Insurance cos launch products in response to events like quakes. Study their utility before buying them

When disaster strikes, it is human tendency to run for cover. More so, if we are talking about insurance cover. Insurance companies have always taken the lead in designing and/or promoting products that would address the concerns of individuals at a particular point of time. At the height of the 2008-09 global downturn, for instance, the market saw insurance cover against job loss being launched. Similarly, NAV-guaranteed Ulips gained prominence when the market turned volatile. However, you shouldn't be swayed by the topicality of the theme behind the cover, say experts. You should try to find out the utility value of the cover before buying one.

JOB LOSS COVER

For a professional faced with the prospect of a lay-off in a weak economic scenario, this product may be godsend. It was launched in 2008 by ICICI Lombard. It covers nine major medical illness and procedures, death and permanent total disability due to accident and loss of job. This product 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. "After a job loss, an individual's priority is to take care of basic daily expenses. They may, therefore, default on loans," says Sanjay Datta, head - customer service, ICICI Lombard. The premium for such covers depends on the sum insured, policy tenure and age of the person.

UTILITY QUOTIENT:

If you want a life-long backup, you should have a contingency fund over job-loss covers. "A contingency fund makes sense since the premium for a job-loss cover is high. It is better to retain the risk and be prepared for it. In a matter of 3-4 years, this premium amount, if invested, would amount to a tidy sum," says Suresh Sadagopan, certified financial planner, Ladder 7 Financial Advisories.

HOME LOAN PROTECTION PLAN

While not a situation-specific cover strictly speaking, there is a chance that your lender may push it in times like these - when the rates are high and the near-term prospects of the rate curve going down are bleak - since convincing the borrower could be easier. After all, buying a house is a big investment decision with emotional strings attached.

But, this big purchase is funded through a big loan. And, until you pay off this loan completely, you really don't own this house. If something were to happen to you during the tenure of the loan, your family would need a financial backup to cover the EMIs or pay the entire loan amount. Hence, it makes sense to buy insurance - for this purpose, you have two options: a home loan protection plan (HLPP) that distributor banks sell along with the loan, and a pure term cover that can be purchased independently. The cheapest and best form of insurance to cover your housing loan is term insurance and not home loan protection plan. In case of death of the policyholder during the period of the policy, his/her nominee gets the sum assured (or the cover amount as it's commonly known). And if the policyholder survives the period of the policy, he/she does not get anything.

HLPP, on the other hand, works on a reducing balance principle. As the outstanding loan amount reduces, the size of the cover also reduces. For example, if you have taken a 20-year housing loan of Rs. 50 lakh at 9.5%, an HLPP with a sum assured ofRs. 50 lakh comes at a single premium amount of Rs. 1,72,650. By December 2017, the outstanding loan amount would be over Rs. 41 lakh. If the borrower dies at this stage, the insurer would pay off the balance Rs. 41 lakh directly to the bank or the borrower's family under the HLPP. Under the term option, the family will receive the entire sum assured of Rs. 50 lakh.

UTILITY QUOTIENT:

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

HOME INSURANCE

Not to be confused with the home loan cover, this one covers your property against natural and man-made calamities. It helps you recover the cost of your property should it be destroyed due to such disasters. The product has been under spotlight due to the recent Sikkim earthquake. While such covers are necessary in your portfolio, remember that you need not buy it from your lender, who may be selling its insurance arm's product. You can do your own research and buy it from any other company, particularly because these are more or less standarised products in terms of features as well as premium rates. Such covers are of two types - one covering the basic structure of building and the other that brings household contents in its ambit. You can choose the policy that suits your need the best.

UTILITY QUOTIENT:

Such covers are essential. For a good measure, add the terrorism cover rider, if it is not incorporated already in the basic policy.

PERSONAL ACCIDENT COVERS

Many terror incidents in the country are still fresh in the memory, prompting many to consider protecting their family's interests in the unfortunate event of being affected by terror attacks. For the 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. Personal accident covers offer weekly compensation to help the insured tide over the crisis. You need to ensure that your policy provides this benefit. "The PA cover should be at least 60 times the monthly take home and ideally 100 times," says Rahul Aggarwal, CEO, Optima Insurance Brokers.

UTILITY QUOTIENT:

A string of unfortunate incidents - the blasts in Mumbai and Delhi and more recently, the plane crash in Nepal - call for beefing up an individual's protection portfolio made up of a life and health cover. A PA cover can fulfil this need.

NAV-GUARANTEED ULIPS

The key advantage of these schemes, as presented by insurers, is that it allows policyholders to participate in the growth offered by equities, while capping losses. Among the shortcomings financial planners point out is that the reliance on debt would limit the return-earning capability of such plans.

UTILITY QUOTIENT:

If you are confident of safeguarding your portfolio by yourself through a mix of debt and equity mutual funds and other instruments, guaranteed Ulips may not enthuse you. However, if you are keen on Ulips and are risk-averse, you may find it worth considering.