Insurance - Horses For Courses

Insurance companies constantly advertise covers in response to specific situations. For instance, at the height of the 2008 global downturn, NAV-guaranteed ULIPs gained prominence when the market was extremely choppy. However, experts are of the opinion that one should evaluate an insurance product carefully and determine its usefulness before signing on the dotted line. Here is a look at some such covers:

NAV-Guaranteed ULIPs – The key advantage of NAV-guaranteed schemes, as presented by insurance companies, is that they allow policyholders to participate in the growth offered by equities, while underwriting losses. Among the drawbacks of such schemes is the reliance on debt, which limits the upside of such plans. 

Usefulness: If you are confident of managing the downside of your investments by yourself, guaranteed ULIPs may not be for you. However, if you are keen on ULIPs and are risk-averse, you should consider such schemes. 

Job Loss Cover – For a professional faced with the prospect of losing one’s job, such a cover is a godsend. One of the first such products was launched in 2008 by ICICI Lombard, and covers nine major medical illnesses and procedures, death and permanent total disability due to accidents and the loss of jobs. This is a benefit product, that is, the sum insured is paid as a single lump sum. For the loss of job cover, the insurer pays three EMIs, as after a job loss, an individual’s priority is to take care of basic daily expenses and to avoid default on loans. 

Usefulness: If you want life-long backup, a contingency fund will be better than a job loss cover, as the premium for a job loss cover is high. Hence, it is better to retain the risk and be prepared for it. 

Home Insurance – This covers your property against natural and man-made calamities. Such covers, which help you recover the cost of your property should it be destroyed due to natural or man-made disasters, were in the limelight post the Sikkim earthquake. While such covers are necessary in your portfolio, remember that you need not buy it from your lender, who may be selling their insurance arm’s product. Home insurance covers are of two types – one covering the basic structure of the building, and the other that brings household articles into the coverage. 

Usefulness: Home insurance covers are essential. Considering the current environment, one should sign up for the terrorism cover rider, if it is not incorporated already in the basic policy. 

Home Loan Protection Plan (HLPP) – While not strictly a situation-specific cover, there is a chance that your home loan company may push it in times like these, when the rates are high and the near-term prospects of them going down are non-existent. After all, buying a house is a big investment decision and you really don’t own the house until you pay off the loan completely. If something were to happen to you during the tenure of the loan, your family could need financial backup to cover the EMIs or to pay the entire loan amount. 

Usefulness: A simple term plan is way better than an HLPP. The biggest advantage of a term plan is that the life cover remains constant over a period of time, whereas in an HLPP, it keeps declining. 

Personal Accident (PA) Covers – Terror incidents are prompting many individuals to consider protecting their family’s interests in the unfortunate event of being affected by such attacks. For this purpose, you would need to take a personal accident cover. It scores over health insurance in that, while a health policy reimburses expenses on hospitalisation and recuperation, it will not serve as a long-term aid if the policyholder is permanently or temporarily disabled during such incidents, nor will it hand out the sum assured to your family in case of your death. 

Usefulness: Terror incidents call for the strengthening an individual’s protection portfolio made up of a life and health cover. A PA cover can fulfil this need.