Buying insurance is a tricky task. Understanding whether an insurance plan works best for you involves sieving through the policy document, going over the fine print, searching for any facts and figures that the insurance agent may not have disclosed to you. An insurance agent plays a vital role in policy selection. He must understand the insurance requirements of an investor and suggest the best product for him. This also provides the agent an opportunity to disclose the terms and conditions of every document to avoid mis-selling.
In India, mis-selling of insurance products is a widespread problem. Unscrupulous agents may push any products that fetch them bigger commissions. Investors too may be at fault for not attempting to understand the pros and cons of a policy. If he finds later that the policy does not work for him, he will attempt to prematurely exit the plan, often with an eroded fund value. It is easy to pin the blame on agents for mis-selling. But as customers, we are equally responsible for ensuring we make the right choices. In money matters, it doesn’t behoove us to take someone’s word at face value and to not make a genuine attempt to understand the fine print.
While it is advisable to do one’s homework before buying any financial product, it may also be wise to ride on a modern trend and buy insurance online. It is quick, convenient, does a great job of listing products as per an investor's requirements, and also provides you the opportunity to compare products. That said, here are some things to keep in mind while buying insurance: Here are a few tips for you before opting for an insurance policy:
Compare:
Look out for policies provided by different insurers. The comparison should not be based only on premium costs, but also on the variety of coverage provided, claim settlement ratio, policy term, and its various terms and conditions. Remember that the cheapest policy is not always the best policy for your needs. There are multiple ways to buy insurance. You can get them via agents or financial advisors, through online sellers, or by walking into a branch. Compare all your options, mark the differences, see which policy suits your long-term requirements the best, and then pick one.
The Right Coverage:
Most Indians are underinsured. Study after study has revealed this. This is often due to our tendency to club insurance with investment. The financial implications of buying an incorrect insurance cover can be grave. A typical endowment plan would provide around 10 times the cover of the annual premium. But often, such a cover may be less than your annual salary. It provides you a false sense of protection, and could leave your family vulnerable in case of your untimely demise. If you have dependents, your financial interests may be served better by a term insurance plan, which can typically provide coverage of up to 20 times your current annual salary. Since term plans have no surrender value and no investment benefit, their premiums are low and entirely dedicated to mortality charges. A cover of Rs 1 crore for a salaried male in his early 30s with no pre-existing diseases can be availed at an annual premium of around Rs 10,000.
Calculate Your Returns:
Traditional endowment plans provide 5-6 per cent returns. This is an option for conservative investors. For investors seeking aggressive growth, Ulips may be the way forward. Ulips are linked to the stock market, and can potentially provide you much higher returns, especially in the long-term. However, they are subject to market risks and therefore investors must do their homework in terms of assessing their risk appetite and understanding the track record of a Ulip. Term plans, on the other hand, offer no surrender or maturity value.
Don't Hurry Through The Paperwork:
Whether you are buying your insurance through an agent, at a branch, or online, make sure your paperwork is perfect. Provide all your details accurately with proofs. Make full disclosure of your health condition and lifestyle habits. Do not rush through your form-filling, or depend on someone who is error-prone and could enter incorrect details. Make sure all the details required by the insurer have been correctly submitted and received.
Take Expert Advice:
Insurance such as for income protection or critical illness have complex terms and conditions. If you are looking for such types of covers, it is worth getting an advisor to help you narrow down the best policy to suit your needs. Seek the help of an insurance broker to explain anything you do not understand or know much about.
