- Life insurance plans have different variations where each offers a different financial solution
- Evaluate your liabilities and sign up for a life insurance plan that helps cover that liability
- Check the claim settlement ratio and services made available by the company
There are several life insurers today and each offers a generous bouquet of life insurance products, comprising plain-vanilla plans and mix-and-match variants. Due to this abundance of choice, even if you know the kind of insurance plan (term, endowment, money-back, and so on) you wish to buy, there will be at least 10 - 15 options, if not more, in each plan family to choose from.
First of all, you must be clear about your reason for buying a life insurance policy. If it is your first life insurance policy, choose a term plan that covers your financial liabilities adequately. If you already have one, see if your financial liabilities have increased since taking the last policy and cover yourself for the additional amount with a suitable plan. You can ask your agent to guide you in such matters or use the life insurance calculators to check whether your current life insurance cover is adequate or not.
Once you are clear about your intention, you can narrow down your choices by running a comparative exercise across insurers for the type of plan you are interested in. All you need is some basic understanding of the structure and working of insurance plans, and access to information such as premiums and returns.
As with most financial products, the process of buying insurance also involves a mix of elimination and a cost-benefit analysis. There are two ways to use this cost-benefit equation to compare insurance plans within a particular family.
- The first approach is to ask how much benefit (life cover, and maturity benefits, if applicable) a plan gives for a particular cost (premium)
- The second is to keep the benefit constant, and see what cost a plan entails
But insurance policies are not just about premiums and policy benefits. They are also about the service standards maintained by the insurer. One factor that you should consider if you are buying insurance on your own is the claim settlement record of the life insurer from whom you are planning to buy a policy, which is available at the regulator's - IRDAI - website and updated annually.
Claim settlement ratio is the indicator how much death claims every life insurer settles in any financial year. It is calculated as the total number of claims received against the total number of claims settled. Let us say, insurer A received 100 claims and among that it settled 90, then claim settlement ratio is said to be 90 per cent. At Exide Life Insurance, 96.8% of the total claims were settled in financial year 2017 - 18.
All these factors are indicators to consider when buying a policy. Do not be blinded just by costs, you should factor in the policy benefits, claims and your comfort in dealing with the insurer before going in for a policy. Also, use the services of an agent, as they will be there to facilitate the process of buying a policy and servicing it on behalf of the insurer.