India has the second largest insurance gap in the world of $27 billion (in absolute terms) after China, where the underinsurance or insurance gap is over $76 billion, a report said Monday.

According to a survey by Lloyd's of London, while India’s overall level of insurance penetration has increased by 0.2 percent since 2012, it continues to have one of the highest underinsurance levels globally.

In an interview to CNBC-TV18, Kshitiz Mahajan co-founder of Complete Circle Consultants said insurance's key job is to protect you against any adversity, to help you achieve your dreams and your goals irrespective of whether you are there or not there.

Edited Excerpts:

Everybody knows at some point they will require life insurance but the typical question always comes in that what kind of a policy, should I still look at ULIPs, do I now just go for a term plan, your initial thoughts on the subject?

The first thing one should look at is life insurance as a goal plan because other things will be of no use if the person is not there. So, the first thing should be goal planning, that is life insurance and medical insurance.

When it comes to insurance as a chapter, I strongly believe that insurance and investments should be kept separate. Insurance's key job is to protect you against any adversity, to help you achieve your dreams and your goals irrespective of whether you are there or not there and then to give you a risk adjusted life as well as to make you live sleep adjusted life so that you should not be bothered about what is going to happen in the future. So, that is the purpose of insurance.

So, you have to protect yourself against '3D' which is Death, Disease and Disability and it is going to be given by term plan only.

Can you tell the basics of the term plan itself, the sort of premiums that you will have to pay? I think 1 crore cover is very easy to get in a term plan, right?

The basic term plan is that for a given period of time it will give you a cover for a given premium which you choose. Let us say Rs 50 lakh to Rs 1 crore and there is no payback after the completion of the term. If you survive the entire term, there is no payback, it is just covering you that if in any situation or adversity of demise of the given individual, it will serve that to your family if you are having that same incidence happening in that term. So, after the term is completed you do not get anything back. So, that is the basic term policy which is there. For Rs 1 crore cover for a 35-year-old guy, the premium is as low as Rs 15,000-16,000 per year, which breaks down to Rs 12,00-13,00 a month only but then it is covering you for Rs 1 crore.

It is a big cover that you get?

It is a big cover which you are getting so it is like dining out in a month, you are just taking out one dine out and just covering yourself for an insurance. Surprisingly, only 3.9 percent of the population is covered here in India.

Life insurance you are saying.

Life insurance I am talking about. It has decreased from vis-à-vis last year. So point is that I am not here to talk about that we should keep on buying insurance. We are here to talk about that term plan which everybody should have.

The basic or the first insurance step that you need to take.

Even government is covering most of the under privileged people, a minimum premium of Rs 1,500 with the Rs 2-3 lakh of term plan also. That is a basic thing which you require. Second thing when you talk about a term it gives you an edge in terms of going out and doing things which you never done. If somebody has not covered himself or herself, every time you have to be in that tension that what is going to happen next. How I am going to service things? But once you have things which are plucked in terms of your term insurance then you can lot at investing other things also.

I am completely with you on this. The first thing that you need to do after your health insurance needs have been met is to look at a term plan. The term plan as you explained typically doesn't pay you anything back. It is pure protection?

You can say the old avatar of term plan used to be like this. Now couple of insurance manufacturers have started paying back also - just to add HDFC and Tata is giving return on entire premium after the completion of that term.

So you are saying this is a term plan, but you get something back if you survive the term of the policy?

Yes, you don't get any return, only the premium which you have payed you get that back.

The entire premium?

The entire premium you will get back. In that case, the premium which they charge on the yearly basis is a little high vis-à-vis the normal premium which you get in other polices.

How much higher?

It is 15 percent higher normally vis-à-vis other. But if you think that you are buying for 30 years and if you think that you are going to survive and you want something out of that term plan also then there is a option given with this type of manufacturers also.

So 15 percent higher, I think this is something very interesting that people can keep in mind. If you are willing to fork out 15 percent higher premium then you can look at products term plans where in case you survive the entire term, of the policy you actually get your entire money back, your entire premium amount back.

