This is the age where most people complete their education and start on their first job. The may get married in their mid or late 20s. Let us analyse the typical insurance needs of such a group of people.
Life Insurance The first thing to determine is whether or not anyone is dependent on your income. If there is absolutely no one in your life that you are responsible for, except yourself, then you may skip purchasing any life insurance. However, if you support anyone in either a small or large measure, please take an appropriate amount of term insurance.
A term insurance is a simple insurance policy that pays a nominee (your dependent) a lump sum amount of money (called sum assured) on your death. If you are a healthy person, term insurance should not cost you much. It is available online and easy to buy. You may have to undergo medical tests. Smokers will have to disclose their habit and may have to end up paying a higher premium for the term insurance.
An adequate amount of insurance is typically 7-10 times your annual salary. Do look up calculators online before deciding.
Hospitalisation insurance As a responsible adult now, you should not be dependent on anyone to take care of you in case you have to visit the hospital for surgery or treatment. Even a day surgery or one visit to the hospital can set you back by Rs 50,000-100,000 in a private hospital. A health or hospitalisation policy covers you up to a certain amount per annum of hospital bills.
Your employer may provide this as a benefit. Please ensure your name is registered under your employer’s plan. If your employer does not provide this benefit, it is imperative that you buy a health policy for yourself.
In my experience I have seen countless examples where young people have to borrow from family and friends if they have to get any major treatment at a clinic or hospital. This event can drive people from being comfortable to being in financial distress.
I know a young man that had to take a personal loan from a bank to pay for hospitalisation and he was paying the EMI till the age of 35. He could not save anything till then because of one illness.
As the young are job mobile, a personal policy is better, even if the employer provides health insurance benefits. Also, a personal health policy works when they frequently work in small outfits that don’t offer health cover.
Accident insurance A majority of Indians in their 20s acquire a two-wheeler in this age group (21-29 years). A vehicle gives an immense feeling of freedom and mobility. At the same time, a two-wheeler is extremely prone to accidents on Indian roads. A basic cover to take care of risk of accidental death, disability, dismemberment (ADDD) is a good precaution. This insurance is very cheap and available as a rider to a term life policy.
Vehicle insurance I have met countless number of young workers and professionals who drive a car without proper insurance. The most basic and mandatory requirement is to cover for third-party loss and accidental damage. This covers loss of life or property damage to a third party in case of an accident. This is a must have under The Motor Vehicle Act.
Apart from the third-party insurance, one should ideally take a vehicle insurance to pay for repairs and damages if there is an accident. This comprehensive cover will ensure you do not have to shell-out large amounts to the workshop and keeps your car/bike in top shape even after an accident. An accident can range from a small dent to ‘total loss’ of the vehicle. It makes enormous sense to take comprehensive insurance for your vehicle given the state of roads, traffic and drivers in our cities.
Property insurance There are a select few lucky persons who can afford to buy a small flat in their 20s. A home is a big asset in terms of value, costing several lakhs, if not crores. Therefore, please take an appropriate property cover to provide for reconstruction of the property in the event of a fire, earthquake etc.
Credit shield It is only natural that young workers may avail of loans - home loan, education loan, personal loan, credit card EMIs and auto loan. If you have a reasonably high amount of loan repayment or liability (say over Rs 1 lakh), please consider availing of a credit shield.
Credit shield is a simple life insurance that pays the lender bank or finance company the total principle outstanding in case of the insurer’s death. This is essential in case of long-term loans like home loans (15-20 years) and when one is married.
In case of an early death, the liability of the loan should not fall on one’s surviving spouse. For short-term loans, a larger pure term life cover may suffice, but for long-term loans like a home loan, it is better to acquire a separate credit shield as the tenure is 15 years or longer. Many home loan providers will also insist on the same.
Overall, be sensible. Judge your needs carefully. Do not take too much insurance, thereby paying too much premium. At the same time, ensure that you cover yourself adequately for basic risks. It is always a sound strategy for your mental peace. The key word is adequate protection.
(The author is founder and Managing Director of Serengeti Ventures Pvt)
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