Do you have the right cover?

Many young professionals begin investing early in life. But are they making the right decisions in another critical aspect of financial planning — buying suitable insurance policies?

BusinessLine quizzed four professionals of varied backgrounds, including an NRI, on their insurance choices. The conversations with these youngsters revealed that it is not possible to give them a common label. They present a mixed picture as far as their insurance purchases go.

While many are carefree and do not prefer to think about risks associated with health or death, there are others who have taken comprehensive and necessary policies. The choice of insurance policies too is varied, as is common to other age-groups.

While many are under-covered and prefer expensive and generally unsuitable plans, others are savvy enough to choose the right policies.

Many young professionals are provided group health insurance by their employers. This makes them steer away from health insurance. Shehnaz Sultana, 24, a Bangalore-based professional, is a case in point. She is covered for medical expenses by the company she works for. “I am covered by a group cover by my company, so I feel there is no need to buy a separate medical cover from another insurance company,” she says.

But what if she changes jobs, which means the company cover too stops? Shehnaz says she has not given this aspect thought.

The case of Sivaram, 29, a software engineer, is similar. He has a medical cover of ₹2.5 lakh provided by his company. Although he got married recently, he has still not taken any family cover. While these two youngsters are taking a risk by relying entirely on company-provided cover, which may be insufficient, there are others who are better fortified as far as medical insurance is concerned.

Take, for instance, Siddharth Chamaria, a 27-year-old NRI who works for a Singapore-based company. He has taken a medical cover in Singapore that covers him globally. This is because he is constantly on the move.

“Every month, I spend 10 days in Singapore, another 10 in China and the rest in India or any other place as may be required by my job,” he says. Siddharth’s international medical cover thus becomes a necessity. The cover is comprehensive, he says. Deepak James, 30, a pilot with one of India’s leading airline companies, is another example. While he is covered by the company for ₹8 lakh, he has also taken a family floater policy for ₹5 lakh.

For many investors, traditional policies are an inseparable part of their portfolios. They like to pay premiums for a period and get a lumpsum at the end of it, however low the risk cover or the returns. But unit-linked plans, another expensive insurance product, do not have too many takers.

Sivaram pays a premium of ₹50,000 annually for a traditional insurance policy from LIC — Jeevan Anand.

He is a typical example of how investors with inadequate awareness view insurance. “I have been paying the premiums for many years now and do not want to stop. I will pay the premiums for the full term of 25 years.”

He says he did not have enough financial awareness. So, he has stuck to traditional policies. But he has recently made a start with mutual funds. He reads financial dailies to up his knowledge on investment opportunities.

Shehnaz has not invested in endowment policies. But she says, “Even if low, I want some returns from my insurance premiums.”

She will invest in traditional policies once her surplus improves, she says.

Siddharth is dismissive of traditional policies or unit-linked insurance plans. “They are completely unnecessary.” He adds in the tone of a seasoned investor that “one should not confuse investment and insurance”.

Deepak’s case is a little different. Because of the nature of his profession and its attendant risks, there is comprehensive cover offered by the pilots’ association, which has tied up with New India Assurance.

He pays ₹50,000 as annual premium. In return, the cover would pay his salary for life in case of any permanent disability and in case of any unfortunate event, his nominee would get ₹1 crore. Shehnaz has not cared to take any term cover. As mentioned earlier, she prefers to have policies that generate returns, even if low.

Sivaram too has not taken a term cover. “My wife too works and hence right now I haven’t thought of covering risks.”

But savvy Siddharth, who says he has been investing since his ‘high-school days’, has taken a term cover for ₹3 crore. Since medical and term covers are the only policies he owns, he has ensured that both are comprehensive.

Deepak has gone one step further and has very high risk cover. While he has taken a term insurance policy for himself for ₹1 crore, his company too has covered him to the tune of ₹5 crore.

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