Things To Do After You Buy A Health Insurance

Hi there

Usually, we have health insurance and discuss how to get health insurance. In this article, we discuss things to do after you buy a health insurance plan.

1. Understand claim procedures

In the case of emergency hospitalization and in the case of planned hospitalization find out the documents and steps necessary to intimate the insurer. Copy this information from the insurer or TPA’s website onto a word processor, print it, and keep it along with the policy document and policy ID card.

2. Recognise that ‘cashless’ is not a right!

Health insurance comes with a right to claim reimbursement. However, cashless claims are more of a privilege than a right. It is quite possible that the insurer may either deny cashless or allow it partially and ask the insured to claim the rest of the expenses via reimbursement after the hospitalization is complete.

3. Prepare for the next premium

Even if you choose not to increase the cover each year, do not assume the premium will be the same next year. The premium could increase due to other reasons – age of individuals, the risk profile of the entire group covered by the group, underwriting test, and perhaps medical checkups too. Start an online recurring deposit that matures 6-8 weeks before the premium is due. If you are comfortable, you can choose to put money aside in a liquid fund for your insurance.

4. Understand the implications of sub-limits

There is nothing wrong with buying a policy with room-rent sub-limits. The only precaution is to ensure that the room-rent is always lower than that allowed by the sub-limit. This is because every kind of hospital fee (medicines, doctor fees, etc.) is linked to the room rent. So if you choose a room rent higher than that allowed by your policy, you will only be reimbursed (or paid via cashless) a portion of the hospital bill.

5. Recognize the impact of non-medical expenses

Hospitalization is not only about paying hospitalization fees! There is a huge list of non-medical expenses that any patient could incur. There are some administrative expenses, household expenses (while you are hospitalized), support staff expenses, and some expenses which get rejected in your insurance. Even if you believe that your health insurance cover is sufficient, these expenses have to be paid. This is where your emergency fund will come in handy. So ensure that you have one in place.

6. Health Cover for family members

If you are the earning member it is very crucial to have your own insurance but it is equally important to have health insurance for your family members, as any medical emergency for them would result in a financial setback for you and the entire family.

If the budget is a constraint you can consider taking up a family floater plan - watch our youtube video on this.
https://www.youtube.com/watch?v=F0JNvA5a_eQ&ab_channel=WealthCafeFinancial

Health Insurance could be considered as one of the trickiest insurances to buy as the health issues are very different for each person and then each insurance company has varied insurance needs. As a practice, do understand the various clauses of your insurance and have an emergency fund in place to be stress-free of any unforeseen health issues.

Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.

To learn more - you can check our course - NM 102: Build a Safety Net. Use code SAVE20 for 20% off.

Insurance - 10/09/2020

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Insurance is not Investment

When you Invest your money, you part with your money today to get something in return tomorrow. whereas when you get insurance for something, you expect to get financially covered in case an unforeseen event for which insurance is taken occurs.

Thus, term insurance is a pure insurance product, it is not for your living but in case you die, you get the money. According to us, Term Insurance is the cheapest and best way to insure your life.

However, many people feel otherwise and believe that they want to put money into insurance only when they are guaranteed that they shall get something in return either alive or dead. In this bargain, you are just investing (with insurance as an add-on) but not getting adequate insurance for yourself.

We have already discussed, how a Term Insurance must replace you Financially and how to compute the amount of your sum assured in the article - how compute your sum assured.

In spite of this many people believe otherwise and want to get returns for their insurance.

Let us understand the same with an example

If you spend INR 5000 for your insurance needs each month.

Case 1 - Where you buy a Life insurance product in which you get an amount on maturity where you do not die like a basic money back policy or an endowment plan.

Particulars	Amount

Premium Per Month	5,000
Premium Per Annum	60,000

Number of years covered under the policy	30

Total Premium Paid	18,00,000

Sum Assured under this Policy	70,00,000

Amount received on maturity if the person survives	55,30,890

The Rate of Return, in this case, is 6.5%

Case 2 - When you buy a Term Insurance and invest the balance amount in a mutual fund.

Particulars	Amount

Term Insurance Premium per month	850
Term Insurance Premium per annum	10,200

SIP premium amount	4,150
Mutual Funds Investment per annum	49,800

No of years covered under insurance and investment	30

Total Investment Amount	14,94,000

Sum assured under this policy	10,00,000

Amount received if you survive
Term Insurance	-
Mutual Funds Investment	3,46,16,398

The Rate of Return, in this case, is 15%

Comparisons between the 2 cases are as under:

Wealth Cafe actionable - This article is to give you an idea of how important and cheap term insurance is. Buying endowment plans for your insurance needs could be expensive. However, getting an endowment plan for a low-risk investment option could be considered by you for your investment needs. It is important to know the exact return % you are getting from these investments and then, take a decision.

