Do Women Buy Adequate Term Insurance Plans in India?

Mortality Protection Gap or MPG is a data that is released by the world’s largest re-insurer, Swiss-Re every year. MPG shows the gap between the required financial protection and present life cover of the people in a country.

According to the latest data (2020), Indian people have the largest MPG of about 83%. This means if they need a term insurance plan of ₹100, they only have about ₹17 as the sum assured in their term insurance plans.

Single Income Families & Personal Priorities

With such overall statistics, when it comes to women in the country, their participation is even lower whether earning or not. Now one of the big reasons is that India is still dominated by single-income families.

Thus, the life insurance majorly concerns the male member of the family who is earning. Does this mean that women in double-income families are buying adequate term insurance?

Probably not, as the Swiss-Re study points out. Even when women are the breadwinner in the family they tend to prioritise health over life. So, either they do not feel the need to buy term insurance or get a small life cover plan.

Even after buying many discontinue the policy after a few years considering term insurance cover to be unimportant.

Financial Value of Homemakers

There cannot be a greater myth than that the homemaker does not have financial value for the family. Although it is difficult to estimate the value, it’s not impossible.

Estimating the economic value of a homemaker without a formal income needs the replacement method of calculation.

For example, homemakers contribute to the family and children’s welfare, and in their absence all of it must be replaced. But most of these replacement services will cost money:

If your family’s monthly budget looks something similar to the table above, you can see the impact of the additional outflow. You will need to adjust that extra ₹27,000 within your monthly budget.

This will directly impact your investments towards your children’s and your own financial goals. Unless the homemaker also has a term insurance plan with adequate life cover.

How Much Life Cover Would You Need?

• For Homemakers: Using the replacement method above, the family will need ₹27,000 every month to continue their lives without affecting their financial status. To generate ₹7,000 every month from a lumpsum investment in a low-risk asset the family will need about ₹51 Lakh (Estimated at 6% p.a. for a period of 50 years).
• For Earning Women & Primary Breadwinners: If you are earning money from formal employment or business, estimating your economic value becomes easier. You can simply aim to replace your income for the family.
  
  For example, if you are earning ₹100,000 a month, you should buy term insurance of approximately ₹2 crores.

You may find the premium slightly high for this term insurance cover. But, in any case, you should have a life cover which is at least 10 times your annual take-home income; i.e. ₹1.2 Crore in the example above.

Is Term Insurance Sufficient?

Term insurance or life cover is important but definitely not sufficient financial protection for your family. You should always consider additional benefits or riders with the term insurance plan.

You can buy riders like personal accident and critical illness cover with your term cover and enhance your family’s financial safety.

• Personal Accident Cover: Supports the family in case of accidental death and disabilities. PA insurance covers both temporary and permanent disabilities.
• Critical Illness Insurance: CI cover provides financial support to you in case you are diagnosed with one of the life-threatening diseases like heart attack, cancer, renal failure etc.

Anything Else You Should Take Care Of?

You can use certain features offered by the term insurance plans, for instance the iSelect Smart360 Term Plan, to ensure a financially less stressful time for your family:

• Regular Income Pay Out: You can choose this option and set aside a part of the sum assured to be paid as monthly income. This way your family doesn’t have to worry about investing a large sum of money to get a safe income every month.
• Whole Life Cover: If you opt for a whole life term cover, the life cover continues till the age of 99. Meaning even natural death is covered and your children or grandchildren can receive the insurance proceeds as an estate.
• Joint Life Cover: You and your spouse can hold a single policy which will work for both of you. This policy will work the same way as two separate policies would, but will reduce the paperwork and premiums to some extent.

Is Term Insurance Expensive?

Not really. This is the most promising feature of a term insurance cover, especially when you are younger. For example, ₹1 crore term plan will cost about ₹5500 a year if you are 30 years old female. If you choose to pay this premium every month, you will not even feel its presence (i.e. ₹500 p.m.) in your monthly budget.

Single-Premium Option

In fact, if you feel that a commitment of the next 30 years for premium is too much, you can even choose to pay the entire premium in one instance. You pay a little over ₹1 lakh for a life cover of ₹1 crore, which continues till you are 60.

Do you see any more reasons to not have adequate financial protection for your family?