Pre-Purchase Life Decisions

If only we had a rupee for every time someone bought a Life Insurance policy without fully understanding its features, we'd surely be millionaires by now! The next time you decide to add to your Life Insurance portfolio, make sure you ask your Advisor these 5 questions before you sign off.

Do I really need this insurance policy?
Has your Advisor evaluated the need for this particular policy in light of your existing policies? You might already be sufficiently covered - in which case you may be better off investing this money elsewhere. The best approach is to arrive at a "Human Life Value" for yourself, and build yourself up to that level of life cover. Be sure to check that your Advisor isn't just "selling" you a policy blindly. 

In another scenario, you might just be part of the minority group of people who don't need Life Insurance at all. Say, in case you are a non-earning person whose dependents will not be impacted financially due to an unfortunate loss of life, you really don't need an insurance policy. Divert the money to higher yielding instruments instead.

What kind of policy is this - traditional, unit linked, or pure term?
Although no two policies look quite alike when you compare their brochures, they essentially will fall into one of the above categories once you look closely enough. You'd be surprised to know that most people buy life insurance without even knowing what kind of policy they are buying! Knowing might just influence your decision to buy the policy or not, so please ask your Advisor this question. Traditional policies tend to be safer, with a lower return. Unit linked policies tend to be higher risk (depending upon the fund mix chosen) and have lots of associated charges. Term plans give you nothing back in the end, but offer you the best bang for your buck when it comes to upping your life cover. All three solve fundamentally different needs.

What is the 'death benefit' associated with this policy?
This might sound like a no brainer, but remember that you're buying the policy primarily so that your family doesn't suffer financially in the event of your unfortunate death. Most Advisors will tend to avoid talking about the death benefit (when they're selling you a traditional plan or ULIP), as it's not exactly the brightest feature of that kind of policy! But if it's not solving the problem that it's meant to, why opt for it?

How many premiums do I need to pay, and what happens if I stop paying my premiums?
Some policies require you to pay a single premium, some require you to pay 5, and some require you to pay 15. Some policies can be re-instated easily when they lapse after you stop paying, and some cannot. Just ensure yo know the nuts and bolts of the one you're about to buy.

What is the likely "claim settlement ratio" for this insurer?
An important question if there ever was one! This essentially means - in case of your unfortunate death, what are the chances that the insurance company will actually pay up? 98%? Great! 67%? Run for the hills!