Life insurance is a financial instrument that helps one to meet specific outcomes through every stage of life. The need for insurance is a combination of individual wants and perceptions of risk. For example, individuals within the same income bracket and lifestyle may opt for different levels of risk cover.

Typically, one tends to buy life insurance and forget about it. But it is necessary that one remains abreast of the trends that may have a direct impact on policies. Things change over time and so do the benefits of life insurance. Newer and more innovative solutions may come up that can meet ones needs better.

Hence, the question: Do I need another life insurance policy? While life insurance is mostly bought at a nascent stage of one’s professional career or family life, one must evaluate individual and the family’s requirements every few years. Many factors, such as changing lifestyle, inflation and rising costs, impact the financial needs.

You have to consider the following while buying a second policy.

■ Chart out clearly a financial outcome

The need for a second or additional policy depends on one’s needs and whether one seeks protection temporarily or throughout one’s life.

Term life plans are extremely beneficial in the initial family stages when individuals have debts to pay and growing families to support. They can be timed such that they end after one’s children have completed education and large debts such as mortgage have been paid off. They are designed to replace income or bear debts that the policyholder would have provided for.

Solutions for the whole life help to provide for dependents, irrespective of their life stages, and also protect wealth for the future generations.

Based on the family’s financial goals, individuals may decide whether to opt for a term life plan or a combination of term life and whole life insurance. The decision will depend on the current circumstances, goals for the future and some unavoidable uncertainties.

■ Is life insurance from the employer adequate?

Most salaried individuals get life insurance benefits from their employers. These policies are group plans and extremely beneficial. However, they may fall short in meeting the complete financial needs as the sum assured may be smaller than desired. It is always advisable to have a life cover that offers benefits worth 9-10 times the annual income.

One should evaluate the insurance from the employer and then get an additional plan to ensure sustained coverage even if one were to switch jobs or lose employment.

■ Understanding the benefits of existing policies

It’s a widespread misconception that life insurance policies offer benefits in the eventuality of death or at the end of the term of a policy. However, there are plans that offer other benefits, such as the ability to access the policy’s cash value through withdrawals or tax-free loans for other needs such as funding a child’s education.

Term policies provide coverage for a specified period and have no cash value. They provide death benefits to the beneficiaries in the eventuality of loss of life within the term. The policy offers no benefits once the term ends.

Whole-life policies cover one’s entire lifetime, offering features such as cash value, which grows over time.

The premium and death benefits for whole-life plans are fixed, and the rate of return on the cash value is guaranteed. Policyholders can also benefit from features such as loans against the cash value or surrender of the policy for the cash value. Whole-life plans have higher premium compared with term plans but they also offer a different set of benefits.

■ Use riders to enhance insurance

Riders are additional benefits that can be added to an existing policy at nominal costs to enhance the insurance cover without changing the basic plan.

Riders help to customise plans based on one’s needs and objectives. Most often, the extra premium to get a rider is relatively low since it goes towards covering the risk mentioned in the rider and not towards savings.

Some useful riders are:

Waiver of premium: This rider enables all future premium of the base plan and attached riders to be waived off through the rest of the policy term if the primary insured is unable to pay them in the event of financial difficulties arising because of illness or accident.

Critical illness: This allows the insured to get the complete coverage amount in the event of critical illnesses specified in the rider. Usually, this rider covers serious illnesses such as cancer, strokes, pulmonary illnesses and other major organ disorders.

Accidental death & dismemberment: This covers the life insured in the case of accidental death or disability arising from the loss of limbs or sight or both. It provides additional benefit over and above the policy’s regular death benefit in the case of accidental death and/or disability, thereby securing the family’s financial health.

Income benefit: In the case of accidental disability or illness, an individual remains away from work for extended periods. The income benefit rider enables adequate financial protection through a percentage of the premium that is received as regular monthly income throughout the term of the rider.

Surgical and hospital care: If the insured is hospitalised to undergo surgery, the surgical care rider enables the family to remain free from financial worries by providing a lump sum benefit when the insured undergoes the surgery. The hospital care rider offers a daily cash benefit in the case of hospitalisation for medically necessary treatment of any illness or injury from the first day and for the entire duration of the hospitalisation.

Individuals typically fall within one of these three categories (a) under-insured (b) optimally insured, and (c) over-insured or wrongly insured. When under-insured, it is advised to either top up a policy or purchase a second policy. When optimally insured, one must anticipate the next big financial outcome and close the gaps, if any. If over-insured, it is the moral responsibility of the financial adviser to reassign the portfolio to ensure that one is not bearing the wrong expenses.

The author is CEO & MD at Birla Sun Life Insurance