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The same health insurance policy can cost you differently at different life stages. We explain why this happens.

Taking life insurance in today’s times of uncertainty is de rigueur for any responsible person. While lifestyle diseases and serious illnesses like cancer are on the rise, the world is also witnessing unprecedented acts of terrorism and natural disasters. All in all, life is quite unsafe all over the world. But while we can exercise no control over how the world behaves and affects us, we can certainly safeguard ourselves and our families with life and health insurance policies.

However, the timing of purchase is crucial: any financial planner and insurance advisor will tell you that the younger you are when you buy life and health insurance plans in India, the lower your premium payments will be. There is a curious correlation between one’s age and how affordable or expensive the insurance plans become. This correlation changes with:

The 20s: A person has a job with a modest income, possibly a first job. The policy holder has relatively lesser family responsibilities and can easily pay the health insurance policy premiums. A person in their 20s is also healthier and fitter than his older counterparts, so the chance of disease is lower. Also, insurers estimate a larger life span for the policy holder, hence the sum assured will be higher while the premium payments will be lower.

The 30s: By this time, a person is married and has a family, while also having a stable job. His income is also higher than in the previous decade, while his health profile may not be as good as earlier. Insurers anticipate that certain lifestyle diseases like diabetes and cardiac problems take root in this decade. Also, your profession and lifestyle can have a bearing on the premiums of your health insurance policy. If you are employed in a line of work that puts you in danger (such as the police force, fire brigade, mining and construction, etc.) the insurer will insist on a higher premium payment for you.

The 40s and 50s: Premiums on health insurance plans will be much higher as compared to those a person in his 20s would pay. Insurers anticipate a lower life expectancy for the customer at this stage, along with many varied expenses at home (children’s higher education, medical treatment costs for self and parents, home mortgage payments, etc.) and so, the premiums will be larger. Insurers will also insist on a detailed health profile to eliminate the possibility of unknown diseases, critical illnesses, disorders arising out of smoking and substance abuse, etc.

The 60s: Most insurers do not give health insurance policies in India to people who have crossed the age of 60 years. People in this age group have retired from active duty, hence they do not have an income from which they can pay their health premiums. Secondly, it is costlier to insure a person past the age of 60 because of a high incidence of poor health and diseases. Instead of taking individual health plans in their 60s, people in this age group should look at getting included in the family health plans of their children.

When creating an overall financial portfolio, investors typically consider how to allocate assets into categories such as growth, income, and cash or cash equivalents. But, often they will tend to forget about something that, without it, could be detrimental to literally everything else that they’ve worked for. That is life insurance.

Life insurance is, in many ways, one of the most essential elements in a financial portfolio. This is because it can provide protection for all of the other assets – especially in the case of the unexpected.

For example, in its most basic sense, life insurance is made to protect a surviving spouse or loved ones from the financial consequences of unpaid debt and / or ongoing living expenses should a primary income earner pass away.

But life insurance can also be used in other financial planning areas, too.

Using Life Insurance for Diversification

In addition to death benefit protection, there are many life insurance policies that will also provide policy holders with a way to protect their cash value from market volatility, as well as from the high cost of a long-term care need.

In other cases, cash value life insurance can also be used as a primary or a secondary financial vehicle for saving for a child’s or a grandchild’s future college education expenses – and oftentimes this can provide a much more flexible mechanism even than the 529 college savings plan.

Life Insurance as an Income Supplement

If structured in the proper manner, certain cash value life insurance policies today can also be set up to help policy holders in supplementing their retirement income on a tax-free basis. With all permanent life insurance policies, cash value is allowed to grow tax-deferred. This means that there are no taxes due on the gain on those funds until the time they are withdrawn.

In many cases, a life insurance policy owner will either borrow or withdraw their cash value for a variety of different needs. These can include paying off loans, funding the college expenses of a child or a grandchild, or even taking a nice vacation.

The money that is taken out as a loan will not be taxed to the policy holder – and, it can typically be borrowed at very low interest rates (usually quite a bit lower than that of a bank or other lender).

Over the past several years, many pre-retirees have been taking advantage of the many benefits that indexed universal life insurance (IUL) can provide. This is because the cash in these policies has the opportunity to increase based on market indexed linked growth, yet it is protected from downward market movements by being credited with a return of 0% in negative periods.

Cash can be borrowed tax-free in order to supplement retirement income – and, if the policy holder passes away, any unpaid loan balance will simply be charged against the death benefit that is paid out to the policy’s beneficiary.

