How To Select Your Life Insurance Policy During Coronavirus


As the world is battling with the deadly COVID-19, major concerns around combatting the fallouts of the impact of the virus have been ubiquitous. India, a country of 1.38 billion people, has been facing one such concern—ambiguous financial future.

With life insurance penetration at 2.74% as of 2018 and expectations for the life insurance industry to grow 12% to 15% annually over the next three to five years, now may be a good time to consider life insurance policies that may help ease your anxiety about protecting yourself and your loved ones financially.

We spoke to insurance companies offering life insurance to know how to select your life insurance policy during the coronavirus pandemic. Here’s what they said. 

Choose A Life Insurance Plan That Offers Protection First

Although the crisis has created uncertainty, it has also offered insurance companies time to think more deeply about innovation, improved customer experiences, fundamentally different cost structures, and an upskilled and reskilling workforce, says a McKinsey report.

Given how insurance companies are tailor-making their policies to address life insurance concerns holistically, this could be an ideal time to select a policy that protects you as well as your savings. Let’s look at your options:

Term Life Insurance Plans

Term life insurance plans offer protection to an individual for a set period of time or term decided upon for which a premium is paid. In the event of death or total and permanent disability, depending on the policy, the life assured’s dependants are paid a benefit. If the policyholder survives the term of the term insurance plan, no benefit is normally payable.

Tarannum Hasib, chief distribution officer of Canara HSBC Oriental Bank of Commerce Life Insurance, finds term plans basic hygiene for every earning member of the family as they serve as income replacements to the family in the member’s absence. 

She advises a term life insurance cover that is sufficient to to help the family sustain their lifestyle expenses. 

Loan Protection Plans 

Loan protection policies take care of your mortgage payments in the event of your death or, in some cases, a terminal illness or disability and are aimed at protecting your family. 

In India, loan protection plans act like term insurance policies and are available to cover loans such as home loans, education loans and car loans. 

Consumers can choose between two options: 

Level Cover 

Level covers are available to protect the policyholder’s family for mortgage repayments. 

This cover works like a term plan in which a guaranteed sum assured is paid on the policyholder’s death during the term of the policy. If the policy expires and the life assured is still alive, no payment is made. 

Reducing Cover 

Reducing covers help pay off a policyholder’s mortgage liabilities such that the payout given to the nominee or the family at the time of a tragedy is in accordance with a decreased sum over the length of the policy. 

This cover works like a term plan in which the sum assured that is paid at the end of the term of the policy gradually reduces over the span of the policy. Opposite to level covers in which a lump sum payment set at the beginning of the policy is paid out to the nominee, sum assured for reducing covers decrease with time. 

If the policy expires during the life tenure of the policyholder, the sum assured decreases to zero and no payouts are made. 

Secure Your Financial Future 

Amid the coronavirus, securing your financial future can ensure your anxiety levels remain low. Some life insurance policy decisions that may help include: 

Life Cover With High Sum Assured

The sum assured is the fixed value that an insurer pays the nominee upon the death of the policyholder. For your family to be financially secure, experts suggest taking a life cover with a high sum assured. 

Nishant Jain, co-founder and chief product officer of Toffee Insurance, suggests using a higher multiplier to your annual income given the uncertain times to decide upon the sum assured when selecting a life insurance cover. 

“If you don’t have life insurance already, then choose a sum assured of at least 10x of your annual income. Or get an additional life insurance policy to cover the difference,” Jain advises. 

Those who already have a life insurance cover can increase their sum assured by two ways. 

One is by opting for another life insurance policy and surrendering the one that they already have as most life insurance companies in India do not offer extension of sum assured in existing policies. 

The other is by opting for a rider.  

Riders or Add Ons

Riders, also called add ons, refer to the extra benefits policyholders can buy on top of their insurance plans. 

Sanjay Tiwari, the director of strategy at Exide Life Insurance, says most policies offer the option of adding riders such as critical illness, hospi-cash, term rider, waiver of premium riders on death or critical illness. Opting for these can substantially aid the life insured in case of an eventuality or critical illness.

