11/28/11

5 key factors to consider before buying an insurance plan - The Economic T

Mon, Nov 28, 2011 Updated 05.21PM IST

20 JUL, 2011, 02.16AM IST,

5 key factors to consider before buying an insurance plan

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There are many occasions in life when you wonder if you have taken the right decision. Some of the decisions may concern your financial life. Investing your hardearned money in any financial product of a company or a bank - recommended by your friends, family or agent - without understanding how it works, is a common
issue. Your mind is filled with doubts and uncertainty on whether you have made the right investment, especially if it is in a long-term product like insurance.
An insurance policy is a must in any financial portfolio as it covers the risk associated with the loss of life or property. Since it's a long-term contract for 10 years or
more, it is difficult to make changes or amend these contracts during the policy term. Hence, you must spend a little time to research these products to ensure you
don't have regrets later. It may not be possible for you to understand all the intricacies of a life insurance policy. But, you could consider the following factors while
choosing a plan:
Need-based investment: The standard thumb rule is that your life cover should be 10 times your annual income so that your family is not impacted financially in
case something were to happen to you.
You should also take into account any pre-existing medical complication or property loans while selecting the life cover. Your financial portfolio should be well
balanced and need-based. For example, in case you need to build a corpus for your child's education, you can select from a range of products from insurance
companies that ensure the funds that you had planned for your child's education are available whether you are around or not.
You need to remember that insurance is a protection-cum-long-term investment and savings tool. You need to define your need - like your child's education or
retirement - and accordingly buy a policy that will help you meet your requirement in future.
Background check and due diligence: Once you have decided on the policy, you could do the necessary background check on the company concerned. All life
insurance companies have comprehensive disclosures on their websites that give all required information. Policy structure, customer service capabilities, scope of
network, online platform (in case someone wants to buy online term policy), are some of the key things you should look for.
Secondly, there are many sites that help you compare various policies as well as the premiums. However, the one thing you need not worry is the financial health of
an insurance company. The insurance sector is highly regulated and all companies need to maintain a solvency ratio to ensure that the customer does not suffer.
Fund performance: When buying a Ulip, which also acts as an investment vehicle, you could look at the past performance of the company. All life insurance
companies provide details of their funds' performance online. An important thing to consider here would be stability. A company with a good fund performance will
have a consistent track record with the fund performance neither being erratic nor extremely risky.

Claim settlement ratio: Many experts advise that the claim settlement ratio of an insurance company should also be considered when buying a product. However,
this should not be of concern as long as you have provided correct information in your policy form. As I mentioned earlier, the insurance sector is highly regulated.
Hence, the chances of a rightful claim not being settled is rare. In fact, the average claim settlement ratio of the insurance sector is above 80%, and most
companies have healthy ratios.
Understanding the policy: Once you have zeroed in on the product based on your need and track record of a company, you should understand the features of the
policy, specifically those related to the policy term, premium-paying term, maturity date and charges. You must also understand the benefit structure of the policy.
Every Ulip comes with a benefit illustration at 10% and 6%, which discloses the charges and what the status of your investment would be on a yearly basis.
These simple but effective steps will put to rest some of your common concerns. Your policy will then be a source of relief and assurance in your life than otherwise.
And, in case you have second thoughts about a policy after buying it, you can make use of the 'freelook' facility, which allows you to return the policy to the
insurance company within 15 days of buying it for a refund.
TR Ramachandran CEO A i a Life Ins rance

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