HomeCar InsuranceWhich type of insurance policy should I buy for better coverage?

Which type of insurance policy should I buy for better coverage?

I have two endowment life insurance policies. One offers me a sum assured of 1 lakh for an annual premium of 6,039, which I have to pay till 2031. I have already paid 7 premiums. The policy matures in 2040. The other policy offers me a sum assured of 2 lakh and the annual premium is 10,602, which I have to pay till 2038. I have paid six premiums for this so far. Should I continue these policies or surrender them for policies that give better returns?

—Divya Jauhri

Endowment plans provide returns between liquid funds and debt funds. If your expectations are to generate returns similar to the equity market or a high yielding fixed deposit, then it is unlikely to be achieved by these plans. You could consider surrendering these plans as the payment obligation is for another 8 to 15 years. Since you have already paid premiums for 6 to 7 years, the upfront surrender charges are likely mitigated. So, you should get a decent surrender value. You could invest the corpus in a pure investment vehicle, which is likely to generate higher returns.

More importantly, you should evaluate the level of your insurance cover. You are currently paying a premium of around 16,641 for a coverage of 3 lakh. This leaves you significantly underinsured. For a similar annual premium, you could get a coverage of around 1 crore, if you are 40 years old. Life insurance sum assured should be sufficient to cover ten times of one’s annual income. The objective of term insurance is to make your dependents financially independent in your absence.

I still have my first car that I bought in 2010 and drive it occasionally. I have been paying a vehicle insurance premium all these years. Is it necessary to keep renewing the policy even though I take the car out rarely? Will the absence of insurance affect my plans to sell the car?

—Name withheld on request

There are two parts to your car insurance. One is the own damage and the other is third party liability. Law mandates you to keep an active third-party liability insurance. The own damage section is optional. The third-party liability section is to cover your legal liability for any damage caused by your car to another person or their property.

The own damage section covers you for damages to the car including theft. While it is not mandatory, it is recommended that you keep yourself insured for own damage section as well. Though the car is not used, there is a chance of it being stolen from your garage. Since you don’t seem to be making frequent claims, you would have a high no-claim bonus already. Moreover, the sum assured of the car would have come down over the years due to lower IDV. So, your premium is likely to be low. You could further optimize the premium by opting out of add-on coverage.

Abhishek Bondia is principal officer and MD, at SecureNow.in

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Updated: 02 Nov 2023, 10:52 PM IST

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