Here are 10 things to look at before you buy insurance
By Lovaii Navlakhi, CEO, International Money Matters
"My agent told me this is a good product and I should buy it". Is this what you hear before you commit to buying a life insurance policy? Stop and follow the steps below to make a smart financial decision.
1. Calculate the amount of insurance required: It is important to be adequately covered so that one doesn�t have to be worried about �what if�- what if I am not around- Will my family have enough funds to lead a good lifestyle, will they have enough to pay off the loans; will my children have enough funds to get a good education and marriage. The amount of cover you need depends on your lifestyle, your loans and your goals. Put these down and then determine the amount of life insurance you need.
2. Decide on the type/types of products: Once the amount of cover is determined, it is important to decide through which products these will be met- will it be a term policy or a saving product? Or will it be an investment product or a pension policy, or a combination of all of these?
3. One big policy or many small policies: Will you divide the insurance cover into multiple small policies or one/two big ones? �Diversify� seems to be the mantra today- but keep it for your investments only. Don�t divide the cover among 2 or more products of the same type i.e. Do not take two term policies of 25 lakhs each rather take one of 50 lakhs. It will work out cheaper; the paper work,co-ordination with companies etc will also be less time consuming.
4. Premium affordability: Determine how much you would like to commit on an annual basis towards insurance. Don�t spread yourself too thin over payments as this is going to be a long term commitment. Only commit what you are comfortable committing. If this means more term policies and lesser savings products; so be it.
5. Matching goals with products: Always know the purpose for which you are taking insurance. It may be one of the below:
a. Expense protection: This is to protect your loved ones in case of your death.
b. Liability protection: This is to cover the loans you have; so that in case of your death- this is paid off and your loved ones don�t have to worry about it.
c. Goal protection: You have goals for your children and yourself. Goals like children�s education and marriage and your retirement come in this category.
6. Choosing a company:Choose your products wisely and invest/choose the companies which offer the best product in that category. For example if Company A is good at investment products, choose A for your investment products and if Company B is cheaper with term products- choose B for your term products. However ensure that the service levels are good before you invest in them- your advisor will be able to help evaluate these.
7. Providing information: Provide all information that the questionnaire/form seeks and provide truthful information. Holding back any relevant information may mean delay/ non- payment of claims for your nominee later on.
8. Claim settlement ratio: The claim settlement ratio of a company helps us evaluate how much % of the cases that come to them for claims are honored.
9. Offline/ Online: If you are comfortable buying/ investing online, that can be an option for you. Although this will mean that you co-ordinate with the insurance companies on your own and sort out any issues that may come up. The advantage of this method is most of the products online are cheaper than their offline version. However, when you take this through a advisor, although it is expensive, you get all the advice and support of the advisor for whose expertise you will be paying him directly and/or indirectly. He should also be able to support/help your family when/in case claims need to be made.
10. Adding riders: There are multiple riders available with each policy- accident, premium waivers, critical illness- choose the ones most relevant to you and always read the fine print before taking the product. You also get a free look in period of about 15 days in most policies; do take advantage of this.
Always remember the purpose of insurance is to protect your loved ones, tax saving is only incidental.