Nithin Kamath on Essential Insurance for a Solid Financial Start
Zerodha CEO Nithin Kamath has offered valuable guidance on life and health insurance, designed to help individuals as they embark on their personal finance journey. In a recent social media post, Kamath emphasized the importance of these insurance types as a foundation for financial security.
Specifically, Kamath highlighted two key reasons many people avoid insurance: complicated jargon and hidden clauses within policy documents.
Kamath, in his post, stated, “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 also noted that underwriting rules have become stricter, and rejections have risen, adding to the challenges faced by potential insurance buyers.
7 Key Considerations Before Purchasing Insurance
To clarify the insurance landscape, Kamath shared insights from a Zerodha blog, detailing seven crucial points for anyone considering a term insurance policy.
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Selecting the Right Provider: The Zerodha blog stresses the significance of choosing the correct insurance provider, highlighting that some companies offer more competitive value than others. The blog recommends checking for a Claim Settlement Ratio of 97% or higher, a Solvency Ratio close to 2, and annual premiums received of at least ₹5,000 crore.
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Critical Illness Benefits: Many insurance companies have modified their critical illness benefits. The Zerodha blog mentions that, due to regulatory changes, these benefits are now often offered for a limited period rather than the entire policy term, and sometimes at a slightly increased price.
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Claim Guarantee Feature: Some term insurance policies now offer a claim guarantee feature, but typically, this option translates to higher premiums. This feature provides a guaranteed payout under any circumstances after initial acceptance. However, it can be unavailable for those with pre-existing health conditions.
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Instant Claim Payouts: Instant claim payouts can lessen the waiting period for claims. Data from Ditto, cited in the blog, suggests longer waiting times (over three months) for claims made in the first three years. Claims made after this period are usually processed within one to two weeks.
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Underwriting Rules: Insurers now scrutinize applicants more carefully. Underwriting involves evaluating health records and questionnaires. The blog suggests that they’ve seen an increase in policy rejections, demands for deeper investigations, and adjustments to premium or coverage amounts.
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Zero-Cost Term Policies: After the COVID-19 pandemic, zero-cost term policies have gained popularity. These policies refund all premiums if the policyholder cancels within an allotted time. However, these policies often require buyers to be young and to take longer-than-recommended terms.
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The MWP Act: The Married Women’s Property (MWP) Act also carries importance as a safeguard for married women. This helps protect wives and children by designating them as beneficiaries for financial benefits.
Disclaimer: This information is for educational purposes only and should not be considered financial advice. Please consult with a certified insurance advisor before making any decisions.
