A solid foundation for a robust financial journey should begin with prioritising life and health insurance, Zerodha co-founder Nithin Kamath has advised all, especially young professionals. "If you have dependents, not having life insurance is a poor decision,” he said in a post on X (formerly Twitter) on Mar. 11.
However, he was quick to acknowledge that low penetration of life insurance in India is partly due to a lack of transparency in the sector. “The biggest reason why they (people) don't have life insurance is because the policies are a nightmare to understand with all sorts of jargon and hidden clauses,” he said, adding that insurers have been found to keep changing things, which adds to the stress.
“For example, I didn't know underwriting rules had become much tougher and rejections had gone up,” he cited an example to base his argument.
The first thing you should do when you are starting your personal finance journey is to ensure you have sufficient life and health insurance. If you have dependents, not having life insurance is a bad idea.
Based on my interactions with folks, perhaps the biggest reason why they… pic.twitter.com/vBPcBgKd90To resolve this issue to an extent, Kamath said that Zerodha, in collaboration with Ditto, has compiled a list of essentials that one must keep in mind before buying life insurance in 2025. The article shared by Zerodha stated seven important aspects of life insurance schemes that must be looked at when buying a policy. These include insurers with high claim settlement ratios, options with critical illness benefits, claim guarantees, and instant payouts, among other things.
Here's a breakdown of key factors in life insurance policies, as highlighted in the Zerodha blog:
1. To evaluate an insurer's reliability, it is recommended to see that the insurance firm's claim settlement ratio is higher than 97%. Moreover, a solvency ratio close to 2 and annual premiums received of at least Rs 5,000 crore are considered good indicators for assessing the reliability of an insurance company.
2. Following regulator IRDAI's direction in 2024, insurers have revised critical illness benefits. Hence, it is important to understand that critical illness coverage may not last throughout the entire policy. So, Zerodha and Ditto recommend that people must speak with their insurers thoroughly before finalising a scheme.
3. Some insurers also offer term insurance with a claim guarantee, which often comes with higher premiums. Typically, disclosing a pre-existing illness gets this application rejected. However, if young, healthy people seeking insurance successfully get through a medical exam, the policy guarantees a claim payout under any circumstance.
4. It is important to note that policyholders often face longer delays for claim settlements, particularly in the first three years. These delays can last up to three months as insurers take time to thoroughly verify the claims. After the first three years, the settlement is usually done at a faster pace. Some insurers now offer instant payouts to cover immediate expenses during the waiting period, which can be a useful benefit for term insurance buyers.
5. Underwriting is a term in the insurance segment in which policyholders are required to undergo a medical questionnaire and tests during the application process. This can be the basis for getting one's application rejected or result in insurers seeking higher premiums. Hence, Zerodha advises buying a policy while in good health.
6. Another important aspect of the insurance sector is understanding how zero-cost term policies work. These gained popularity post-Covid-19, offering a refund of all premiums if surrendered within a specified window. Zerodha noted that compared to the past, insurers have now relaxed conditions and enhanced benefits of these policies, making them more attractive.
7. The Married Women's Property (MWP) Act protects life insurance payouts, ensuring they go to your spouse or children, not creditors. However, it is important to carefully consider your nominee in the policy, as it cannot be changed, even in case of problems like divorce.
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