When people grapple for a way out of an insurance policy they have but don’t really need, they are obvious victims of mis-selling. And gullible 60-plus customers are an easy prey. The spiels run along the same old themes: saving tax, ensuring financial security and leaving behind a legacy for heirs. But do senior citizens need insurance at all?
What they don't need
Life cover: The purpose of taking a life cover is to ensure that your family or financial dependents are not left in the lurch after your death. But typically, by the time one retires, loans are paid off or are about to end and children are on their own. It’s only in rare cases that financial liabilities continue even after retirement.
Also, buying a pure life insurance becomes difficult once you cross 60. Not only do you have to undergo rigorous medical underwriting, the period for which you are covered is usually limited to 65-70 years of age.
Whole-life plans: A whole-life plan typically insures you for lifetime, where you pay premiums all your life and your nominees get the sum assured and any extra bonus after your death. However, some plans have a limited premium-paying term.
But numbers tell a different story. Typically whole-life plans invest most of the corpus in debt products. Costs, which are not mentioned explicitly in a traditional policy, dent returns further. For example, for a sum assured of Rs 10 lakh, a 60-year-old will have to pay an annual premium of Rs 79,590 till 100 years of age. Upon death, the sum assured plus any accumulated bonus will be passed on to the beneficiary.
Assuming the death happens at age 70, the beneficiary would at least get Rs 10 lakh, which is the guaranteed sum assured or a return of 4%. However, assuming the fund grows at 6%, the total death benefit will amount to Rs 13 lakh or a 8% return. However, at 80 the return drops drastically. Assuming the bonus accumulates at 6%, the death benefit would come to Rs 19 lakh or a return of just 2%.
Building a legacy: You could look at other investment vehicles such as the PPF or 80C fixed deposits.
What they actually need
Health insurance: Insurers can’t refuse health insurance to individuals till 65 years of age, but shopping for a policy becomes difficult as you grow older. A few policies cover you after 65 years of age, but the sum insured is limited to Rs 3-4 lakh with the insurer trying to limit its risks.
What to buy: Look for a policy that can be renewed for lifetime that are typically offered by stand-alone health insurers. You could also look at a critical illness policy to bump up cover.
Insurance for assets: If you own a house, a householder’s policy is a must for you. When insuring your car, go for a comprehensive cover.