Mastering Financial Security: A Comprehensive Guide to Health and Term Insurance in India

In the journey to attain financial freedom, one must prepare themselves and their dependents for unexpected situations. No matter how good our financial plan is, such emergencies may arise without any prior warning, and this can have a significant impact on both your finances and your mental well-being.

According to a recent study, it was highlighted that India’s medical inflation was at 14% in 2021, the highest among Asian countries, and it is expected to rise further in the future. There are multiple factors that have contributed to this increase, with deteriorating eating habits and a lack of emphasis on physical and mental health being some of them.

Fortunately, there are multiple tools available to help you prepare for such emergencies. One option is to keep a portion of your investments in liquid funds that may appreciate at a rate between 7–9%. While this may beat inflation on some occasions, it may not keep up with the medical inflation rate. Another option is to opt for insurance, which can provide access to a larger corpus of funds, provided you are truthful with the insurance provider.

Insurance schemes, both health and term life, are offered by numerous providers, making it a confusing task to find an appropriate plan that suits your purpose, especially with various riders and their conditions. In this article, we will cover both Health and Term Insurance separately and describe the key parameters that will help narrow down the options to the best 2–3 policies, simplifying the decision-making process.

Health Insurance

Health insurance is essentially a contract you have with a company. You pay them money regularly, and in return, they help cover your medical bills when you’re sick or need healthcare services. It’s a way to make healthcare more affordable and predictable.

Common Mistakes

1. Failing to thoroughly understand what a policy covers and excludes can lead to surprises when trying to make a claim.
2. Choosing a health plan without checking if your preferred doctors and hospitals are in-network can result in higher out-of-pocket costs.
3. Ignoring the deductible and copayment amounts can lead to unexpected expenses when seeking medical care.
4. Opting for the lowest premium may save money upfront, but it can lead to higher costs when you need care if the plan has high deductibles or copayments.
5. If you take medications regularly, failing to check if they’re covered under the plan’s formulary can be costly.
6. Choosing a plan based solely on individual needs without considering family members’ healthcare requirements can be a mistake.
7. Smaller network plans may be cheaper, but they limit your choice of healthcare providers.
8. Not Reviewing the Fine Print: Neglecting to read and understand the policy’s terms and conditions can lead to unpleasant surprises.
9. Not seeking clarification on any doubts or concerns about the policy can lead to misunderstandings later on.

What to Expect

Health insurance provides financial protection and access to medical care. With it, you pay regular premiums to an insurance company, and in return, they help cover your medical expenses, such as doctor visits, hospital stays, and prescription drugs. You’ll usually need to pay a portion of the costs through deductibles or copayments. Health insurance often includes a network of healthcare providers where you can get care at reduced rates. It’s a crucial tool for managing healthcare expenses and ensuring you have access to necessary medical services when needed.

How to Select

1. Assess your needs, including the number of family members to be covered, existing health conditions, and anticipated medical expenses.
2. Research insurers, looking for reputable companies in India. Examine their coverage options, customer reviews, and claim settlement history.
3. Choose between individual, family floater, or group health insurance policies based on your family size and requirements.
4. Compare policies from different insurers, paying attention to coverage limits, exclusions, waiting periods, and network hospitals.
5. Consider the premium costs, ensuring it fits within your budget while providing adequate coverage.
6. Check the list of network hospitals to ensure they include facilities near your residence or workplace.
7. Understand how pre-existing conditions are covered, as some policies have waiting periods.
8. Evaluate optional riders or add-on covers like maternity, critical illness, or accidental coverage if needed.
9. Understand the claim settlement process, including cashless and reimbursement options.
10. Carefully read the policy document, terms, and conditions to avoid surprises during claims.
11. Assess the insurer’s customer service quality, as it’s essential for claim assistance and support.
12. Ensure the insurance provider is registered with the Insurance Regulatory and Development Authority of India (IRDAI).
13. Choose a policy with lifelong renewability to ensure coverage in your later years.
14. If you’re unsure, consult with an insurance advisor or agent for personalized guidance.
15. Purchasing online can be convenient and cost-effective, with some insurers offering discounts.

Once you’ve done your research and found a suitable policy, fill out the application accurately and make the premium payments promptly. Regularly review and renew your policy to ensure continuous coverage for your healthcare needs.

Term Life Insurance

Term life insurance ensures that the dependent/nominee of the deceased receives the cover amount so that the family doesn’t suffer financially.

