Let needs decide your insurance plan

As Indians, we are naturally very cost conscious and this holds true even for financial products we buy. Premium, the actual amount of money charged by insurance companies for active coverage, is often measured as the cost of an insurance product. An insurance premium for the same service can vary widely among insurance providers. As in the case of consumer durables, the lowest quoted price on an insurance premium may seem like the better bargain, but the level of coverage may also be lower.

Having said that, a cheaper premium is an apt comparison for pure term plans alone, since the benefit offered by all insurers is standard.

For all other types of plans, including health plans, one needs to consider the features and benefits of a product. Customers can review the following guidelines when deciding on subscribing to a particular policy:

Is the life cover offered sufficient? One must definitely ensure whether the life insurance cover is adequate to cover the family in case of an eventuality. While opting for a life cover, one must ensure that the cover is sufficient to cover dependants not only today, but also over the life stage.

Are the features/benefits offered suited to your life stage needs? You must check whether the benefits offered by the policy are suited to your individual needs. A policy providing benefits to customers towards the end of the policy term may be suitable for younger customers, but not for older customers. Similarly, a money-back product may be offering a money-back every three years. However, the amount may be miniscule, compared with the customer’s need. In that case, one is better off choosing an endowment product.

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Term of the policy: If you require a term policy to cover dependants during your working years, then the term of the policy must coincide with your planned retirement age. If the policy term is shorter than the desired term, then you may not realise the full potential of the benefits.

Additional protection: In addition to life cover, policies also provide additional protection against critical illnesses, accidental death and permanent disability. It is important to check whether your policy offers such options or inbuilt riders to protect you for various eventualities.

Monetary factors: For traditional plans, an important factor to consider is the quantum of bonus declared by the company in the past. For unit-linked insurance plans (Ulips), you must also consider the fund’s performance history and its risk-return profile.

It is important to note that new Irda regulations have made most life insurance products more or less similar. Therefore, a key differentiator would be ‘service delivery’ of the insurer. You could look at the company’s records in managing the entire customer life cycle. The other important service differentiator is ‘claims’. A claim is a moment of truth when the family of the policyholder is in distress due to an unfortunate incident in their lives and it is important that the company you choose has a good record in claim settlements.

Therefore, price should not be the only factor for choosing an insurance plan, where benefits are realised in the long term and quite often, not directly by the person investing.