Five steps to help you find the best life insurance plan

Authored by Nilesh Parmar, Chief Operating Officer and Chief Technology Officer, Future Generali India Life Insurance Company Limited

While choosing a life insurance plan may seem daunting at first, you could benefit from assessing five important parameters to narrow down on a plan and insurer that is most suited to their needs.

With an increasing urge to build financial immunity driving more Indians to purchase a new life insurance plan or augment their existing coverage, there is an increasing tribe of consumers who are looking for guidance on how to go about the decision-making process. Choosing an insurer that offers the lowest premium or opting for a basic life cover with a low sum assured may be counterintuitive to the aim of safeguarding your loved ones in your absence. To add to the perplexity, there is a wide range of life insurance products that are on offer by a couple dozen insurers in India today, with subtle nuances distinguishing them from each other. 

Whether you plan to supplement an existing policy or make your first life insurance plan purchase, following the below five steps could help in evaluating which life insurance plan is most suited to your requirements. 

Determine Your Financial Goals and Needs

Since there are life insurance plans that offer financial protection in case of death as well as the opportunity to save regularly, it is important to build a portfolio that comprises life insurance products that can safeguard your financial goals, even after your demise. This process will involve tabulating short-term and long-term expenses that are likely to be incurred in your lifetime and calculating what income or corpus amount would be needed to service them in the future. Factoring in rising inflation rates that could otherwise jeopardize your family’s standard of living is equally vital when determining the sum assured for your life insurance cover. 

Additionally, factors such as covering any outstanding debts like a home or car loan, funding your children's education, replacing the lost income and providing for your family's long-term financial security need to be considered at this stage. It is also important to factor in your current income profile and calculate your future earning potential when deciding on a suitable sum assured and type of life insurance. Having a detailed discussion with your spouse, elderly dependents and a professional financial planner can help in outlining your objective clearly and from amongst the several types of life insurance products available today. 

Evaluate Your Health and Lifestyle

It is essential to make complete declarations about your health to a life insurer, including any past illnesses and pre-existing diseases, to ensure that there are no concerns regarding claim eligibility at a later stage. Moreover, since the insurance premium is calculated based on the sum assured and the prevailing health condition of the insured, it is important to be absolutely transparent when inviting quotes from different insurance companies. Even if you do not suffer from any critical illnesses and lifestyle diseases such as Type 2 diabetes, heart disease or respiratory ailments, it is binding on your part to provide accurate information about any smoking or tobacco use, alcohol consumption and even recreational drug consumption.

Other factors such as your medical history, occupation and even hobbies or passions that may pose danger or risk to your life need to be declared at the time of purchase. While these factors impact the total premium cost to provide your required coverage, it could even reduce the number of options available since some insurers may choose not to assume the underwriting risks involved. In either case, it is suggested to provide accurate information about your health and lifestyle to enjoy unhindered coverage and hassle-free claim settlement in case of any future claim.

Research Different Types of Life Insurance 

Depending on which insurance company you are exploring on the internet, you will find six to eight different types of life insurance plans on offer. It is important to familiarize yourself with the various options available, being careful to check the advantages and limitations of each type of life insurance plan before you decide upon any particular option. The most commonly purchased type is Term Life Insurance plans which are designed to offer financial protection at affordable premiums. However, these plans have a limited policy duration and are not suited for those who are expected to have dependents even in their old age. 

In contrast, Whole Life Insurance plans offer coverage for 99 years and also come with guaranteed income on maturity, which are tax-free subject to Section 10(10D) of the Income Tax Act of 1961.

For those who want a life insurance cover and an investment product rolled into one, Unit Linked Insurance Plans (ULIPs) could be more suited as they offer wealth-generating opportunities by investing a part of the premium in market-linked investment classes. Providing a larger degree of flexibility when it comes to investing, ULIPs are similar to with-profit Endowment Insurance plans as they allow the insured to choose a suitable premium payment schedule. However, unlike ULIPs, with-profit Endowment Insurance plans to invest in debt instruments to provide regular saving tools for the policyholder. 

In the scenario where you need to build a corpus, either for retirement, for your child’s education/marriage or for other long-term goals, specialized products such as Retirement or Pension plans and Child benefit plans are best suited. Thus, patiently understanding how each product type works is important to ascertain which life insurance product aligns with your needs. 

Compare Multiple Insurance Providers holistically

After narrowing down your choices to a particular life insurance product and determining the sum assured, it is recommended that you obtain premium quotes from multiple insurance companies. While comparing premium costs, do check for any exclusions or benefits that are exclusive to the particular insurer, as well as reviews shared by other customers about the overall experience. When choosing to purchase online, be sure to fill up the application form accurately, since any omissions could prove detrimental during claim settlement. Insurance companies with solid financial ratings and a stellar claims settlement ratio should be preferred over those that are providing cheaper premiums with lower customer satisfaction levels. 

Seek Professional Advice if in doubt 

Since an insurance company could reject a life insurance claim if key information is proven to be withheld or misstated at the time of policy purchase, it could prove beneficial to engage a licensed insurance agent or professional for their consultation. It also makes prudent sense to consult with your financial advisor to determine the ideal insurance coverage, while a licensed insurance agent could provide personalized guidance on which policy type or insurer is perfect for your needs. A professional’s assistance in identifying potential coverage gaps, additional riders that could be beneficial to your family and breaking down any complexity can be worth the extra money spent towards his/her services. 

Disclaimer: The opinions expressed above are personal and may not reflect the views of DSIJ.