Tuesday, September 29, 2015
Why you always need individual insurance
By Amit Kumar Roy Sep 29 2015
The discussion around how much of insurance cover should be adequate is almost a hackneyed topic now. However, what’s not very commonly discussed is the efficacy and adequacy of group coverage. I have noticed that many people feel it’s more than sufficient to have the coverage provided by the employer under the group scheme.
Before actually getting into whether this view is correct, I recollect a debate I once witnessed on the subject — why do you buy costly individual insurance covers when you are already covered with a group insurance. The number of students debating for the motion was far higher than those speaking against it. Finally a young boy, after being cornered with questions from all for speaking against the motion, shouted at a fellow debater, “Why do you spend so much money for getting different clothes stitched? I suggest you keep a tent for all of you in the family. Even that can cover the body!” How so ever crude he may have sounded like, the boy actually touched an important point, which is having tailor-made coverage.
Let us first understand that the concept of group coverage at a work place has more to do with the employer’s obligation than the individual’s needs.
Usually group coverage is two/three times of the annual remuneration across all levels and that can hardly address individual needs. As a matter of thumb rule, the employer would keep renewing this till the person is a part of the organisation. Imagine a situation when someone retires at 55 and suddenly finds that his/her insurance coverage ceases to exist. We all know that higher the age, higher is the cost for insurance and if there are health issues, one might not even get it.
Another common issue these days is if someone is in between a job and a contingency strikes. I have seen and heard many such incidents wherein the family went into absolute misery. I would strongly suggest that individual coverage should be treated separately and it should have no relevance to group coverage. Individual protection needs are measured as per individual liability, age, length of service, income and number of dependents, among others. This may even vary as per need and time. For example, if you take a big housing loan, you may need to hike your coverage. But once you pay off the loan, you can reduce that.
Some of the major differences between group coverage and individual protection are:
n Health Insurance: In the area of health cover, the employer normally opts for a plain vanilla cover of blanket group product. While pricing becomes very low as a result of such generic cover, the product hardly becomes a protection in case of individual need.
n Loan: Very often life insurance covers are used as co-laterals for availing loans. There are also attractive loan protector products available at low cost. This is not available in group coverage.
n Riders: Even in pure term cover taken on individual lives, one can attach various riders that make the protection really meaningful. For example, riders for disability benefit, accident double cover, critical illness cover, waiver of premium, family monthly income benefit cover or specific disease cover don’t really cost much, but they come only for individual covers. Group covers are usually term protections.
n Ability to renew: One of the biggest benefits of having an individual coverage is the assured renewal option up to certain years even if the policy lapses for some period. On the contrary, if one relies just on a group cover and goes for an individual protection only when employment ceases, the cost of insurance would be very high. Moreover, the advanced age might even attract some restrictions/extra premium.
— The writer is chief distribution officer at AEGON Religare Life Insurance