Making Your Financial Plan Complete

In all, while life insurance should still be considered for its death benefit protection, it also has so much more to offer – and because of that, it should not be thought of as just a “stand alone” product, but rather as an important and essential piece of the overall financial planning puzzle.

When constructing your overall financial plan, it’s important to be sure that you have the right type and amount of life insurance coverage. This is because you don’t want to leave your loved ones short just in case of the unexpected.

When choosing your life insurance plan, know that not all policies are the same, so you want to be sure that you shop for the policy, the benefits, and the insurer that will be the best for you and your specific needs and goals.

An independent insurance advisor can help you to fit the coverage to your plan, as versus the other way around. By working with many different life insurance carriers, going with an independent agency will allow you to shop in an unbiased manner while putting all of the pieces together when you’re ready to move forward.

What is life insurance?

One of the key concepts of life insurance is that it can pay any dependents you have a cash lump sum or regular payouts upon your death. It has been designed as a way of providing you with a level of reassurance that those who are dependent on you are looked after should you no longer be around.

Of course, the amount of money that will be paid out depends on the amount of cover that you purchase. You may also make decisions as to how it will be paid out and whether the money is earmarked to cover particular payments such as rent or a mortgage.

There are a couple of main types:

– The term life insurance policy runs over a fixed period, and will only pay out should you die within that period. No lump sum is redeemable at the conclusion of a term policy.

– The whole-of-life policy pays out irrespective of when you die.

What is not covered?

Life insurance does not cover disability or illness. The majority of policies have exclusions. As an example, if your death is cause by alcohol or drug abuse, there is no cover.

Should you have a particularly serious health problem when the cover is taken out, this may also be excluded from payout.

Are you in need of it?

If you have dependents – a partner who is dependent on your income, school aged children, et cetera – if you die, a life insurance policy may provide for them.

If you are unable to rely on governmental help for your family – perhaps the amount is too small – then life insurance becomes a necessity.

Who does not need it?

Your partner may earn enough income for your family to be comfortable, or you may be single, in which case, life insurance may not be required.

How much does life insurance cost?

Life insurance can be good value. Depending on your circumstances, a few pence each day can be plenty enough to provide your family with financial protection. In fact, on average, 100k life cover for a period of 10 years, for those who do not smoke and are aged 54 years, works out at less than £1 a day.

Nevertheless, monthly payments, which are also referred to as premiums, can and do vary. Thus, it’s wise policy to shop around and to find out precisely what will be covered given the amount that you are paying.

There are a number of factors that impact the amount you will pay for life insurance. That includes the policy length, the amount you wish to cover, your current health status, your current age, whether you smoke, and your current lifestyle.

As an example, a younger person who is less likely to die on account of a medical condition will enjoy a cheaper life insurance policy than otherwise.

Do you already have life insurance?

You may have an employee package which includes something called “death in service” benefits. In which case, this covers you for a certain multiple of your income and as such, you may not be in need of any life insurance.

You do need assess whether this policy will provide enough cover in the event of your death or whether you should opt for additional cover.
Do keep in mind that if you no longer work for this employer, you will lose your coverage under this policy.

Consider other forms of insurance

Life insurance will cover a worst-case scenario, though you should also consider other matters such as bill payments and your mortgage if you are unable to work due to injury or illness.

You may benefit from income protection insurance. Income protection insurance provides for regular payments if you are unable to work on account of injury or illness.

Perhaps instead you need critical illness insurance. Critical illness insurance provides you with a lump sum which is tax-free should you be diagnosed with a serious illness that is under the provision of your policy.

Think also about payment protection insurance, which is a policy that will help you to maintain any regular payments if you are unable to work – maybe because you are ill, you’ve suffered an accident, or you have been made redundant.

You might be in need of short term protection insurance. This is a solution which provides short term insurance cover that can help you to pay for any essential outgoings if you are unable to work for any reason.

It was like a message from beyond the grave. One man’s actions left his family protected from the financial aftershocks of his sudden demise.

Most of Vinit Sharma’s* friends remember the printing press owner in Mumbai as a quiet, unassuming person who spoke only when necessary. Even in his close circle of friends, Vinit was always the quietest but he had the loudest laugh. The only time he became gregarious was when he would spend time with his two children, Asha* and Vinay*.

But despite his studied silences, he was always helping others whenever he could. If the building kids needed help hauling tubs of water downstairs for Holi, Vinit would be the first to help them. His wife would often see him writing cheques to the local orphanage – without saying a word even to her. If a neighbour needed to reach the airport at midnight, he would often volunteer to drive them.