To learn more - you can check our course - NM 102: Build a Safety Net. Use code SAVE20 for 20% off.

Insurance / Investments - 06/25/2019

Should you switch from the traditional endowment plan to a mutual fund?

In spite of being a financial planner and helping people invest and understand investments, it took me a long time to convince my husband to stop paying his endowment plan and invest the equal amount in the term-insurance and good equity oriented mutual fund.

It is just not him, 9 out of 10 people own an endowment insurance plan rather than a term insurance plan. The only reason for the same is to get their invested money in return.

Further, even after knowing that the endowment plan is not a wise investment choice, they are not convinced to surrender the insurance policy because they do not want to bear the loss on surrender.

We have tried to make your decision of switching much easier by calculating the actual loss that you might incur on surrendering the insurance policy versus the benefit of investing the premium amounts in the mutual funds.

To make it easier for you, I have tabulated below the gains that one would receive in both the scenarios to help you take a smart decision.

Scenario 1 – You continue to invest in the endowment plans such as Jeevan Labh or Jeevan Anand from LIC. (this is purely for an example purpose)

Total Premium over 35	8,40,700
Maturity value after 35 years	12,20,000

Total Gains from Insurance	3,79,300
CAGR	1.1%

Scenario 2 – You withdraw the insurance premium amount and invest the same into mutual funds. You would also incur an additional cost of buying a term Insurance which would give you a cover of 1 Crore for INR 1200 per month.

Total Investments	8,13,551
Value at the end of the term	41,06,447

Total Gains from Mutual Funds	32,92,896
CAGR	5.5%

For detailed working of the above 2 tables and how we arrived at those numbers, refer to surrender of an endowment plan vs investing in mutual funds (working).

We have attached the excel sheet here for your own calculation. Just change the numbers in the boxes highlighted in pink, the sheet would compute the gains value and CAGR in each scenario. The same shall help you take a decision of whether you should stay invested in an endowment plan or move out your money and invest in an equity mutual fund.

These decisions are very case specific and factors such as risk-taking ability play a huge rule in deciding the movement. Never forget the following base rules before making the switch:

Understand your risk taking capacity.
An equity mutual fund is very volatile in short-term, investments in them are made from a long-term goal of 10+ years for the best results.
Where you cannot bear the risk, it is best to consult your financial advisor, who shall guide you in the same.

This transition is easier and profitable in the first few years of insurance premium has been paid. If you plan to move after 10-12 years of paying insurance premium it will generally not be profitable. The premium amount lost on surrendering the policy would be higher as compared to what you can receive in the balance tenure in mutual fund investments.

Please note the assumptions and explanations provided in the excel sheet for the computation of gain numbers and do your analysis accordingly.

Insurance / Money tips - 12/07/2018

Why should I buy a term Insurance, even when I am not getting anything in return

I bought my first life insurance which was an endowment plan with a premium of INR 36,000 per annum. I had this very trusted, family Insurance uncle, who helped me buy the so-called life insurance. I believed that buying this insurance was a right investment decision and I just made everyone financially secure in my family.

The Policy was as under:

Type of Policy	Endowment Plan
Premium Per annum	36,000
Total Period of Policy	15 years
Amount Paid for 15 years	540,000
On Maturity	810,000
Gains made	270,000
Gains in %	5%
On Death	2,000,000

Like most of us, I did not calculate the exact return I would get from the policy. I had to invest only INR 3000 per month and it gave me a life cover of around 20 Lakhs.

Eventually, as I started reading about financial planning and Insurance I had the following questions in my mind.

If I die after 15 years, my policy will expire within 15 years and then I will not get any death benefit. Hence, is it enough to hold a policy for 15 years?
On my death, my dependents would only get INR 20 Lakhs, is that amount enough for them?
Won’t I have more dependents as I get older, spouse, children and parents? Will this one life insurance policy enough?
The biggest question of all was, if I invest this INR 36,000 into any mutual fund for the next 15 years, I would get a return of 8 – 12% as compared to the return of 5% in this endowment plan. Why should I invest in endowment plan?

The obvious answer was to let go this endowment plan and obtain a term insurance which would cater to all of my insurance needs. I spoke to my very trusted insurance uncle.

He told me why I need a term Insurance; I will not get anything in return. It is all your premium amount wasted.

I was confused; I tried explaining him the mutual funds v/s endowment plan concept. He was just not ready to sell me a term insurance. I had by then done enough reading to know why term insurance is better and I must own it.

