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Guest Column ‘Advisors should avoid one size fits all approach to recommend life and health coverage’

‘Advisors should avoid one size fits all approach to recommend life and health coverage’

Advisors should customise solutions to ensure that their clients have adequate life and health insurance.
B. Govindarajan Oct 19, 2018

Indian economy has been witnessing innovations in financial products such as mutual funds and insurance. While the mutual fund industry has asset allocation funds which change asset composition automatically depending on pre-determined formula to reduce risk, the insurance industry has been issuing health insurance policies to individuals with specific diseases.

Added to it, our millennials have also joined the bandwagon of early investing – thanks to investor awareness programs conducted across the country.

Against this backdrop, we, the distributor cum advisor fraternity, have to ask ourselves the following two questions:     

  • Are our clients adequately insured for life?
  • Have our clients taken adequate health cover?

Ask your clients these two questions and you will realize that most investors do nave have adequate life coverage and health cover. This is evident from the fact that only 15% of the Indian have health insurance policies as on March 2016.

True, the annual insurance premium per capita, that is, per capita insurance density, has gone up from $52 in 2013 to $73 in 2017. The concern at the macro level is, insurance penetration stood at less than 4 percent in India – below the world average level of 7% and abysmally low when compared to other developed countries.

It is pertinent to conduct a risk assessment of your clients. While some of your clients might have bought a term insurance coverage of Rs.50 lakh. However, the point is if the sum assured is adequate for them to continue with the current living standards. Similarly, on health insurance, growing medical expenses can dent your client’s portfolio.

All said and done, quantum of these two determinants – life and health insurance vary person to person, depending upon age, standard of living, income and expenses and number of dependents.

While you can go by ballpark figure – say, term insurance cover at 10 times of annual income and health insurance premium in the range of 3% of annual income with minimum health insurance cover of Rs.5 lakh.

However, advisors like us should take customized approach to find out adequate life and health insurance of our clients Let us look at a case study.

Amit, aged 30 earns an annual salary of Rs.20 lakh but he has not started any investments in stocks, mutual funds or FDs. He has four dependents. However, he has covered his family with health insurance.

Another person, Prashant, aged 50 having similar yearly income has invested properly in mutual funds and accumulated Rs.50 lakh. In addition to this, his father also bequeathed his assets worth Rs. 50 lakh.  Prashant’s dependents are his wife and one daughter with no financial liability be it home loan/personal loan or car loan. 

Now, if we go by thumb rule, you would recommend both of them to get a term plan with sum assured of Rs.2 crore i.e. 10x of their annual income. However, Prashant needs a term plan of just Rs.1 crore as he has Rs.1 crore. On the other hand, Prashant will have to buy a family floater plan with super top up cover for his family but Amit does not need to. 

The point here is we should not follow a uniform approach to service clients. Each client is different and we need to understand their portfolio and financial standing before recommending them adequate sum assured and insured.

To conclude, at any point of time, it is our responsibility to ensure that our existing or prospective customers have adequate term insurance policy and health insurance cover. You can help your clients mitigate financial risks to help them attain financial peace.

B. Govindarajan is Assistant Vice President & Principal Officer – Product Development and Cross Selling at Chola Wealth, a wealth management arm of Cholamandalam Home Finance LTD. He is a CFPCM.

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