Having chosen a life partner and settling down to a secure job, one would normally be enjoying a happy and contented life. Soon a new life between the two may propel them ahead with a wonderful bonding. However, often in solitude or even in the midst of celebrations he may start worrying about how to protect the future of his loved ones from any unforeseen event. Quite naturally, the bread earner starts looking for some kind of financial protection. He starts exploring for a life insurance policy. But buying a life insurance policy is not a simple transaction.
Plenty of choice
In India, there are 24 life insurance companies. Here, no company is involved in selling life insurance to particular segments of the population as specialists. Hence, for any prospective buyer, all the insurers are prospective life insurance providers.
Life insurance is not bought every year. A policy is generally bought for a very long tenure, normally up to the age one is expected to earn for himself and his family. It is also not easy to exit a life insurance contract midway. One has to incur substantial loss for premature exit. Hence the decision to buy a policy must follow thorough understanding of the products and information about the competence and reputation of the service provider.
Reputation of insurer
The reputation and financial strength of the promoters of the insurance company is very important to understand whether it is capable of managing the policyholder’s fund prudently and whether it would be able to honour its commitment. Recently, the insurance regulator appointed an administrator in a life insurance company to protect the interest of the policyholders in view of its fragile finances. During the last 17 years there have been a few changes in ownership pattern of some companies, indicating inability or unwillingness of some of the promoters to provide necessary capital to support growth of business or to provide for adequate solvency margin.
One should also check the foreign insurer’s genuine interest in the Indian market and how long it plans to be here. After only six years of the insurance sector being opened to foreign players, one foreign company had exited its India business. Thankfully, a big industrial house took over all the assets and liabilities of that JV while launching its own company.
Claim settlement record
The claim settlement record of the company also must be checked. In this context, time lag in settlement of claim as well as the company’s policy in regard to claims processing must be found out. Some companies indulge in too much of paper work believing that procrastination may help them come across fraudulent intention, if any, behind the claim. Some companies have very high claims repudiation ratio, raising doubts about their underwriting competence or even their intentions. Some companies are highly empathetic in regard to claims and have claim settlement records matching the global best. The company’s cost efficiency and bonus payment record also must be seen. Very often, customers get trapped by promises of great return without checking the company’s past performance in respect of the concerned or similar product.
While buying unit-linked insurance policy, the record of the company in managing such funds must be compared with that of others. The company’s policy regarding the fund management charge should also be known before signing a proposal form. Premium for riders and options for receiving maturity payments also vary from company to company.
Last but not the least, well trained agents should be available with the insurer. Life insurance being a very long-term contract, it needs to be supported and serviced during its entire or most of the tenure by a professional intermediary. The companies where the agents or the frontline sales staff keep changing very frequently are surely not the best organisations to deal with. In spite of all the call centres and online access available to serve a policyholder, there is still the need for someone to interface with and even be available to wipe the tears if the event insured against unfolds unfortunately. Hence, carefully choosing the insurer before choosing a policy is important.
The author is former MD & CEO, Star Union Dai-ichi Life