There are a number of things that each of your life insurance policies should spell out and include, and the document is a complete guide to exactly what your insurance contract covers.
Rajesh Sud ( more)
MD & CEO
Max Life Insurance
Life insurance is the only financial tool which offers the triple advantage of risk coverage, long term savings and tax benefit. It offers financial protection to an individual after taking into account the present and future value of his assets and liabilities. However, while the awareness and acceptance of insurance in India is growing, consumers need to develop a better understanding of the products they buy.
There are a number of things that each of your life insurance policies should spell out and include, and the document is a complete guide to exactly what your insurance contract covers. This is why it is always important to check a policy very carefully when you first receive it, to make sure that everything you requested is written down in the policy.
Mentioned below are ten key parameters to weigh once you received the policy documents.
1. Verify personal details
Personal data provided to the insurance company forms a very important part for settlement of all claims. Please make sure that all personal details such as your name, age, etc. are mentioned correctly. Please also make sure that all aspects related to personal habits or health details are mentioned correctly and honestly. In cases where it is not declared or is erroneous on policy documents, the insurer in all fairness may refuse to honour the claim and hence get it corrected proactively.
2. Analyse the benefits
The benefits of your life insurance policy must correspond with your long term goals. After the receipt of policy documents, go through the features of the product and check if they match with promises made during the purchase. Cross-check features such as sum assured, premium amount, flexibility of the plan, etc. Your insurance plan may also come with more evolved features such as dynamic fund allocation or increasing premium to beat inflation which need to be understood in detail as well.
3. Check the riders
In addition to life coverage, you may have purchased a few add-on covers known as riders for other types of contingencies. Go through the insurance contract to ensure that rider you bought are included in it. You would not want to be disappointed while filing a claim for a critical illness that the rider you thought you purchased for the same was not included in the policy.
4. Consider the payment tenure
Knowing the exact payment tenure will help in ensuring that you achieve the goals for the reason you bought the policy. Please check for how long you need to pay premiums and also what mode of payment you may have chosen, for example half yearly, quarterly etc.
The basis of most mis-selling is the premium payment tenure. Please do not fall for the “you need to pay for only 3 /5 years” line. Life insurance is a long term savings and protection tool and its benefits can be seen only if one buys it for the long-term.
5. Authenticate the returns
Do not blindly believe the returns promised. Once you get the policy documents, check out the benefit illustrations of returns. Study carefully what is guaranteed and what is not. Incidentally, in the last decade, the gross investment yield of the 'controlled funds' of traditional endowment plans is a ~8%. During the last 5-7 years, balanced and equity oriented ULIP funds have yielded ~8% to 12% while less volatile conservative and debt-oriented ULIP funds have yielded ~6-10% gross returns. The illustration shows what would be your illustrative benefits in a hypothetical situation if your investment were to provide a gross return of 4% and 8%, as per the IRDA's mandate.
6. Comb through the service contract
In addition to the benefits specified in policy documents, it is necessary to carefully read the terms and conditions of the service contract. In case you find any difficulty in understanding any aspect, you may want to check with the insurer the impact of those terms.
7. Confirm surrender charges
Many a time a situation may arise where you face a cash crunch and need to surrender your policy or make partial withdrawals. For times likes these you may need to make sure to examine the exact surrender charges mentioned in the documents, so that you can plan finances and minimise losses accordingly.
8. Examine exclusions
Exclusions in the policy define aspects or situations that will not be included in the coverage. An exclusion that one is not aware of can make the cover redundant. Read the exclusions carefully, and they may include suicide, death which occurs during the commission of a crime, acts of war or terrorism, and others as well. Some exclusions may be only for a specified period, and may be called restrictions instead. It is common for many life insurance policies to refuse to cover certain types of deaths within a specific period of the policy being issued
9. Claims settlement process
Check if the nominee's details are captured properly. You have the option of including two or more nominees and specify their share of claim. Your life insurance policies should include everything that is supposed to be in your coverage, and it will spell out exactly what your responsibilities are, what the life insurance company is responsible for, what you are covered for and how much, and every other aspect of your life insurance coverage. It should also list down all details on how to file a claim or what to do in certain other circumstances.
10. In case if you think that a product has been mis-sold to you
The life insurers give a free look period of 15 days to the consumer during which a consumer can review the policy from his needs perspective. If the consumer is not satisfied and feels that the product features are not in sync with the understanding given by the agent at the time of selling the policy, then he is free to return the policy and claim a refund of the money paid.
IRDA has also created various ombudsmen across the country, which act as grievances cells and can take up consumer complaints.