Purchasing term insurance for domestic help, such as a cook, is a compassionate and responsible gesture, especially when they have dependents and limited financial security. However, it is crucial to structure this arrangement properly to ensure the policy is legally valid, easy to manage, and facilitates smooth claims for the family in the future.
Understanding the Legal and Practical Framework
In India, term insurance policies are typically designed with the life insured as the proposer and policy owner. While an employer-employee relationship can establish insurable interest in certain scenarios, most retail term plans require the insured individual to be the primary applicant. This approach helps avoid potential complications related to consent, ownership, and claims, particularly if the employment status changes over time.
Government Schemes as a Foundation
For low-income households, government-backed life insurance schemes play a vital role in providing basic protection. Schemes like the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) offer a life cover of ₹2 lakh at an affordable annual premium. Although this amount may seem insufficient for a family with multiple dependents, its low cost makes it an essential baseline cover for those who might otherwise remain uninsured.
The optimal strategy is to treat government schemes as the first layer of protection. Enrollment is straightforward, premiums are minimal, and renewals are automated from the bank account, ensuring immediate financial support for the family in case of an untimely death. Additional coverage can then be supplemented through a standard term insurance policy for enhanced security.
Eligibility and Coverage Considerations
Insurers generally determine eligible life cover as a multiple of annual income, often ranging from 10 to 20 times the income, depending on factors like age, health, and underwriting guidelines. For an individual earning ₹2 lakh annually, this could translate to a potential life cover of ₹20–40 lakh, subject to insurer approval.
Instead of the employer purchasing the policy in their own name, a more transparent and effective method involves:
- The cook applying for the policy in his own name.
- Nominating the spouse or children as beneficiaries.
- The employer supporting this by transferring the premium amount to the cook’s bank account or ensuring timely payments.
This ensures that ownership and benefits remain with the family, reducing the risk of disputes or claim delays.
Challenges and Solutions for Low-Income Applicants
Securing a high sum assured for workers in the unorganised sector can be challenging. Apart from online applications, exploring offline options through insurance agents may improve underwriting outcomes for low-income applicants, as agents can provide personalised assistance and navigate complex requirements.
In summary, while buying term insurance for domestic help is a thoughtful act, it requires careful planning to align with legal norms and ensure the family’s financial well-being. By leveraging government schemes as a base and facilitating a policy in the cook’s name, employers can provide meaningful protection without complications.
