Three essential insurance covers millennials must grab at the earliest

How is the idea of finding it difficult to get even two square meals after eating at the best ‘fine-dining’ options almost every day? This may sound like a plot of a melodramatic Bollywood movie from the '90s. But the same can be true in real life if the bread-winner of the family is not insured.

Especially for millennials, who have an ever-growing list of wants and needs, it becomes important to insure themselves. “Young individuals must buy three insurance covers – term life insurance, health insurance and personal accident insurance,” says Sudhir Sarnobat, founder director, Medimanage Insurance Broking.

Term life insurance

To most young individuals life insurance does not appeal much. But there are two situations you cannot ignore. First, you may have taken an education loan which is yet to be repaid. Second, you may have parents who are about to retire and may be fully or partially financially dependent on you. Term life insurance can be of much help in case of an eventuality. “Young individuals can buy term life insurance cover easily and it comes at a very low cost,” says Saroj Satapathy an independent insurance consultant.

For the uninitiated, term life insurance policies offer to pay a fixed sum insured if the insured person dies before the date of maturity. There is no maturity benefit associated with these policies. Given the low premium as compared with the traditional life insurance policies one can buy large sum assured. Experts advise buying cover at least 10 to 15 times one’s annual income.

Another alternative could be to go for a sum insured which if invested at 8% will fetch monthly income equal to 80% of the young individual’s salary. Let’s understand this with an example, Suresh is 25 years old and has a monthly income of Rs 1 lakh. He has an education loan outstanding of Rs 5 lakh. To earn Rs 80000 (80% of the monthly salary) per month, Suresh’s family need a corpus of Rs1.2 crore, if the same is parked at 8% rate of return. Add the outstanding liability of Rs 5 lakh and Suresh need a life cover of Rs 1.25 crore. This number happens to be around 10 times the annual salary of Suresh. This cover can be bought by paying annual premium of Rs 10000 to Rs 12000. Life insurance cover can also be bought by paying premium monthly, quarterly or half yearly. The insurance shopping however does not end here.

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Personal Accident Insurance

“Young individuals should opt for personal accident insurance cover. It offers large covers that offer to pay in case of death and disability at a nominal cost,” points out Sanjay Datta, chief – underwriting and claims, ICICI Lombard General Insurance Company. A personal accident insurance cover of Rs 10 lakh will be available for a premium of Rs 900-1200 for a year. Barring adventure sports and self inflicted injuries, most of the accidents arising in the normal course of life are covered by these insurance covers. Some insurance companies also exclude terrorism related risks.

As there is no tax benefit associated with it, most individuals ignore it. But it is the most important cover for young individuals, as they are more prone to accidents given their active lifestyle.

Hospitalization is another big risk one faces in addition to accidents.

Health insurance covers

Though the incidence of hospitalization is low in young age, one cannot rule it out totally. A hospitalization caused due to dengue can cost you Rs 1 lakh. There is also an excuse of employer provided health insurance cover. But given the high propensity of jumping jobs one cannot ignore the need when he is between two jobs. Also not all employers provide health insurance cover. If you join a start up, there is a high chance that you may not have employer provided health insurance. “A small health insurance cover of Rs 2-3 lakh will do for millennials,” says Sudhir Sarnobat.

You should opt for plain vanilla hospitalization health insurance cover. Specialized products such as hospital cash, critical illness or insurance policies covering specific diseases can wait.

Shopping it smart

Consider using the services of online aggregators (compare & buy) websites. You can see all available options in the market. Do not go by only the premium payable. Do consider qualitative factors such as claim settlement ratio. If you are not sure about a feature of the insurance plan, do not hesitate to ask the insurance company.

“To start with you will end up buying a small insurance cover, in line with your income and need. As you grow in life, you can enhance the insurance covers,” says Saroj Satapathy.