📌 Introduction
Ever bought insurance because a friendly agent convinced you it was “necessary”? Or maybe you have five different policies, but no clue what they cover?
You’re not alone.
Many Indians—educated, earning well, even financially aware—are either underinsured or overinsured. And both situations can wreck your finances when you least expect it.
🧠 Understanding Insurance Basics
What is Insurance?
Insurance is protection. Not an investment, not a tax-saving scheme, not a status symbol. Its job? To shield you from financial disasters.
Think of it like a safety net, not a trampoline. It’s there to catch you if you fall, not launch you into financial glory.
Let’s understand with an example:
A few months ago, I met Ramesh and Neha at a financial wellness seminar in Pune. They were a couple in their late 30s, both working professionals with two kids and a growing pile of insurance policies.
“We’re fully insured,” Ramesh beamed proudly, pulling out a thick file of documents. “Life, health, ULIPs, endowment… we have it all!”
But as we peeled the layers, a different picture emerged.
🔍 The Hidden Reality: Ramesh Was Both Underinsured and Overinsured
Sounds strange, right? But it’s a common trap.
Let me explain.
1️⃣ Sign #1: His Life Cover Was Just ₹30 Lakhs
Ramesh earns ₹15 lakhs annually. His life cover? Just ₹30 lakhs.
That’s only 2x his annual income.
👉 Rule of thumb: You need 10–15x your annual income if you have dependents.
That means, at minimum, Ramesh should have had ₹1.5–2.25 crore in term life cover. What would Neha and the kids do with ₹30 lakhs if something happened tomorrow? That wouldn’t even clear their home loan.
2️⃣ Sign #2: Health Insurance Was Just ₹5 Lakhs for a Family of Four
One hospitalisation in Mumbai and you’re staring at a ₹10–15 lakh bill. With medical inflation rising at 12 %+ annually, a ₹5 lakh policy is like bringing a knife to a gunfight.
👉 Ideal: At least ₹10–25 lakh with a super top-up—especially in metros or if there’s a family history of illnesses.
3️⃣ Sign #3: No Disability or Critical Illness Cover
Ramesh was the sole earner. One accident, one diagnosis—and their monthly cash flow would crash.
👉 Income protection is just as vital as life protection. A critical illness plan or personal accident cover could save your family’s financial future.
Now, let’s flip the coin.
💸 But Ramesh Was Also Overinsured… in the Wrong Places
1️⃣ ULIPs, Endowment Plans & Traditional Policies
Ramesh was paying ₹1.2 lakh per year into an endowment plan that promised ₹15 lakhs after 25 years. Sounds decent?
Not really.
👉 Over 25 years, if that ₹1.2 lakh was invested in a mutual fund with just 10% average return, it could become ₹1.3–1.5 crore.
Instead, he was paying high premiums for low returns and subpar life cover.
2️⃣ Overlapping Policies
He had 3 separate small health insurance policies—all offering ₹2–3 lakhs each.
Premiums were high, but the total sum insured was still low. Also, in times of claims, coordination among multiple insurers = a nightmare.
👉 Better: One robust policy + a super top-up. Clean, efficient, and cost-effective.
3️⃣ Still Paying for a Large Term Plan Post-Retirement
Ramesh’s father, now retired, was still paying premiums on a ₹1 crore term plan.
Why?
“No one told him he didn’t need it anymore,” Ramesh said.
👉 If you’re financially independent or have no income dependents, that large life cover may be unnecessary.
✅ So, How Do You Find the Right Balance?
Here’s a simple blueprint:
🧮 Life Insurance: Needs-Based Formula
(Income Replacement Goal + Liabilities – Assets)
For example:
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Annual income: ₹15 lakhs
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Years till retirement: 20
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Liabilities: ₹50 lakhs
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Existing savings: ₹30 lakhs
Required cover = (₹15L × 20) + ₹50L – ₹30L = ₹3.2 Crore
👉 Get term insurance, not savings plans masquerading as protection.
🏥 Health Insurance: Minimum ₹10–25 Lakhs + Top-Up
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For each adult
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Add higher if you live in a metro or have a family medical history
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Review policies annually and after life events
🚑 Critical Illness & Disability Cover
Especially critical if:
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You’re the sole breadwinner
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Self-employed or in a risky job
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You have no fallback income
🔁 Annual Insurance Review = Must-Do Ritual
Marriage. Childbirth. Job switch. New home loan.
👉 Every major life event should trigger an insurance audit. Set a reminder on your birthday—because what’s better than gifting yourself peace of mind?
💬 Final Question to Reflect On:
Are you insuring out of fear, or for peace of mind?
Too many people buy policies because a cousin sold it or an agent sweet-talked them into it. Others skip essential cover,s thinking nothing will ever go wrong.
👉 Don’t fall into either trap.
Ensure with clarity. Not confusion. Not guilt. Not pressure.
❓ FAQs
1. How much life insurance do I really need?
A good rule is 10–15 times your annual income, adjusted for debts and existing assets.
2. Is health insurance of ₹5 lakh enough today?
In metros, no. Consider ₹10–25 lakh with a top-up to protect against major medical bills.
3. Should I keep paying for a term plan after retirement?
Only if someone depends on your income. Otherwise, consider discontinuing it.
4. Is critical illness insurance necessary?
Yes, especially if you’re the sole earner or self-employed. It can protect your income if you’re unable to work.
5. What’s better—one large insurance policy or many small ones?
One comprehensive policy + a top-up is simpler, cleaner, and easier to manage than many small overlapping policies.
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