But his family was unaware of one miracle Vinit had already worked out years before he passed away last year after succumbing to a heart attack. He was just 49 years old with no history of heart trouble. His devastated wife, Shyamala* says, “He suffered a heart attack at home just before leaving for work. By evening, the doctors told me that he could not be saved. The attack had been a severe one. I remember sitting alone in the corridor outside, wondering about my future and the future of my two children.”

A few days later, a long forgotten memory suddenly presented itself to her. “I remembered that some years ago, Vinit had told me to look in his safe in the wardrobe for his insurance papers. ‘In case anything happens to me…call the company and claim the insurance money’ he had told her at the time. “I had heard him out but dismissed it. Nobody in their wildest dreams expects their partner to leave them in their 40s. But I remembered what he had said and checked his safe. Sure enough, I found the insurance papers,” Shyamala recalls.

It turned out that Vinit had taken a health insurance plan that covered the entire family. “The plan was to mature in five more years. He had never missed a premium payment. When I saw the sum assured amount, I gasped in surprise,” she smiles. After contacting the insurance company, she set the health insurance plans claim process in motion. “All the paperwork was in order, and the process of claiming the money was very simple. I got the sum assured in under a month,” she says.

She remembers feeling like “a cloud had lifted” despite losing her beloved husband. “The money would help in my children’s education for a few years. There was enough left over for monthly expenses as well. It felt like it was his last gift to his family from beyond the grave,” she says with tears in her eyes. “We all miss him terribly, not a single day passes when I do not think of him. But even after his death, he looked after our needs. That one step he took –of taking a health insurance policy – ensured that my children and I would not need to depend on anyone else for our sustenance.”

Today, she runs her husband’s business which is doing quite well. Her daughter will enter college life soon, and his son says he plans to become a pilot. The family’s dreams are on course – just like Vinit wanted.

*Characters in the write-up are merely illustrative

Automobile insurance business is among the most sustainable in the present world. Government regulation of making insurance compulsory for all motorized vehicles contributes to the success of this business. This business of covering automobiles against damages could be owned privately, by public sector undertakings, or by joint stock companies. In a country like USA auto insurance business is controlled by public limited companies. The level of competition among these companies is not stiff as the number of entities is less. Further each of these companies is tied up strategically with separate car manufacturers and their dealers for insuring new vehicles.

Insurance for vehicles is done on sale but before the concerned automobile hits the roads. The coverage amount depends on vehicle type, its use, its engine capacity, and seat capacity. If these are same across manufacturers then insurance cost remains same for similar category vehicles. For instance, the cost of insurance for a 4-seated petrol car of 1200 cc of two different makes would be same. Similarly the cost of insurance for trucks of same capacity and type but different brands would be the same.

With the parameters of calculating premium remaining constant there is not much of variation in insurance cost among companies. Further, there is not much of publicity for auto insurance as it is mandatory for all vehicles. Anything which is compulsorily procured or bought does not require too much of a marketing, particularly when service providers are limited. However, in a globalised economy the entrance of more companies in this trade is expected to increase competition. With increased competition it becomes important to devise new tools for attracting more customers. More information on these topics is found in this author’s website.

Probable tips

• Depreciation – Under normal circumstances premium for any automobile is increased every year because of depreciation. As the chances of wear and tear of a used machine increases with its usage so does its coverage cost. Keeping insurance costs unchanged in spite of depreciation is one way of making insurance packages more attractive.

•  Discounts – Usually automobile insurance providers offer accidental or loss coverage for a period of one year at a time, to be renewed in successive year. In the event of ‘no claims’ (when there are no accidental damages) during a year, the cost of insurance is discounted for the subsequent term. This discount rate varies from one service provider to another and is a determining factor of attracting more customers.

•  Claim settlements – Time required for claim settlement is another vital aspect in boosting auto insurance business. For a car owner the time spent in receiving the settlement amount from the time of notifying damages is crucial. Often companies take a long time in making settlement payments and that too after repeated requests. Lengthy settlement period is a huge turn-off for car owners. To make automobile insurance services more tempting, settlements should ideally be made before a damaged car leaves a garage.

•  Simplicity – Formality involved in lodging a complaint is another vital issue determining the acceptability of a motor vehicle insurance provider. The greater the formalities, lesser is the acceptability of an insurance service provider. It is advisable to have a simple and convenient process of lodging a complaint or claim.

•  Accessibility – Accessibility is another important determinant of an insurance company’s popularity. Companies with more offices or contact points are naturally more acceptable to end-users. It is common human tendency to approach a service provider which has more visibility.