Life insurance is an integral part of financial planning. But equally important is selecting an appropriate policy to ensure that the purpose of insurance is not defeated.
Here is a step-by-step guide to get insured the right way.
Amount of insurance
Even those who realise the need of a life insurance policy struggle to calculate the exact amount required. This is an important factor. A small miscalculation can put the family in a tight spot. The amount to be insured will depend on various factors, including number of dependents, earning status of the spouse, age of children and their education expenses, your personal liabilities and assets, and other source of income. It is also important to take into account your lifestyle and future financial requirements, such as a marriage in the family.
It is important to factor in the fees applicable — premium, administration fee, mortality charge, fund management charge and rider charge, if any. Insurance Regulatory and Development Authority (Irda) has announced a number of changes in these fees to make insurance policies look more investor-friendly. At the same time, do check the price difference in buying a policy online and through an agent. Compare similar products in the market and the their cost to ascertain that the insurer is not being unreasonably higher. Do not rush to an insurance company just because the policy is cheaper.
Know your insurer
We go for an insurance to secure ourselves and family against an unforeseen situation. But have you ever factored in a situation where your family has not able to get the money you were insured for due to some reason or the other? One way to protect yourself against such an eventuality is to do some legwork before you sign up with a company. Seek review from friends, relatives and colleagues about their experiences with various insurance companies. Check out the claim settlement ratio, which is the percentage of claims settled by an insurance company against the number of claims submitted.
If 100 people submit claims and 80 are paid, the claim settlement ratio is 80%. The higher the ratio, the better. Don’t be lured by fancy offerings, swayed by your insurance agent, or taken up with low premium products. Do the necessary ground work.
Examine the conditions that apply and what would they cost. Or, if none are available, see if your request for one is admissible. Many insurance companies provide riders such as an accidental death rider which would double the cover your life insurance policy offers in-case the death is caused due to accident.
It is very important to check the disclaimers attached with the policy. Going through the policy document could indeed be a task, but spending a little time trying to understand it will help you avoid any conflict with the insurance company at the time of claim. Review the amount covered, the term of cover, the deductible charges, and so on and so forth. Read the copy of agreement carefully to know of the exclusions which the policy may not cover.
Don’t go overboard
Buying too many life insurance policies is not a good idea. This is often the case when individuals blindly purchase policies to meet the limit under Section 80C. Managing large number of policies becomes difficult. In case you have many policies and find it difficult to remember due dates to pay the premium, it is advisable to opt for the ECS option to avoid late payment charges.
Revisit insurance needs
There could be a change in your situation. For instance, you might have taken a life insurance policy when you were married. But now that you have a child, it’s time to take a fresh look at the amount you have insured. Also, update yourself of the policy and its tenure. If your policy has a 10-year timeframe, be sure to relook your life insurance requirements before it lapses.
By Ashish Vohra
The writer is senior director and chief distribution officer, Max Life insurance