One example of a coronavirus specific rider is the COVID-19 insurance plan by Max Life Insurance in which the company provides coverage to the insured post a waiting period, usually 15 days. If the policyholder is diagnosed positive for the coronavirus, they are covered for their expenses, provided the diagnosis is received 15 days from issuance. 

An individual can also buy this cover as a standalone policy or under a COVID-19 insurance rider associated with a life insurance plan.

Investment Plans 

Investment plans allow consumers to create tax-free financial corpus for their families while insuring their lives. 

Tiwari advises taking a savings plan or an annuity plan to secure one’s financial future depending on their existing life insurance cover.

Savings Plan

A savings plan is a kind of a life insurance plan in which consumers can get life protection and invest a portion of their premium periodically. Among the popular savings plans include: Unit Linked Insurance Plans (ULIPs) and Endowment Plans. 

ULIPs

A ULIP allows you to get insurance and invest in market-linked equity and debt funds and asset classes to generate returns. 

If the policyholder passes away during the term of the ULIP, a death benefit amount is paid to the nominee irrespective of the value of the returns their ULIP investment has made. 

Depending on the policy, the nominee gets either the sum assured or the maturity value of the ULIP or both.  The maturity value is the return generated by ULIP investments that the insurance company makes on your behalf in the markets. 

In case the policyholder survives the term of the ULIP, they get the maturity value of the ULIP. 

ICICI Prudential Life Insurance, promoted by one of India’s top banks, ICICI Bank Limited, and Prudential Corporation Holdings Limited, states ULIPs allow flexibility and control of your money through the following ways:

    1. Fund Switch – An option to move your money between equity, balanced and debt funds.

    2. Premium Redirection – An option to invest your future premium in a different fund of your choice.

    3. Partial Withdrawal – An option that allows you to withdraw a part of your money.

    4. Top-up – An option to invest additional money to your existing savings.

Endowment Plans

An endowment plan allows you to get a life cover and a fixed return upon maturity. 

Endowment policyholders get their sum assured on maturity. In case of an untimely death, nominees receive the sum assured.

These policies make a savings plan to meet financial needs such as funding children’s education, proceeds to build a house and for retirement. 

Annuity Plan

An annuity plan is a pension plan that allows consumers to receive a sustained income, usually post retirement, upon a lump sum payment made at the time of buying the policy. 

This sustained income can be got as a lump sum payment when an immediate annuity plan is chosen. In case of a deferred annuity plan, the policyholder receives a periodic payment either monthly, quarterly or annually of their returns on the plans. 

Ensure Your Life Insurance Policy Checks Certain Boxes

While taking a life insurance policy to protect and secure your financial future are crucial steps, a policyholder must ensure they maintain certain housekeeping rules for the policy to come handy when struck with a sudden need. 

Evaluate policy carefully before signing up: You should evaluate the risk cover requirement and your financial goals before choosing the right plan.

Keep your policy active by paying your premiums: Paying all premiums on time is crucial to ensure your policy does not lapse or get discontinued. To ensure your life insurance claim is honored in case of an eventuality, you need to keep your policy active.

Inform your family about your policy: Family members should be informed about the insurance policies and the claim process when you decide to take a policy. Any ignorance can bring mental agony and may leave family members bereft of benefits you had carefully planned for them. 

Be truthful about your health to the insurer: Any information pertaining to existing health conditions including current and prevailing COVID-19 status of self should not be concealed or hidden. Such misrepresentation of facts and health conditions can hinder the claims process.

Comprehend terms and conditions of your policy clearly: While a life insurance covers death including one out due to COVID-19, all the exclusions, terms and conditions should be read through carefully. In case of buying a critical illness cover, read through the conditions and availability of cover for COVID-19 as part of critical illness.

Bottom Line

The coronavirus pandemic is a wake-up call for all those who either have not considered taking a life insurance plan or postponed opting for a suitable plan in anticipation of their good health ensuring they live long. 

The uncertainty surrounding coronavirus infection and survival rates if affected is reason enough for Indians to consider securing their family’s financial future in case of any unexpected tragedy.

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