Why you should buy Life Insurance :
All of us face the following risks :
(i) Dying too soon
(ii) Living too long
Life Insurance is needed :
To ensure that your immediate family has some financial support in the event of your demise To finance your children’s education and other needs To have a savings plan for the future so that you have a constant source of income after retirement To ensure that you have extra income when your earnings are reduced due to serious illness or accident To provide for other financial contingencies and lifestyle requirements.
Who needs Life Insurance :
Primarily, anyone who has a family to support and is an income earner needs Life Insurance. In view of the economic value of their contribution to the family, housewives too need life insurance cover. Even children can be considered for life insurance in view of their future income potential being at risk.
How much Life Insurance is needed :
The amount of Life Insurance coverage you need will depend on many factors such as :
How many dependents you have
What kind of lifestyle you want to provide for your family
How much you need for your children’s education
What your investment needs are
What your affordability is
You should seek the help of an insurance agent or broker to understand your insurance needs and suggest the right type of cover.
What Life Insurance to Buy
Kinds of Life Insurance Policies:
Term Insurance
You can choose to have protection for a set period of time with Term Insurance. In the event of death or Total and Permanent Disability (if the benefit is offered), your dependents will be paid a benefit. In Term Insurance, no benefit is normally payable if the life assured survives the term.
Whole Life Insurance
With whole life insurance, you are guaranteed lifelong protection. Whole life insurance pays out a death benefit so you can be assured that your family is protected against financial loss that can happen after your death. It is also an ideal way of creating an estate for your heirs as an inheritance.
Endowment Policy
An Endowment Policy is a savings linked insurance policy with a specific maturity date. Should an unfortunate event by way of death or disability occur to you during the period, the Sum Assured will be paid to your beneficiaries. On your surviving the term, the maturity proceeds on the policy become payable.
Money-back plans or cash back plans
Under this plan, a certain percent of the sum assured is returned to the insured person periodically as a survival benefit. On the expiry of the term, the balance amount is paid as maturity value. The life risk may be covered for the full sum assured during the term of the policy irrespective of the survival benefits paid.
Children Policies
These types of policies are taken on the life of the parent/children for the benefit of the child. By such a policy the parent can plan to get funds when the child attains various stages in life. Some insurers offer waiver of premiums in case of the unfortunate death of the parent/proposer during the term of the policy.
Annuity (Pension) Plans
When an employee retires he no longer gets his salary while his need for a regular income continues. Retirement benefits like Provident Fund and gratuity are paid in a lump sum which is often spent too quickly or not invested prudently with the result that the employee finds himself without regular income in his post-retirement days. Pension is therefore an ideal method of retirement provision because the benefit is in the form of regular income. It is wise to provide for old age when we have regular income during our earning period to take care of rainy days. Financial independence during old age is a must for everybody.
There are two types of annuities (pension plans)
Immediate Annuity
In the case of immediate Annuity, the Annuity payment from the Insurance Company starts immediately. The purchase price (premium) for immediate Annuity is to be paid in Iumpsum in one installment only.
Deferred Annuity
Under deferred Annuity policy, the person pays regular contributions to the Insurance Company, till the vesting age/vesting date. He has the option to pay as a single premium also. The fund will accumulate with interest and funds will be available on the vesting date. The insurance company will take care of the investment of funds and the policyholder has the option to encash 1/3rd of this corpus fund on the vesting age/vesting date tax-free. The balance amount of 2/3rd of the fund will be utilized for the purchase of Annuity (pension) to the Annuitant.
Unit Linked Insurance Policy
Unit Linked Insurance Policies (ULIPs) offer a combination of investment and protection and allow you the flexibility and choice on how your premiums are invested. IN UNIT LINKED PLANS, THE INVESTMENT RISK PORTFOLIO IS BORNE BY YOU AS YOU ARE THE INVESTOR Typically, the policy will provide you with a choice of funds in which you may invest. You also have the flexibility to switch between different funds during the life of the policy. The value of a ULIP is linked to the prevailing value of units you have invested in the fund, which in turn depends on the fund's performance. In the event of death or permanent disability, the policy will provide the Sum Assured (to the extent you are covered) so that you can take comfort in knowing that your family is protected from sudden financial loss. A ULIP has varying degrees of risk and rewards. There are various charges applicable for Unit Linked Policies and the balance amount out of the premium is only invested in the fund/funds chosen by you. It is important to ask your insurer or agent or broker questions to understand the sum total of charges that you have to incur. It is important to assess your risk appetite and investment horizon before deciding to buy a ULIP policy. You must also read the terms and conditions of the policy carefully to understand the features of the policy including the lock-in period, surrender value, surrender charges, etc.
- All the types of plans mentioned above can be offered under ULIP plans.
How to Buy Life insurance and From Whom
Insurance Intermediaries
> Insurance is a complex product representing a promise to compensate the insured or third party according to specified terms and conditions in the event of the occurrence of a covered contingency. In most insurance transactions there is usually an intermediary - an insurance agent (individual or corporate) or an insurance broker.
