Buying insurance? Things to consider besides low premium
Yesterday, I overheard my neighbor telling his agent that he doesn’t care what the policy is as long it offers insurance and comes with a low premium. This disturbed me. How can anyone be so careless with their investments? True, that he was aware enough to purchase insurance but considering only the premium amount was definitely a foolish move on his part. Shouldn’t there be other things that should gain priority while buying your insurance plan? What about the amount of cover, term of premiums payable, benefits guaranteed and non-guaranteed, etc? Who will consider these points? Your agent or you?
Your agent may render you services but considering the important factors before entering into your insurance is your job. After all it’s your hard earned money that we are talking about. So apart from low premiums, the following points should top your priority list when buying your insurance plan:
- The amount of cover- your cover should be appropriate enough to take care of your contingencies otherwise there is no point in having insurance. Yes, the premium amount would increase with a higher cover, yet an optimum cover should be your ultimate priority. If you can’t afford the premium, try buying a term plan which offers higher coverage at the cheapest rates. Imagine buying a meager health cover and ending up with a big fat medical bill!!!!!
- The premium paying term- another important factor is the tenure for which you are supposed to pay the premiums. There is generally a misleading concept in ULIPs that you pay for 3 years and double your money. Paying for only three years can never be possible in insurance as your policy would reduce in value. So find out the term for which actual premiums are to be paid by you to avoid reduction in your policy value.
- Customize your plan- if you buy life insurance, there are a host of riders which can customize your policy. Like adding accidental rider will cover you against accidental death, critical illness rider would cover your medical expenses if you are diagnosed with a critical ailment. The latter is especially useful as it doubles up as a health plan at a very nominal rate. So find out about the riders and avail them to get the maximum benefit from your plan.
- Exclusions in your plan, if any- there are finer details which if overlooked can be disastrous in case of need. These details are the exclusions under the plans you buy. Often they are written at the end of the plan brochure and escape our attention. However, they may prove to be tricky and demand careful scrutiny. One such universal exclusion in your life insurance policy is the suicide clause under which suicides committed within one year of taking the plan is exempt. Similarly, your health plans also excludes certain points which should be noted well.
- Tax implications- the final point is the tax detail of your plan. Generally, we all know that life insurance premiums are exempted from tax under section 80C up to 1 lakh. Even the benefits received are not taxed u/s 10 (10D). However, benefits under pension plans are treated differently. They are not completely exempted from tax. Moreover, premiums paid for your health plans also attract different treatment. So just knowing section 80C and pooling all your premiums under that is foolish.
So, a prudent investor should not only consider the premium amount but also other things while buying insurance. Some of the important factors are mentioned above and require careful understanding. Although your agent knows these things, his complete disclosure is not guaranteed. It’s your money and needs your attention not of your agent’s.
The author is the CEO of MyInsuranceClub.com