Life insurance: Don't depend blindly on the agent, look at your needs

Ensure that you have a life and medical policy in place. This will safeguard your family against any eventuality and cover liabilities

In the past 19 years, the life insurance business has gone through a sea change. Gone are the days when the head of the household would purchase a policy through the local insurance agent who would mostly be a relative or a friend. There has been a visible increase in interest towards the product category, which can be attributed to increasing preference for financial savings. This, in turn, has increased the share of life insurance within financial assets.

The government has launched various initiatives, which have further given an impetus to financial savings — implementation of JAM (Jan Dhan, Aadhaar and Mobile) trinity, the launch of affordable PMJJBY (Pradhan Mantri Jeevan Jyoti Bima Yojana) and PMSBY (Pradhan Mantri Suraksha Bima Yojana) social insurance schemes, the Atal Pension Yojana promoting pension and set up of small finance banks and payment banks to increase financial inclusion.

Recent years have also seen a change in the way the product is bought as well as sold. The digital platform has made it easy to purchase life insurance – the product can now be purchased within minutes by even the non-savvy internet user. However, while the process of buying life insurance has become quick and straightforward and the number of options has increased manifold, at times the myriad products offered by multiple life insurers make you feel spoilt for choice (or in most cases, leave you completely confused). Also, there will be friends and family who could offer advice based on experience or plain hearsay, adding to the confusion.

At such times, it is useful to remember that your decision-making process should be based on facts and your thought-through objective more than anything else because when it comes to life insurance, one size does not fit all.

The following points should be kept in mind while purchasing life insurance.

• Life insurance is a long-term product. You need to consider a horizon of at least 10 years when you consider purchasing life insurance. Anything shorter, and you may be compromising on the returns on your investment

• Ensure financial protection first before planning for the future. Ensure that you first put in place pure protection plans for life, health and retirement. It is an absolute imperative, which will safeguard you and your loved ones against eventualities, and cover your liabilities.

• Choose the product based on your life stage, risk appetite and your long-term financial goal. When it comes to saving for the long term, life insurance offers two types of products – traditional and unit-linked. In case you have a low risk-taking ability, you can go for conventional products which primarily invest in debt instruments. If you are willing to maximise your returns through exposure to equities, you can opt for unit-linked products

• Choose the term of the policy and the premium amount based on your current ability and future financial goals. It is essential that you understand fully what you are signing up for. Many individuals allow their agent / financial advisor to decide the amount of premium and term of the policy, without realising that either they may not be able to afford that amount in future or for that long a tenure or both. This then leads to discontinuance in premium payments which typically result in lower returns, as well as the inability to withdraw the money before the end of the lock-in, thus resulting in a double whammy to the customer

• When it comes to critical illness plans, you need to ensure that the plan covers all stages of the diseases. This is necessary as various plans claiming to provide all round coverage do not cover early stages. Remember to check for the exclusions to ensure that your insurer offers you comprehensive coverage

• While purchasing a policy, remember that the one with the lowest premium may not necessarily be the best option. Remember, you are purchasing the policy for your financial security – avoid falling for offers, which seems too good to be true. You are under no obligation to purchase from anyone merely because they helped you understand the product. Check directly with the company in case of an offer that sounds outlandish

• Disclose all financial and health information accurately and truthfully at the time of form filing as this will have a direct impact on your claim settlement

• Read the policy features carefully and pay attention to the frequency of premium payment that you are signing up for. The ECS / SI option works best as it enables you to continue premium payments uninterruptedly. Companies also make pre / post-sales calls for verifying the purchase, and some even have an app for this. Ensure that you diligently complete the verification process. This enables you to have complete knowledge of what you have purchased

• Every life insurance policy comes with a free look offer, which is typically 15-day money back guarantee that is not available with any other product. In case you did not get the product you wanted, you are entitled to a refund from the life insurer. So use this period to go through the KFD “Key Features Document” that most companies have in their policy pack

• Ensure you have a nominee. In case of an eventuality, the nominee is the official beneficiary of the proceeds from your policy. In case your nominee is a minor you will need to name an appointee. Also, inform your nominee/family members about the policy

• Store your policy electronically. The facility to store life insurance policies in a dematerialised format ensures that they remain safe and damage-free for the entire policy term.

Life insurance is a serious investment – do keep the above in mind to ensure that you make the best of it!

The writer is MD & CEO, HDFC Life