Common Mistakes

1. Assuming that term Life Insurance is the same as a unit-linked investment plan (ULIP). Let me be clear, both are different, and Term Life Insurance is far better than ULIP.
2. Getting greedy and opting for a money-back policy. It is greed that leads many to opt for a horrible scheme. Insurance is not an investment; it’s just a guard to protect your dependents financially from any unforeseen incident.
3. Considering the understanding of riders and their conditions as complicated and hence avoiding them. Relevant riders should be added.
4. Not understanding the actual conditions applied in the policy while purchasing it.
5. Not asking questions. Even though a condition that you might think is hypothetical, you should ask your doubts.
6. Tending to act smarter. Remember, it is important to disclose your habits and existing medical conditions. If not, then it is your dependents who would suffer at the time of claim.
7. Opting for a high premium amount in order to pay in advance. This is not recommended.
8. Ignoring the importance of insurance in youth and paying high premiums later.

Now, since we know what mistakes should be avoided, we should prepare ourselves accordingly and select a better scheme.

What to Expect

If the policyholder dies, the dependents/nominee would receive the cover amount provided that the medical history of the policyholder was shared with the insurance company, and no bad habit was hidden from them at the time of purchase. It’s the truthfulness that guarantees the release of the cover amount.

How to Select

There are multiple filtration tools/websites available that one could use as a screener.

1. Age until when you require the cover. Ideally, the age should be the age until when you expect that you would have dependents. Ideally, it should be between 60–70 years, but it may vary depending on your conditions.

2. Select until when you wish to pay. Find the yearly/monthly premium amount you pay until the policy cover (Say X years) and then keep reducing the years until you find a point wherein the amount difference is minimal from what we had earlier (if paid up to X years).

3. Riders are an essential part, and some of the common riders are Waiver of Premium — an add-on provision to a life insurance policy that allows the policyholder to waive premium payments if they become seriously ill, disabled, or physically impaired, preventing a lapse in coverage due to non-payment of premiums; terminal illness — a disease that cannot be cured or adequately treated and is expected to result in the death of the patient; critical illness — a type of plan that provides additional coverage for medical emergencies like heart attacks, strokes, or cancer; and accidental death — it gives an extra payout in case of death due to an accident. Note: make sure the additional amount included in these riders is exclusive of the insurance cover amount.

4. A 0-cost term insurance rider, if given without any extra amount in premium, is also a must-have.

5. Look for claim settlement and claim repudiation ratios. Not entirely reliable, but it’s good to know the insurance company’s background.

6. Know the common exclusions in which the company will not process the claims.

7. You should look for the AUM (Assets Under Management) of the insurance company. Bigger is better.

8. The company should have a brand value and should be backed by a strong institution like banks.

9. 24-hour claim settlement is a must so that the dependents don’t suffer at the time of the claim.

Taking these parameters into account will leave you with only 2–3 best options, and you can choose the one that suits your needs. Remember, the selection of the company is important but not as crucial as maintaining a proper medical history.

Conclusion

In conclusion, attaining financial freedom involves not only planning and saving but also safeguarding yourself and your loved ones against unexpected emergencies. This is particularly vital in a country like India, where medical inflation is on the rise. To address these challenges, you have the option of investing in liquid funds or opting for insurance coverage.

For health insurance, it’s essential to avoid common mistakes like not understanding the policy’s coverage, ignoring network hospitals, or neglecting the fine print. When selecting a health insurance policy, carefully assess your needs, research reputable insurers, compare policies, and consider optional riders. The goal is to ensure you have access to necessary medical services without compromising your financial stability.

Term life insurance, on the other hand, provides financial protection to your dependents in the event of your demise. Avoid common mistakes like confusing it with investment plans or being lured by money-back policies. Honesty about your medical history and habits is key to securing the cover amount for your beneficiaries. When choosing a term life insurance policy, consider factors like coverage duration, premium payment terms, riders, claim settlement ratio, and the insurer’s reputation.

By following these guidelines and carefully considering your needs and circumstances, you can narrow down your options to the best 2–3 insurance policies that meet your requirements. Remember that selecting the right insurance company is crucial, but maintaining an accurate medical history and staying truthful with your insurer is equally vital. With the right insurance coverage, you can protect your financial well-being and provide peace of mind for both yourself and your dependents.