Brief of my term Insurance plan

Type of Policy	Term Plan
Premium Per annum	7,000
Total Period of Policy	35 years
Amount Paid for 15 years	245,000
On Death	1,00,00,000 (1 crore)
Gains made	Dependent’s future
Gains in %	Dependent’s future
On Maturity (if you survive)	Nil

Here are my reasons for the same:

Term Insurance is a pure life insurance product. It means if you die during the policy period, then your nominee will receive the entire sum assured.
If you survive till the end of the policy period, then you will not receive any maturity amount, the premium paid is very minimum and it’s the cost that you incur to insure your own life and secure your family’s future.
The policy costs you very less and covers a large amount of life risk. I have a policy with a cover of 1 crore and I pay a premium of 583 per month (lesser than my travel expenses per month) On my death, my financial dependent, whom I nominate, shall receive the life cover amount. However, it is very important to get the term insurance of the right amount. We have discussed the same in Points to note before while buying term insurance.
If you think, you will never have anyone who will be financially dependent on you in the future (in case you do not have anyone now), you must definitely revisit this thought. Finances and money are one of the most unpredictable subjects and the best is to insure such volatility. Term Insurance if bought at the right age will cost you less and can be obtained without any medical tests. We have discussed the same in Points to note while buying a term insurance.
It covers the FINANCIAL RISK OF YOUR LIFE.
However, nowadays there are so many variants in Term Life Insurance. For example, the return of premium, Term Life Insurance up to 100 years of age and many other riders. If you do not want any financial hassles for your dependents, stick to simpler financial products.
It is super easy to buy the term insurance online. Refer our Article –Myth about buying term insurance online.
The brokerage that agents get on term insurance is also low and thus, they do not sell it as much as the other insurance products.

An honest financial advisor will always ask people to first own a term insurance before advising on other investment products. If your financial advisor is telling you not to buy the term insurance or is against it, you should revisit the same.

To learn more - you can check our course - NM 102: Build a Safety Net. Use code SAVE20 for 20% off.

Insurance - 12/06/2018

5 Myths about buying insurance online

Nowadays, people are buying houses and booking vacations across the world online but are skeptical about buying an insurance product online. People are not very comfortable to go online and purchase insurance. This is not your mistake; the community of offline insurance agents in India is huge and strong, that it is very difficult to get past them to take a decision for your own good. In this article, we have discussed buying insurance only directly through the insurance companies' website. In my article 'What are the insurance aggregators and are they really helping you?', please read about my reasons to avoid them generally. To help you do the same, we have listed below a few lies/myths which are often told to you and thus, you believe in them while buying insurance online. They are as under:

You can read details about term insurance in our article http://www.wealthcafe.in/things-to-note-before-buying-a-term-insurance/

Myth 1 - Buying policy online is too difficult. There are many complicated terms that you will not understand Buying policy online does not involve too many steps anymore and there is an explanation for each step. If that does not help you, there is a chat box or help guide on each website which shall answer most of your questions making it a very simple process for you to buy the policy online. There are features like premium calculator, payment of premium monthly, some discounts etc, which are generally not offered to you by your offline agents as that would reduce their commissions.

Myth 2 - You will not be able to cancel your policy if you buy it online. The terms and conditions of a policy document remain constant whether you buy it online or offline. You will always get a free-look period of 30 days to decide whether you want to cancel the policy or not. You can use it irrespective of the mode of purchase of the policy. We have specified about the same in our article - Free-look period in Insurance.

Myth 3 - If you are buying online, your claim will not be settled. Recently, when I was hospitalized, my agent did not help me with anything for the claim adjustment but gave me the number of my relationship manager (who is an employee of the insurance company) who helped me file my claim and go through the entire process of claim settlement. Thus, there is no guarantee that your agent will be able to do anything extra for your claims. Most of the insurance companies have a very robust customer care service nowadays. Where your claim is genuine and you have all the required documents, it should not be a great problem to claim your money from the insurance companies.

Myth 4 - My personal information and payment details are not secured. When you are booking international hotels, expensive electronics, even your house through the internet and not worry about the payment so much. then why such worry for buying insurance online. All the insurance companies also have a reputation and clientele base to maintain, they cannot risk developing an insecure online platform for the purchase of insurance.

Myth 5 - There is no guidance on which policy is apt for you Our blogs have enough content to guide you on which insurance policy you need and how much cover is apt for you. Refer to our Article. If required, consult a financial advisor to understand the same. An insurance agent is not an advisor and he/she may not sell you what is apt for you but what will get them a higher commission. This is why insurance agents do not sell Term plans but are always selling endowment plans. At least when you buy online, you do some research yourself and then take a decision on what is good for you but are not influenced by marketers. Buying an insurance product is so easy and it does not take much time. In fact, some insurance companies, give additional discounts when the insurance is bought online (as they do not have pay commission to anyone on the same). All your bank details get verified easily, you don't have to go through the hassle of giving a cheque, sign so many documents or the worry of incorrect details going anywhere. Next time when you are renewing your premium, or are planning to buy insurance, take that plunge and purchase it online to experience the benefit of the same.

