Most people hold more than one insurance policy: One takes care of compulsory insurance products while the other part comprises need and emotion driven life insurance policies. Most urban households today hold a motor policy, many buy health cover and a few opt for householders’ protection or fire and burglary policy to protect their household assets and the building.
Creating an insurance portfolio to meet a variety of needs requires a systematic approach. In order to build a purposeful and adequate insurance portfolio, one must explore information sources like websites of insurance companies and articles about insurance and the information shared by the insurance regulator and the life and general insurance councils.
Since insurance does not come free every conscious policyholder has to invest 10-15% of his yearly income on buying and renewing policies. Moreover, policyholders are required to pay substantial GST on the premium. There are benefits of saving on income tax but that also has to be properly planned. Unfortunately, the insurance portfolio of almost all citizens is constructed on the basis of insufficient information dished out by those who are not experts or who have different priorities than the welfare of the customers.
The purpose of insurance is to mitigate hardship of the policyholder as well as of the people left behind by the policyholder. People should first identify the risk faced by them and make a conscious decision or take the right opinion to select suitable protection plans out of various insurance products available in the market.
Many policyholders surrender policies taken by them when they find they have made a wrong choice of the insurance product or feel they have been cheated by the intermediary. Surrendering any life insurance policy before maturity causes heavy loss to the policyholder. As per one’s needs one has to select endowment policy, term policy and even unit-linked insurance plans for achieving both protection and financial goals. Mediclaim policies bought at an early age ensures that “exclusions” get minimised over a period of time and limitations such as co-payment and reduced cover for pre-existing diseases are made inapplicable. The motor policy is becoming really costly these days; the prospective customer needs to know what cover is necessary for him and what cover is irrelevant to his situation.
Read the fine print
The insurance policy documents comprise several annexures. They contain the terms and conditions that become operative when a claim would arise. It is known as “conditions in fine print” because the contents are not only too voluminous to read but also too small to be read. The insurers resort to such conditions when they decide to repudiate a claim. The policyholder or the claimant gets caught unaware. In order to escape such a situation the policyholder must go through the entire policy document and annexures received by him. If he finds the conditions contrary to his expectations or understanding he will have the right to seek cancellation of the policy and refund of the premium paid. This escape route provided to the policyholder is known as Freelook Period and the policyholder can exercise this option within 15 days of receipt of the policy document from the insurer.
Buying insurance is therefore a serious business and uninformed decisions must be avoided. Most of the complaints registered with consumer forums or Insurance Ombudsman reveal policyholders’ lack of precaution or understanding while choosing insurance products. Such customers find it very difficult to get back their investment or to get the expected benefits under policies purchased by them in haste.
The writer is former MD & CEO, Star Union Dai-ichi Life Insurance. His new book ‘The LIC Story: Making of India’s Best-known Brand’ is on the stands now.