Secure your loved ones with an Insurance plan
As the head
of your family, you need to fulfil your responsibilities towards your loved
ones and provide for the comforts they need. However, life is full of
uncertainties and it is the need of every individual to sustain the same
lifestyle for his/her family — even in his/her absence. While there may be many
ways to protect your family against life’s uncertainties, none has the charm of
Insurance products. They are the best ways to mitigate risk and secure your
loved ones’ future. For those who would have taken a pledge to protect and
secure their family’s well-being, even in their absence, it boils down to two
main questions: First, what is the exact coverage that one requires? Second, is
this product really for you?
Pure
protection plans are an inexpensive way to protect your family from any
financial burden in your absence. These products help them sustain the same
lifestyle. Unfortunately, there is very little consumer awareness about the
multiple benefits that one can avail of by securing themselves. We have
illustrated a few pointers that will help you make the sound choice.
How much insurance do I need?
While the
rule of thumb states that one should look at life cover of 12 times your annual
income minus your investment assets plus any liabilities, there are also some
other aspects that one should consider. The amount of cover required also
depends on individual needs, along with current/expected circumstances. This
would include whether one is single/married, has children, financial
obligations such as personal loans, mortgage, school fees, current income,
assets, life expenses, and not to mention, your lifestyle. While most of these
may pertain to our family, one needs to account for expenses that will
immediately precede or follow one’s death. These include medical bills, credit
card bills or taxes.
Ideal tenure of the policy
The ideal
tenure of your policy would be your retirement age minus your present age. This
means that if you are 35 today and you wish to retire at 60, then the Insurance
of the policy should be 60 minus 35, which is 25 years.
Do check the claims performance record of the insurance brand
Claims
performance is an important yardstick to measure the performance of an
insurance company. Hence, it should play a major role in the decision-making
process before committing to an insurance policy. There is sufficient
regulatory governance around the claims-handling process and there are defined
guidelines for companies to follow. This makes it very easy for the customers
to access this information and make informed choices.
Enhance the policy with riders, if required
Most
companies also provide enhanced insurance with appropriate rider options at
nominal extra cost. Insurance riders aim to provide additional benefits to
customers, should they wish to add value to their existing policy. Riders provide
customers the flexibility and ease in providing protection against additional
unforeseen expenses, at a nominal cost. The cost is relatively less compared to
that involved in taking a separate insurance policy to cover the same
requirements.
Disclose everything before buying a policy
It is
important on the part of the customers to make all the rightful disclosures. It
is in their own interests to avoid any inconvenience at the time of making a
claim. While excellent claims performance record is an important criterion, the
claims repudiation ratio of an insurance company should also be looked at. One
must select companies that have lower repudiation ratios. Most insurance
companies today are trying to bring down the repudiation ratio by increasing
awareness about the ill effects of concealment of facts at the proposal stage,
which could result in denial of the claim.
Don’t hesitate to go for companies that are asking for medical tests
It is in the
best interest of the consumers to go for medical tests, as this will reduce any
chances of the claims being denied, especially since you have disclosed all
facts. It is better to pay additional premium for a small health condition (for
e.g., obesity) rather than the family facing problems while claiming the
insurance amount.
Do factor in inflation effects
The premium
you pay per month for life insurance today will be the same in rupee Insurances,
but will be less money 10 years from now due to inflation. For example,
anything that could be purchased for Rs. 10 lakhs in 2011 would cost
approximately Rs. 45 lakhs in 2031 at an inflation rate of 8%. An Increasing Insurance
policy may provide the flexibility to increase the ‘sum assured’ (the cash
amount that you receive upon your death) by 5%–10% each year, to reflect the
rate of inflation. This will provide a hedge against the rising cost of living,
with an option of increasing the sum assured. It brings adequate financial
protection at an affordable cost.
While the
above points should be considered before buying an Insurance plan, there are no
straightforward answers. Hence, certain guidelines mixed with some serious math
and some help from a professional financial planner will come handy, to buy an
ideal Insurance plan.
V Balakrishna
Insurance & Finance Advisor
email: licbalakrishnav@gmail.com
Mobile: 9885832381
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