I am 28 and earning ₹6 lakh annually. I have term insurance of ₹60 lakh. I also have health insurance of a family floater of ₹5 lakh covering me, my wife and our 3-year-old daughter). Now, I came to know about critical illness insurance. Which aspect should I take care of while purchasing critical illness insurance?
Congratulations, at your age, you are well informed about insurance needs. First of all, since you are just 28 and have an annual income of ₹6 lakh, ideally, you should have life insurance equal to anything between 15 times to 20 times to take care of the increase in your income and the steeper cost of buying life insurance later in life. Taking 15 times your annual income of ₹6 lakh, you should have a minimum of RS 90 lakh of life insurance, whereas you have only 60 lakh insurance. So I would advise you to buy additional term insurance of ₹30 lakh. Buy a term plan only, and if possible, buy an online term plan.
Regarding your health insurance, a 5 lakh floater is inadequate, and I would advise you to buy a super top-up policy of Rs10 lakh with a deductible of ₹5 lakh.
For readers' benefit, let me explain why one needs to buy critical illness cover. Health insurance takes care of your expenses incurred on hospitalisation, and life insurance takes care of your family's financial needs in case you are not around. You need to cover a situation where you are diagnosed with a serious illness which incapacitates you from earning, and you are unable to engage in your regular earning activity actively. So, in such a situation, neither will the health insurance pay as it covers only the hospitalisation part, nor the life insurance company will not pay as you are still alive. So, critical illness insurance takes care of this need, where you get money on being diagnosed with certain specified critical illnesses.
As far as critical illness coverage is concerned, though this can be bought as a rider with life insurance, the amount offered is insignificant compared to the amount of critical illness one needs to have, which is available only as a stand-alone policy. While buying a critical illness policy, ensure it covers a maximum number of critical illnesses specifically taking into account your family history of such illness. Buy critical illness minimum of your life insurance coverage as critical illness entails ceasing of income accompanied by increased expenses on medication not covered under health insurance.
Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and on @jainbalwant on Twitter.
