Zerodha’s Nithin Kamath advises to do THIS if you are starting personal finance journey

Online brokerage platform Zerodha’s Chief Executive Officer (CEO) Nithin Kamath, in a social media post on platform X, highlighted that purchasing life insurance and health insurance is the first thing essential for anyone starting on their personal finance journey. 

“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,” said Nithin Kamath in his post on March 11.

Kamath also cited that after interacting with people, he found that one of the biggest contributing factors to people not purchasing insurance is the jargon and hidden clauses in a policy document.

“Then there’s the fact that insurers keep changing things. For example, I didn’t know underwriting rules had become much tougher and rejections had gone up,” said Nithin Kamath in his post on X. 

7 Key Things to Know Before Buying Insurance

Nithin Kamath also shared a Zerodha Blog highlighting seven key things to know before purchasing a term insurance policy.

1. Selection of the Right Insurance Provider: People should consider choosing the right insurance provider before selecting a term insurance policy. The Zerodha blog also mentioned that some companies were offering significant value for their policies while others were still continuing with their basic offers and products.

To select a company, people need to check whether or not the company has a Claim Settlement Ratio of 97 per cent or higher, a Solvency Ratio of close to 2, and an Amount Received in Premiums of at least ₹5,000 crore per year, according to the report. 

2. Critical Illness Benefits: Critical Illness Benefits are a key aspect of any insurance policy. Many insurance companies changed their benefits after the Insurance Regulatory Development Authority of India (IRDAI) announced that the premiums for these services could not be changed over time.

“As a result, most major insurers now offer these benefits for a limited number of years instead of the full policy term—a significant drawback. In some cases, prices have also witnessed a slight increase,” according to the Zerodha blog.

3. Claim Guarantee Feature: According to the report, only one insurance company offers a term insurance policy with a claim guarantee feature available for specific eligible customers with a certain coverage amount. This feature results in a premium that is higher than other policies.

If you have any pre-existing health conditions, the insurer may reject your application for this policy. After approval, the scheme will be eligible for a claim payout under any circumstances. 

4. Instant Claim Payouts: Instant Claim Payouts are a good aspect when people are looking to purchase a term insurance policy as they reduce the challenge of a “long wait time” for claims.

According to the blog, citing Ditto data, people who claim insurance in the first three years of purchase have a long waiting time, with claims taking more than three months to clear. However, this wait time is to ensure that there are no grounds for insurance fraud in the claim.

Claims made after the three-year period are usually processed faster, within “one to two weeks after submitting the required documents.”

The Instant Claim Payout is an option which grants the customer an initial amount to help sustain the waiting period before the full amount is processed or claimed.

5. Underwriting Rules in Insurance: The underwriting process for an insurance company is like analysing someone’s health records and conducting a test through a medical questionnaire to evaluate a person’s overall health status.

“Insurers have become more cautious while underwriting term insurance policies,” according to the Zerodha blog post. 

The brokerage also cited Ditto data and said that they have seen an increase in policy rejections, deeper investigations, and counter offers for premiums where the companies either raise the amount of premium paid or reduce the overall coverage value.

“We believe this trend will continue into 2025,” said Ditto, an insurance distribution platform.

6. Zero-Cost Term Policies: After the global COVID-19 pandemic, people looking to buy term insurance policies tend to be attracted to Zero-cost term policies.

Zero-cost term policies are insurance policies where people pay regular premiums, and in case a holder surrenders the policy within a specific window before its original expiry date, the insurance company will refund all the premiums, making it a zero-cost expense.

However, these policies come with strict guidelines, such as people purchasing will be too young and opting for a longer term than typically recommended. 

7. The MWP Act: The Married Women’s Property (MWP) Act also witnessed a lot of attention due to the awareness programs around term insurance, according to the report.

This acts as a safeguard for married women and assists the man in protecting their wives and children in case some lenders may turn up to claim assets after the husband’s death.

Section 6 of the MWP Act assists married men in protecting their wives and children by designating them as beneficiaries for the financial benefit. Section 5 of the MWP Act helps married women access life insurance plans independently with full control over the financial benefits.

Note: This story is for informational purposes only. Please speak to a certified insurance advisor before making any investment-related decision.