Right, without any return, that is the premium only. So, there are new things and there are new avatar.

So, HDFC is one you mentioned and Tata?

Tata and HDFC they are doing right now and I believe as and when the market expands people will also start coming out with these type of policies. So, these are interesting products now what we have on the card which we are talking about.

Now you are getting these term policies with some sort of health insurance covers thrown in, what sort of products are these?

The very basic idea of term plan initially was to just give a cover. However the industry is evolving and we are learning from countries from west also that you have to give a complete package in terms of covering the client.

So, term plan has been used only by the nominee of the insured guy but there is no benefit which actually the insured guy is getting. So, for example let us say somebody has bought a term plan of Rs 1 crore and he met with an accident and he has been disabled to work and maybe he has some critical illness, a heart problem or cancer problem there is no cover for that.

So, unless he has bought those covers separately as part of his health insurance plan the term policy doesn't do anything for him.

Yes, term policy doesn't do anything. So, what they have done is, very minimum amount of additional premium they have added to the policy and formed a structured wherein a client is going to get benefit out of the entire piece.

So, let us first talk about accidental cover which is there. When you talk about accidental cover there are about 4,000 deaths on a daily basis in India are because of accidents, out of which 80 percent of deaths are on road. When I am talking about these deaths, when you have a term policy which is of Rs 1 crore, normally if something will happen to someone he will get Rs 1 crore.

With as low as amount of Rs 800-900 on a monthly basis addition to the existing term plan you can get Rs 1 crore plus accidental cover also.

If somebody has taken a term policy at 30 years of age for 30 years and if nothing happened to him after 60 years, nothing will be paid. If he dies because of some natural cause at 56 or 57, his nominee will get Rs 1 crore. If he died because of accident after five years only then this nominee will get Rs 2 crore.

You are talking about a term plan along with an accident cover in which case if in an unfortunate instance this 30 year old happens to meet with an accident and then he or she passes away then the nominee gets Rs 1 crore of the term cover plus the Rs 1 crore of the accident cover?

Yes.

This is in event of actual death, that is how the Rs 2 crore gets paid out to the nominee.

Yes, and it is called accidental death benefit.

If you have accidental injury then this is not the product?

No, then this is not the product. This is only accidental death benefit.

So, I have taken example of two companies ICICI and HDFC. In case of ICICI, if you buy a normal term of Rs 1 crore for a 35-year-old, he has to pay close to about Rs 17,610 per year and in HDFC it is Rs 17,575 per year. If he buys accidental death cover of 100 percent which is Rs 1 crore plus Rs 1 crore then the additional premium which he has to pay per year is only Rs 5,600 along with Rs 17,000.

So, along with Rs 17,000 an additional fork out of about Rs 5,600.

Yes and that is Rs 480 on a monthly basis and you are doubling your cover. So, this is one of the very good features that they have added.

So, if somebody is saying I want to add on more premium to this, then reduce existing cover by Rs 25 lakh and add into accidental cover, you can do that also or not take the entire 100 percent of the cover, you can do 50 percent of the cover also, you can take 25 percent of the cover also, it is not that you have to take 100 percent cover and accordingly your premium will reduce.

So, don't take Rs 1 crore term plan, take Rs 50 lakh for that matter and then add the accident cover on to it?

Yes. Another thing is critical illness. If you have taken a critical illness and you have taken Rs 1 crore cover and you have taken Rs 25 lakh as critical illness, in that case if something is detected, let us say disease of cancer or some heart problem or some other kidney problem is detected, in that case you will be immediately paid Rs 25 lakh.

The type of expense when you go to a hospital and get the treatment done is actually not less than Rs 15-25 lakh, so in that case immediately this amount is paid to you.

The whole amount is paid out immediately?

Yes, immediately it is paid to you and your premium for critical illness will not be charged from there onwards and your term will reduce by that Rs 25 lakh. So, from there onwards you will be covered for Rs 75 lakh.

This time you are talking about a 35-year-old individual who has taken Rs 1 crore term insurance cover and has taken along with it this critical illness plan which is bundled along with the term cover. Here at the time of the detection of a critical illness disease Rs 25 lakh gets paid out to the insured individual immediately?

