Published in Mint on April 03 2017, Written by Kapil Mehta
We underestimate the risk of living in a city. Consider that every day Delhi has: 2 earthquake tremors, 25 car accidents, 63 fire calls, 180 litigations in the High Court, 200 dengue cases (in season), 275 cancer cases, 500 burglaries and thefts. If unreported cases were considered, the incidence would be even higher. These risks cannot be removed because they are outside our control. But their financial cost can be reduced through five insurances: health, personal accident, home, motor and liability.
Health insurance is essential. Disease incidence and healthcare costs are increasing. Often, a higher incidence is the result of more effective screening, and higher costs are driven by better drugs and equipment. Cancer is one such example where detection and recovery rates are improving. Several high-performing but costly drugs have been introduced in recent years. A treatment cycle with the best cancer drugs can cost over Rs20 lakh.
There are three things to keep in mind when buying health insurance. First, buy it fast because the older you grow, the more difficult health insurance is to buy—particularly after 50 and especially if you suffer from chronic diseases such as diabetes, hypertension or hypothyroidism. Second, buy for the future. At current inflation rate, treatment costs will double every 5 years. Since you will use your health insurance over the next 30 years or more, pick a sum assured that is at least 4 to 5 times what you think you need today. Third, select a good product. The Mint SecureNow Mediclaim Ratings provide recommendations that factor in price, product features and claims.
Personal accident covers are a cost-effective way to protect yourself in accidents. This insurance pays a benefit if you die or are injured because of an accident. You can buy this even if your health is poor. The difference between a personal accident and term insurance is that term insurance covers death for any reason whereas personal accident pays only if you have an accident. Personal accident also pays a benefit if you are disabled, which is a cover not easily available in other insurances. The insurance is economical and prices do not change with age: a Rs1 crore of sum assured will cost Rs10,000 per year.
Home insurance pays costs if your home is damaged by fire, water, earthquakes or hooligans; or if things are stolen. Home insurance costs Rs10,000 to Rs20,000 per year for most homes. Good home insurances automatically cover for reinstatement, which means that the actual repair costs are paid. They factor in inflation, which means that the sum assured increases each year; cover theft, where there is no forced break-in; and do not require a detailed listing of contents.
Motor insurance has two parts, own damage and third-party liability. Third-party liability is mandatory but most automatically buy a comprehensive cover including own damage. That’s good because road accidents are common enough. It is the add-ons and extensions that differentiate insurers. One useful add-on is 24/7 roadside assistance. Many buyers are not aware that they have this facility nor do they keep the helpline numbers handy. Other useful extensions, particularly for expensive cars, are engine seizure and tyre-burst covers. These are expensive repairs, not covered in standard insurance.
Liability insurance is relevant for professionals such as doctors, architects, lawyers and chartered accountants; and for businesses such as restaurants and transporters. It covers litigation costs and the final awards too, if you lose a case. Law suits are often lost because of weak legal effort and many good liability insurers will give you access to specialized lawyers at no additional cost. It is important to renew these insurances on-time every year. Not renewing health insurance on time will reset your waiting periods. In motor insurance, you can lose the no-claim bonus, which reduces your costs. In liability insurance, the retroactive date, which is the date after which litigation is covered, will get reset. Do not depend on the insurer to send you a renewal notice. These can be delayed or misplaced.
For most readers of this column, these five insurances put together will cost less than Rs1 lakh a year but will secure you against the risks I described. Review your insurances every few years because products improve and you may want to upgrade your insurances over time. Sensible planning is the best way to handle risks.