Nithin Kamath on why 'sufficient' life insurance is important for personal finance: 'The first thing...'

Zerodha co-founder and CEO Nithin Kamath

Zerodha CEO Nithin Kamath recently encouraged people to focus on life and health insurance when starting on their personal finance journey. The billionaire, who was recently named EY Entrepreneur of the Year 2024, took to X to also address some of the issues people face while buying life insurance policies.

"The first thing you should do when you are starting your personal finance journey is to ensure you have sufficient life and health insurance. If you have dependents, not having life insurance is a bad idea," Kamath wrote. "Based on my interactions with folks, perhaps the biggest reason why they don't have life insurance is because the policies are a nightmare to understand with all sorts of jargon and hidden clauses."

He added that he recently came to know that as insurers keep changing their rules and procedures, underwriting rules had become much tougher and rejections had gone up. To help make the process easier to understand and to spread awareness, the Zerodha boss said his team and the co-founder of Ditto Insurance, Shrehith Karkera, came up with a listicle on things to know before buying term life insurance.

In it, they advised buyers to check the insurer’s reliability. A claim settlement ratio of 97 percent or higher, solvency ratio around two, and around Rs 5,000 crore received in premiums per year should be a good starting point for most people, the report stated.

The Ditto Insurance report published by Zerodha also recommended looking into term insurance policies with a claim guarantee. "This product is available only for specific customer profiles and coverage amounts, and the premiums are slightly higher... This can be an extremely useful option for young, healthy applicants who prefer avoiding claim hassles, even if it means paying higher premiums," it stated.