Yes, immediately and his premium will be reduced by the amount of critical illness premium. Let us say if he paying Rs 16,000-17,000 for Rs 75 lakh and let us say Rs 5,000-6,000 for critical illness, that premium will be reduced immediately from the overall premium.

So, then you will only be paying your term premium?

Yes but the term cover will be reduced by Rs 25 lakh because critical illness is not an add on Rs 1 crore plus, it is a part of that package. There are 34 such diseases covered by few of the companies like HDFC and ICICI.

Individually the cost can just shoot through the roof I mean if you have to take hospitalisation expenses and then look at the add on so getting that lump sum of Rs 25,00,000 is going to be a huge benefit for the person and the family members?

These new policies, this new avatar is actually helping clients a one point solution like a bank. Basically, you are just going there, you don't have to refer to different chapters. It is one chapter, this is a part, this is a part. You can combine with different combinations. So third one which we can talk about is permanent disability.

Before we get to permanent disabilities, one additional question on this critical illness cover. Now critical illness covers usually even with your traditional life insurance policies, you can take a rider, you can take a standard loan critical illness cover as well. I am just trying to work out in terms of costs, how much are you paying here to make critical illness part of your term plan and as oppose to buying the standard alone critical illness cover?

So, let us say if you have a Rs 1 crore term plan as I said you are paying close to about Rs 17,000 on a yearly basis for that term plan herein you have to add Rs 11,000 on a yearly basis to get that Rs 20,00,000 critical illness cover. That works to be Rs 900 on a monthly basis you have to add but you are covered for Rs 20,00,000 as a critical illness.

So, the annual cost is roughly around Rs 11,000-12,000?

Yes, Rs 11,000 that is what it is. But you are covered for Rs 20,00,000 as a critical illness and more over this amount is paid immediately as the detection of disease is there.

That is the second type of term policy with an add-on. What is the next?

The third is permanent disability and the most important point about permanent disability is that if somebody met with an accident and because of that he lost one of his arm or leg and he is not able to walk 200 meters without any help that guy is termed as a permanent disable guy.

So, this is one of the feature and there are other features also through which you can actually talk about that he has the brain injury or some other injury and he has been termed as permanent disable by the doctor. In that case if you chose that plan also along with the feature so there is no premium charge from there onwards.

So, let us say all premiums have waved off, let us at 30 years Mr X brought this policy and at 35 he met with some accident and he became permanent disable and he took a policy for 30 years. For next 25 years premiums are being waived off.

Including the term premium everything there is no premium to be paid?

There is nothing he has to pay, policy will continue and if say at the age of 50 he passed away then Rs 1 crore cover which he has taken Rs 1 crore is been given to his nominee. So that is the beautiful feature. Their point is that how he is going to manage the expense.

How will you manage the income, once you become unfortunately disabled then obviously the income streams will be impacted as well.

So, that is another feature which they have added to the overall kitty and where the cost is also not much. It is hardly Rs 550 on a monthly basis which gets added close to about Rs 6,000 more and you can add this feature to your policy also.

This is all very relevant to keep in mind that three special benefits that we already discussed one is the accidental death benefit, then there is the critical illness benefit that you can add-on with your term policy and of course, this permanent disability?

Right, now another important point when you talk about that the basic term policy used to be that there is that term for which you are covered, if you are not able to survive that term your beneficiary will get that benefit. If you are able to survive that term then nothing is given to you.

Some of those like HDFC policies, Tata which give you the premium back.

Now in the new term policies without any additional charge there is a terminal illness factor that has been added. I don't know how many people are aware about that. Terminal illness is that if any of the policy holder is been certified by two authorised doctors maybe one government doctor and one good qualified doctor that this guy is not going to survive more than six months from here the money is been immediately given to the ensured guy himself.

That is a new factored added by 3-4 manufacturers. This is called terminal illness. Then he can decide in his life only what to do with the money. After certified it might be possible that he can survive little more but there is a doctor certification that is required stating that he is not going to survive more than six months that is called terminal illness. That is another thing which is now added to the basic term plan without any additional cost.

