, if you are planning to buy a life insurance policy, stick to a term plan with a critical illness rider to protect yourself and your family.
Medical emergencies come unannounced and have the potential to ruin an individual’s physical and financial health, especially if the treatment requires hospitalisation. This makes getting a comprehensive health insurance plan with adequate coverage one of the most important things to secure to avoid draining precious savings and accumulating unnecessary debt in footing steep hospitalisation bills. And it holds true even if you’re covered by a medical plan provided by your employer that often comes with an insufficient sum insured and would not be of any help if you lose your job. Here are a few important things to keep in mind while buying a health insurance plan.

Family Floater vs. Individual Cover
Are you married and have two or more members in your family? If yes, you can go for either a family floater policy or an individual health policy for all the members. If the proposer’s age is below 45 years and there are young people in the family (usually less prone to hospitalisation risk), then the family floater policy can reduce the premium amount. You can also get higher coverage with a family floater policy. However, if the proposer is a senior citizen or nearing 60, the hospitalisation risk increases due to age-related ailments. Multiple claims in a year can reduce the available coverage amount for other insured members under a family floater policy. So, senior citizens and ageing individuals should prefer an individual health policy, whereas families consisting of young members can opt for a floater policy.

How much cover should you take?
While buying a health policy, assess your present health condition, lifestyle, hereditary diseases, etc. Decide on a health policy size that can provide sufficient cover if the need arises. If you stay in a metro city, take at least Rs 5lakh-Rs 7 lakh cover due to the high hospitalisation costs there.

Exclusions and waiting periods
Exclusions are such treatments which are permanently not covered in a health policy while a waiting period is the time span during which treatment for certain ailments are not covered. For example, treatments like dental implants, HIV, vision correction, expenses on alternative therapies, pre-existing health ailments, etc., may be permanently excluded by a health insurance company. The exclusion list may vary from company to company. Similarly, a health insurance company may stipulate a waiting period for specific ailments depending on its terms and conditions. Waiting period requirements may also vary from company to company. Factor in the exclusions and check the waiting period requirements applicable to your pre-existing conditions while choosing a health insurance plan.

Premium & Network Hospitals
Health insurance policies come with a wide range of features and benefits. These may include pre-and post-hospitalisation cover, domiciliary treatment, critical illness protection, maternity treatment, medical check-up facility, etc. Some companies also offer benefits like reloading the sum insured after a claim is made during the policy period.

Many insurers also offer a no-claim bonus that enhances the sum assured during policy renewal at no extra cost if no claims are made during a policy year. Then there is the all-important factor of network hospitals– you should ideally go with a policy that offers cashless treatment at all the major hospitals near you.

Compare different policies and choose the one whose features and benefits best meet your needs. Some of these features qualify as add-on benefits that will increase the premium cost. However, going for the cheapest premium (and hence giving up on comprehensive protection) could be dangerous. Consider the features and benefits best suited to you and the insurer’s claim settlement ratio to make an informed choice.

Life insurance is an ideal long-term retirement planning instrument that offers you a pool of benefits such as stability, protection and guaranteed income during your ‘second innings’ – retirement. People with a greater risk appetite can invest in market-linked insurance plans (Ulips). By investing in market-linked products, you can save in the earning phase while it grows and withdraw in the retirement phase.
Annuity plans
Then there are annuity plans available for the customers that also fall under the life insurance category and are immensely popular amongst people planning their retirement. Under any annuity plan, you invest a lump sum amount with your life insurer and in return, you receive income for life. The biggest advantage of annuity plans is that you can lock-in the rate of interest for your entire life without worrying about the falling rate of interest on bank fixed deposits. There are several types of pensions available like life annuity, joint-life annuity and an annuity with return of premium option to choose from.

For people who are looking for secured and guaranteed invest options, there are guaranteed return plans. These plans allow you to lock in the interest rate for not just five or 10 years but for as long as you live. The premium amount you pay towards these plans is exempted from tax under Section 80C along with the maturity amount under Section 10(10D).

Term plans
Term insurance plans can also help you to plan your retirement, as there are different variants available in the market. The whole life term insurance plans cover you for your entire life. Under these plans, you continue to pay premiums for your life and upon your demise; your dependents will receive the entire sum assured as a lump sum. These plans are meant for people who believe in legacy planning and wish to leave wealth for their legal heirs.

The second variant is term plans with return of premium where the entire premiums of the plan are returned to the customer at end of the policy term. If the policyholder survives the policy-term, the premiums paid are returned back and this amount can be used for taking care of the expenses during the retirement phase. In addition, the sum assured under both these variants is tax-free.

One can buy a health insurance policy by themselves or it is also offered by several companies in India to their employees. The health insurance policies provided to the employees by the employers cover basic health issues, disease, and even an accident. It can also cover the cost of treatment of spouses and children of the staff and even parents as dependents if they are hospitalized. However, to avail of this facility, the employee needs to mention the names of the dependents while filing details for the medical insurance policy.

However, the employee who has been offered the health insurance policies must note that the policy is valid only till they are working in the organization that is providing the policy. If they change the company, the health insurance policy will become null and void. This is one of the reasons why employees or salaried class are advised to buy a health insurance policy, rather than depending on the company for the same.

Even if you earn less, you can buy a health insurance policy by choosing the tenure of the payment like monthly, quarterly, half-yearly, and annually. In fact, you can also get income tax benefits on the Medical Health Insurance Policy under Section 80D of the Income Tax Act. Income tax deduction up to Rs 25,000 for medical insurance premium for self, spouse, and dependent children can be claimed by a salaried class person.

Also, an additional deduction of up to Rs 25,000 can be availed by the person for insurance of parents if they are not senior citizens.

However, it can be noted that most of the people in the country prefer purchasing health insurance plans with a lower sum insured just to save on the premium. There is no mandatory rule to ask people to buy health covers with higher sum insured which can help them afford quality healthcare.

It is always advised to people planning to buy health covers to compare various health policies provided by different insurance companies so that you can get a clear picture and understanding.
Please mark all your queries / responses to
Information provided on this newsletter has been independently obtained from sources believed to be reliable. However, such information may include inaccuracies, errors or omissions. and its affiliates, information providers or content providers, shall have no liability to you or third parties for the accuracy, completeness, timeliness or correct sequencing of information available on this newsletter, or for any decision made or action taken by you in reliance upon such information, or for the delay or interruption of such information. , its affiliates, information providers and content providers shall have no liability for investment decisions or other actions taken or made by you based on the information provided on this newsletter.