Taking a life insurance policy is highly recommended for people of all ages.But with the variety of plans available in India, choosing the right plan is important. The Indian life insurance industry comprises several companies which offer term plans, endowment and money-back policies, retirement plans, and a lot more to cater to the varying needs of the people. Clarity about the features of these plans and whether they suit your requirements is important. This is possible by studying the features of different policies and getting answers to certain questions.
Some Questions to Ask Your Insurance Provider
- What purpose will the life insurance policy serve?
You need to be clear about whether the selected policy will offer life cover and financial security for your family in terms of death benefits or come with maturity benefits that can be used to fund your goals. Some policies also offer policyholders an opportunity to create wealth through the investment of a portion of their premiums. You can use a life insurance premium calculator to finalise the premium amount and other details of your policy.
- What is the track record of the insurance company and what is the claim settlement ratio?
The reputation of an insurance company and the type of insurance plans offered by it will help you choose the best plan for your requirements. An established company offers pure term plans as well as endowment plans or plans for retirement planning or pension plans. The track record of an insurance company in settling claims is another important indicator of its working. A company with a claim settlement ratio of over 90-95% should be preferred.
3) What type of benefits are included in the policy?
Term plans are pure insurance plans that include a death benefit which is payable to the nominee upon the death of the policyholder. But several plans offer maturity benefits too. So, do check with your insurance companies about the available benefits. In addition to the maturity and death benefits, some plans offer living benefits too.
They include:
- Option to borrow a proportion of the cash value of your policy in case of an emergency. You need to check the terms at which you can borrow against your insurance policy.
- Accelerated death benefits, available in case the policyholder is diagnosed with a terminal or critical illness or disability and is unable to earn any income. In such a scenario, the life insurance company accelerates the death benefits for funding the treatment of the policyholder. The terms of such benefits differ from one company to another, with some charging interest on the benefit, while others allowing it only after a specific number of years.
- Return of premium option is offered by some insurance companies on term plans. This means that you can get back some or all your premiums if you survive the duration of your term life insurance plan.
- Disability waiver of premium benefit– Some insurance companies allow for the waiver of the premiums in case the policyholder suffers from a major disability for six months or more that results in loss of income. The maturity benefits, however, remain intact.
4) What type of health information is required and what happens if it changes?
An important question that you need to ask your insurance agent, or the insurance company, is what the outcome of a change in your health condition will be during the policy term. The insurance company offering a term plan will ask you to undergo a medical examination or provide all the details about your medical history. This information decides the premium that you must pay for your life insurance policy. Any provision of wrong information or hiding of information about a health condition can result in the rejection of death claims. You may also need to provide information about your family’s medical history, pre-existing illnesses, previous surgeries, and other details.
5) How are the maturity and death benefits calculated and do they adjust for inflation?
An important consideration while choosing a life insurance plan is the benefit pay-outs and their adequacy to meet the funding needs of the policyholder and family. These pay-outs must account for inflation and are adequate to meet the fund requirements of the dependants or the policyholder. If, however, a policy does not take care of the impact of inflation, the benefit amount may not be able to resolve your problem or provide the necessary financial support to your family, thereby defeating the whole purpose of buying life insurance. Some policies automatically factor in inflation, while some others offer it as a rider. Some insurance companies allow you to increase the sum assured to match your increasing liabilities through payment of additional premiums. So, check with your insurance companies about the adjustment for inflation.
To conclude, along withunderstanding ‘what is life insurance’, you also need to check with your insurance company about the main features of the plan selected by you, the benefits available, and the terms and conditions related to the settlement of claims. This will help you choose the right product and fulfil the goals for which you are buying the policy.