There you don't need to do any add-ons - nothing?

No.

Are most term plans coming with this feature now?

I think 5-6 are there. Like Max is there, ICICI is there, HDFC is there, Religare Aegon is there. I am aware about four which are doing that. Eventually everybody will come out with that. They have to be competitive, they have to give all this type of features as value to their clients so that is another feature which is very important.

Now these are the feature, another thing initially life cover used to be till 65 years, then it became 70 years. Now you can opt for a life cover till 85 years or you can opt for life cover till 99 also. That is another important factor.

Life expectancy is increasing.

Yes, it is increasing, people are living longer and longer so you can opt for 85 or 99 years also. One can chose if something happens to him how he wants his family to get money. Initially, let us somebody offer Rs 1 crore and something happen to him and his family gets Rs 1 crore. But in this the new regime of this new term plan you can chose -like you can say that 50 percent of the money is given immediately and then on a monthly basis the money is given to my nominee.

You can actually chose between that nominee has to be given same amount of money or you can increase the amount of money also. So let us say 10 percent increase every year. Depending on whether there is an inflation factor which is there. So, there are different combination you can actually takeout on the chapter and you can actually do as per your convenience.

While I am fascinated that there are so many innovations in the market and so many interesting products are there, it also leaves one confused. How do you build your insurance matrix? You need your basic mediclaim, then you need a life insurance policy, should you buy critical illness standalone, should you bung it in with your term, then there is disability that you have to think of, there are specific illness that you might want to think of if you have a family history of diabetes, heart, cancer etc, help us construct an insurance matrix for any 30-35-year-old individual?

Whenever you buy a term plan, take a combination of a term plus accidental death benefit and a critical illness. There are other things one can choose as per his need but if you actually see this is the best you can cover.

You are saying take a term plan which gives you accidental death benefit and critical illness benefit?

Yes, because accidental death benefit will not cost you more than Rs 400 per month and your critical illness will cost you close to about Rs 800 per month.

Do you have products which will give you all three?

Yes. You can actually carve out a product for yourself. Secondly, if you have a family history, my suggestion is they can look at buying heart and cancer policy separately and the reason is every three second one person dies in India because of heart attack. When you talk about cancer the way it is growing, we have 15-16 lakh death cases coming up by 2020.

So, one should look at buying those policies separately and that will also not cost much, it is hardly Rs 350 if you buy heart and cancer policy separately which is a cover of Rs 25 lakh.

Let us look at it in an annual cost. If we start adding all the premiums up, you tell me what will be annual insurance premium outgo for a person who is adding all these covers that you mentioned?

For Rs 1 crore it will cost you close to about Rs 28,000 to Rs 29,000 per year, that is the total cost which includes basic life cover, accidental death benefit and critical illness.

When you have critical illness then there is no need for you to go for a separate cancer or heart policy. So, about Rs 27,000 is the total cost which will come for this entire three things.

When you go for medical insurance otherwise you have things like pre-existing conditions and then there are exclusions etc. Are there any of those fine prints that we need to be aware of when we are buying critical illness covers as part of term insurance?

When you opt for an insurance then give you an entire list of things which they cover. You have to go through a medical test and that will ensure that you have time for insurance. If medical test is not right, they themselves will return the money to you.

When you are buying a policy, there are three things which one should be careful off, one is rather than buying offline, buy online. Buy online whether you want to buy through a manufacturer or buy through a distributor, you can buy online and the premium will be as less as 15 percent.

So, there is a 15-20 percent discount on premium when you buy policy online and you can do it through your distributor, you can do it through manufacturer directly. Second, look at the claim settlement ratios. There are four companies where they have claim settlement ratio in excess of 95 percent which LIC, HDFC, ICICI and MAX, so look at that. Third is start early so that your premium is fixed. Nowadays they have fixed premium policies. So, if you start early the lesser is the amount which you have to shell out from your pocket.

First Published:Oct 23, 2018 9:43 PM IST