Insurance is the most chronically mismanaged part of Indian personal finance. The problem is not that people do not buy insurance — it is that they buy the wrong products (investment-linked LIC endowment plans, ULIPs) for the wrong reasons (agent pressure, tax saving) and end up both under-protected and poorly invested. An annual insurance audit takes 30 minutes and can identify and fix gaps that cost your family crores.
Audit item 1: Term insurance coverage adequacy
Calculate the required cover: (Annual income × years to retirement) + outstanding loans − existing financial assets. If your current term insurance sum assured is below this figure, you are under-insured. Adding a top-up term policy is simple and inexpensive — premiums for incremental cover on an existing term policy are low, especially under age 40.
Audit item 2: Health insurance sum insured
Medical inflation runs at 14–18% per year. A ₹5 lakh policy bought 5 years ago effectively covers what ₹2.5–3 lakh covered then. Review your sum insured annually and consider upgrading or adding a super top-up. Assess whether your policy still covers your current city's major hospitals in cashless.
Audit item 3: Identify investment-insurance hybrids to separate
Endowment plans, money-back policies, and traditional LIC plans combine insurance and investment in one product. The insurance coverage is typically inadequate (a ₹5 lakh sum assured with ₹5,000 annual premium is barely worth insuring), and the returns on the savings component are 4–6% over decades — significantly below inflation. Identify all such policies. If they have surrender value, consider surrendering (post break-even point) and redirecting to term + equity SIPs. If very early, weigh surrender value vs future premiums.
Audit item 4: Critical illness and disability cover
Does your health insurance include critical illness? Does your term plan include a disability income rider? Disability — particularly non-fatal income-stopping events like accidents or serious illness requiring extended recovery — is underinsured by nearly everyone in India. A standalone critical illness plan or rider covering 10–15 diagnoses provides meaningful protection for ₹3,000–₹8,000 per year.
Audit item 5: Nominee updates
Are nominees correctly updated across all insurance policies, mutual fund folios, bank accounts, and EPF accounts? An outdated nominee (ex-spouse, deceased parent) creates a legal nightmare. Review and update nominees after every major life event: marriage, divorce, birth of child, death of a named nominee.
Audit item 6: Home and vehicle insurance
Home insurance (for the structure and contents) is dramatically under-penetrated in India despite being one of the cheapest insurances available — ₹2,000–₹5,000 per year can cover a ₹50 lakh home against fire, flood, and theft. Vehicle insurance: confirm you have own damage (OD) cover in addition to the mandatory third-party policy, and check NCB (No Claim Bonus) accumulation. Never let vehicle insurance lapse — reinstating after a lapse requires a new inspection and resets your NCB.