Insurance - 11/30/2018

How much cover is required for Term Insurance?

Have you looked at the insurance aggregator's website and wondered how much insurance cover you should take? At the preliminary view, an insurance cover of INR 50 lakhs for someone who just started working also looks very good and an insurance cover of INR 1 crore may not be enough for someone who is married with 1 child. The amount of cover varies from person to person based on their financial background, situations, responsibilities, lifestyle etc.

You can read our Article on 10 things to note before buying term insurance which will give you an exact idea of what is term insurance and all the things that you must focus on before investing in one.

We have listed below the process to compute your term insurance cover.

Step 1 - Use your actual Income

You are opting for term insurance to ensure that the financial life of your loved ones is not impacted. Based on this, your term insurance cover must compensate for the income/earnings that you were providing to your family.

Your monthly income is the minimum amount that your financial dependents must get from the term insurance cover.

Accordingly, where your income is INR 1 lakh per month, your annual income would be 12 lakhs. Your insurance cover amount must be such that on investing it in a debt product of around 9% return, you get the annual income value as returns.

For example:

Income - 1 lakh per month

Annual income - 12 lakhs

Return % - 9%

Amount of cover - (12 lakhs*100)/9 = 1.33 crores

On an investment of INR 1.33 crores in a debt financial product which gives a return of almost 9% per annum, a return of INR 1 lakh per month (i.e. 12 lakhs per annum) will be received.

1.33 crores X 9% pa = 12 lakh per annum i.e. 1 lakh per month.

Post taxes of around 20% that would be INR 80,000 per month which shall be equal to the in-hand salary of the person with the monthly income of INR 1 lakh.

Reverse Calculation

You can also do a reverse calculation, where you may take the in-hand salary of say INR 1 lakh (this would be a post-tax number)
Accordingly, the pre-tax would be INR 1.25 lakhs
You have to earn INR 1.25 lakh for 12 months i.e. INR 15 lakhs.
The cover amount must be such that it gives 15 lakhs as 9% of the cover amount.
Using the above formula = (15 lakhs*100)/9 will give you 1.66 crores.

Hence, you should take an insurance cover of INR 1.66 crores.

Step 2 – Loans and other liabilities.

You should add the value of your total loans and other debts due to your insurance cover. This will ensure that there is no fallout of debt on your dependents.

In this case, if you already have home loan insurance, verify if it is sufficient to cover the entire outstanding loan. If yes, then you need not add that amount to your term insurance cover, if not then add the loan amount to your insurance cover.

If there are any other loans or liabilities that you have taken from anyone, add that amount to your term insurance cover amount. For example, a car loan or a personal loan.

Step 3 – Reduce your assets

Where you have any investments made in the form of mutual funds or any other investments for your retirement, reduce the value of the same from your insurance cover amount.

In this case, please keep in mind that the value of the assets like the house you are residing in or depreciating assets like your car should not be considered. These are the assets that are used by your family/people.

Step 4 – Important Events

This includes setting aside a lump sum amount for important events or milestones of life such as education of your child, or their marriage or a business set-up for your partner. Calculate roughly how much you would need for your such events (Do include inflation into consideration).

For example, if you feel that today when your child is 5 years old, you would need INR 20 Lakhs for their education 15 years from now. Ensure that this INR 20 Lakhs is not based on the education cost today, but an estimated cost of the same 15 years from today.

Final Working

(Your annual income*100)/ return rate of a debt product + outstanding liabilities - Investments (saleable assets) + Inflated cost of important futuristic life events

Conclusion

Many insurance aggregators and their website calculate the term insurance cover that may be applicable to you. These calculators work on a simple formula of the time value of money. Basically, it’s the present value of all the future income that you are expecting to earn until you retire. These easy to use calculators are available on the websites of all insurance providers and require certain information from your end like your current age, current annual income and expected future rate of return.

These calculations may not fulfill your entire insurance needs specific to your requirements. You must use an adequate method otherwise even after obtaining term insurance your family/dependents will not be free of their financial liabilities.

The best way to buy term insurance is to directly obtain the same from the website of the insurance provider. Refer to our Article http://www.wealthcafe.in/myths-about-buying-insurance-online/

To learn more - you can check our course - NM 102: Build a Safety Net. Use code SAVE20 for 20% off.

Insurance - 01/01/2018

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