We Indians buy Insurance Policy not for financial security but for investment purpose. This defeats the whole objective behind Insurance Policy. Not only buyer but seller is also responsible for this mis-selling. In past I wrote article highlighting, how mis-selling is rampant in Financial Sector (To read click here Beware of Relationship Manager / Personal Banker).
We have to keep in mind that we are responsible for our investment/financial decisions. The Relationship Manager who is selling the Insurance Policy has vested interest behind the same. Before making any decision to buy Insurance Policy, it is important to check following 5 points to ensure that Insurance Policy will serve the purpose of Financial Security for legal heirs besides being an investment channel for us.
1. Claim Settlement Ratio of Insurance Company:
Claim Settlement Ratio should be the first and foremost criterion before buying any life or non-life insurance. Normally new private players in Insurance sector have low claim settlement ratio compared to old PSU Insurance provider like LIC. Claim Settlement Ratio of some of the new players is as low as 60% but for LIC this ratio is 96%. The data on Claim Settlement Ratio can be downloaded from IRDA website http://www.irda.gov.in
At the same time, if the Insurance Policy is bought by providing correct facts to Insurance Company then there is no reason for claim to be rejected.
2. Insurance Policy Inclusions:
If i am not wrong 99.9% people even don’t read the key clauses in Insurance Policy. It is important to know what all is covered in Insurance Policy e.g. Is your home insurance policy cover damage due to terror attack or not. It is critical to note all Inclusions under Insurance Policy. If you have any doubt, which is not cleared in policy document then you can ask the Insurance Company to clarify the same.
3. Insurance Policy Exclusions:
This is most dangerous clause in Insurance Policy. Most of the claims are rejected citing exclusion clause e.g. most of the insurance policies does not cover on-duty death of police officials even though they are charged high premium due to nature of job. Personal Accident Insurance Policy does not cover accidental death, if the vehicle driver was drunk at the time of accident even if the insured person was just one of the car passengers. In short, it is the duty of insured to check whether car driver is drunk or not.
4. Objective of Insurance Policy:
It is important to define objective of Insurance Policy before purchase in consultation with all family members. If you are buying Insurance Policy purely for investment purpose then there are other good investment plans. The Insurance Policy should be bought with the sole objective of providing financial security to family members.
5. Quantum of Insurance Cover:
I bought one Insurance Policy with a cover of 10 lacs in 2004. At the time, it suited my requirement at that time and i never thought of future requirement. Today, a cover of 10 lacs will not take care of my family for more than 1 year. After 10 years, i feel that this cover is not sufficient for me.
We always buy Insurance Policy depending on current requirement but it should always be bought keeping future requirement of at least 8-10 years in mind else Insurance Policy will not serve its objective. Same goes for Health Insurance, Personal Accident Insurance etc. Kindly discuss with your family before deciding on Policy cover.
Future is uncertain but today we are competent & capable to take right decisions to mitigate future uncertainties to some extent. Insurance is must for every Individual even for Housewives. Also note that there is a free look up period of 15 days from date of receipt of Policy document for the buyer to go through the policy document. If you are not happy with Policy Terms or Conditions then you can return the policy without any penalty. Take this decision carefully and after evaluating all the pros and cons. Don’t forget it’s your hard earned money.