> Insurance intermediaries serve as a bridge between consumers (seeking to buy insurance policies) and insurance companies (seeking to sell those policies).
> Insurance brokers are licensed by the IRDAI and governed by the Insurance Regulatory and Development Authority (Insurance Brokers) Regulations, 2002. Individual insurance agents and corporate agents are also licensed by the IRDAI and governed by the Insurance Regulatory and Development Authority (licensing of Individual Insurance Agents) Regulations, 2000 and the Insurance Regulatory and Development Authority (Licensing of Corporate Agents) Regulations, 2002, respectively. These Regulations lay down the Code of Conduct for the respective intermediaries.
> An intermediary has a distinct role to play in the entire life cycle of a product, from the point of sale through policy servicing, up to claim to service. An intermediary shall provide all material information with respect to a proposed cover to enable the prospect to decide on the best one. The intermediary is expected to advise the prospect with complete disclosures and transparency. After the sale is effected, the intermediary must coordinate effectively between the customer and the insurer for policy servicing as well as claim servicing.
> IRDAI has prescribed regulations for protecting the interests of policyholders casting obligations not only on Insurers but also Intermediaries. These prescribe obligations at the point of sale as well as policy servicing and claims servicing.
Tips on Dealing with Insurance Intermediaries
While dealing with Insurance Intermediaries, check out the following :
> Ask for and check whether the person holds a valid license and is authorized for the particular business. For example, the Intermediary should be licensed to sell life insurance or general insurance or both (holding a composite license). A referral always helps.
> Check whether he or she has good knowledge of various insurance products/policies.
> He or she should understand your needs and what you are seeking. Always ensure that you consider only products that you can afford. Beware of tall promises and over-selling tactics. Consider only what you can afford.
> Ask questions and understand the policy terms and conditions of the policy the Intermediary is trying to explain it to you.
> You must be satisfied that you understand what your commitments are. What are the payments or amounts that you have to bear not only when you take the policy but when you surrender it or when you make a claim?
> Ask for brochures and sales literature pertaining to the product you are considering or the intermediary is trying to sell. Get the intermediary to explain the full facts of the products, scope of cover, and exclusions, as applicable.
> Insist on quality delivery and timely service. You can judge this by the turnaround time of the intermediary during the period of pre-sale when he or she is dealing with you.
> Fill up the proposal form yourself. Never ever sign on a blank proposal form. If you find terms in the proposal form that you do not understand, ask the intermediary to explain it to you.
> When you make premium payments through an Intermediary, check whether he is authorized to do so by the insurance company and insist on a duly signed receipt immediately.
> After receipt of your policy, go through it thoroughly and if you do not understand certain terms contact your intermediary and get them explained. Remember, for all life insurance policies and for health insurance policies of a term of three years or more, there is a free-look period within which you may return the policy if you do not agree with the terms and conditions therein.
> Ask the intermediary questions about documents and procedures involved in making a claim and understand them completely. In the event of a claim, there may be other agencies you may have to intimate apart from the insurance company. Get complete details about what you are expected to do.
Some Do's & Don'ts for Life Insurance
Life Insurance: Some Dos and Don’ts
Your life and your earning ability are the biggest assets you and your family have. A life insurance policy is the best way to take care of your family even after your lifetime.
Here are some Dos and Don’ts for buying Life insurance
Dos
- Think through why you are buying insurance and what core requirements and expectations
Seek and receive advice and options patiently
Be open-minded but cautious about the advice and information you gather Ask lots of questions about the policy options to see what fits your needs Find out policy details like Whether it is a Single Premium or Regular Premium policy Which is the best premium payment frequency that suits you eg: Annual, quarterly, etc. Whether there is an ECS (Electronic Clearing Service) payment option to make your premium payment safe and easy
Fill the proposal form very carefully and personally
Fill it completely and truthfully, Remember you are responsible for its contents Make sure that the information you give cannot be disputed during a claim Ensure you fill Nomination details If the form is in one language and you are answering the questions in a different language Ensure the questions are explained correctly to you and That you have understood them completely Remember you have to give a declaration to this effect in the proposal form
- Keep a copy of the completed proposal form you sign and any declarations and terms agreed upon mutually for your records
If you are buying Unit Linked Insurance Policies (ULIPs) ask specific questions about:
- Various charges
- Fund options
- Switching of funds
Benefits if you
- Discontinue the policy
- Surrender the policy
- Make a partial withdrawal of funds
Don'ts:
- Do not leave any column blank in the proposal form
- Do not let anyone else fill it up
- Do not conceal or misstate any facts as this could lead to disputes at the time of a claim
- Do not miss or delay your premium payment
General Advice for Life Insurance
When you decide to buy an insurance policy :
- Check if the company selling the policy is registered with IRDAI
- Make sure you buy the policy through a genuine licensed agent or broker. Ask for an identity card or license
- You can also buy policies from the company directly
- Read the policy brochure/ prospectus carefully and get to know what the policy covers and does not cover