Nithin Kamath on Insurance: A Must-Do for Personal Finance Beginners
Zerodha CEO Nithin Kamath has shared essential advice for those just beginning their personal finance journey, emphasizing the importance of life and health insurance. In a post on platform X, Kamath highlighted key aspects people should consider before purchasing insurance.
Kamath’s guidance comes as a timely reminder for anyone starting to manage their finances. He stresses that securing adequate insurance is the first step, particularly for individuals with dependents.
Key Factors to Consider
Kamath pointed out that jargon and hidden clauses within insurance policy documents often deter people from buying insurance. He observed:
“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.”
He further noted that insurers frequently alter terms, such as underwriting regulations, which have become stricter with increased rejection rates.
Kamath shared insights from a Zerodha blog post, summarizing seven crucial points to consider before purchasing term insurance:
- Selecting the Right Insurance Provider: Critical factors include a Claim Settlement Ratio of 97% or higher, a solvency ratio close to 2, and a minimum annual premium receipt of ₹5,000 crore. Some companies offer better value than others.
- Critical Illness Benefits: Many insurers now limit these benefits to a specific number of years instead of the entire policy term, and sometimes, premiums have increased.
- Claim Guarantee Feature: Few policies provide a claim guarantee. These policies tend to have higher premiums but provide a guaranteed payout under all circumstances after approval.
- Instant Claim Payouts: Instant claim payouts reduce the waiting period for claims. While there’s often a longer wait time for claims made within the first three years, subsequent claims are processed much faster (within 1-2 weeks).
- Underwriting Rules: Insurers have become more cautious, leading to increased policy rejections, detailed investigations, and revised premium offers.
- Zero-Cost Term Policies: These policies offer a refund of premiums if canceled before the expiry date, but often come with strict requirements.
- The MWP Act: The Married Women’s Property (MWP) Act offers protection for married women. Section 6 protects wives and children by designating them as beneficiaries, while Section 5 enables married women independent access to life insurance plans.
Disclaimer: This article is for informational purposes only. Always consult with a certified insurance advisor before making any investment decisions.
