Can I stop paying insurance premiums if my savings match the coverage of my life and health policies?
The purpose of life insurance is to make good the financial loss that a person would suffer if the earning member of the family passes away. We could bucket this financial loss into three major categories.
- Any loans that would have been taken for which the EMIs for the loan are being funded by the salary of the individual.
- The household expenses that the family was dependent on.
- The goals of the family, for e.g., kids’ education, the retirement of surviving spouse or parents, etc.
All three needs would be compromised if the earning member of the family passes away. The house could get repossessed for non-payment of EMIs, the lifestyle of the family would have to be drastically lowered, and other goals would also need to be amended or scaled down. Normally, as you earn more, lifestyle changes push up expenses. Hence, if an earning member passes, not only will his current income stop, but also the potential to earn more in the future ceases.
Keeping these in mind, it is firstly important to assess if the life cover you chose is sufficient today. If it is, you should next assess whether the cover is sufficient 8 or 10 years from now. You will notice that the value of, say, ₹1 crore would have fallen because of inflation.
It is similar to health insurance. Though in today’s value, ₹15 – 20 lakh cover may look reasonable, we are talking about being covered for a lifetime, and the cover could be meager a few years later.
Considering these, our suggestion would be first to assess one’s current insurance needs. Take additional cover if required. This is also important because as one ages, there could be some diseases or ailments that one may have to deal with, which may render the individual uninsurable. For example, a healthy person today, having a cardiac arrest tomorrow, may become uninsurable, even if there is a willingness to pay a higher premium. Otherwise, the insurance company may exclude that ailment from being covered. ‘
It is, therefore, very important to carefully assess the requirements before stopping to pay existing premiums. The cost of insurance is insignificant in comparison with the benefit the beneficiary of a life insurance policy will get. My estimate is that the sum total of all premiums over the tenure of the life insurance policy is less than 10% of the sum assured.
It is not advisable to stop paying premiums for either of their policies just because your investment corpus has crossed the cover amount. What is certainly required is an ongoing review of your goals, your savings and investments, and the risks that you should transfer by way of insurance along with your trusted financial advisor.
The query has been answered by Lovaii Navlakhi, CEO of International Money Matters, SEBI Registered Investment Adviser (RIA).