Insurance is one of the most important aspect of financial planning, which takes care of the Risk part. However it is really difficult to understand which Insurance product is most suitable according to our needs as well as stages in our life. Most of us rely on the expertise of their Insurance advisor, broker, or sales representative to help us make the right decision. It would not be advisable to rely totally on the advise of Insurance agents/Representative as Insurance is a push based product and the product in which agents/representatives get is generally advised by them.
Here are some steps you can take to ensure you get the right product for the right price:
- Understand your needs. You are the best judge, that means you should avoid letting someone else tell you how much protection you need. Take advise from everyone but always take informed decision. Minimum insurance requirement is 6 times of your yearly income but it would vary depending on the Loans/debts you have as well as number of dependents. Taking stock of your financial policy can allow you to select the right policy for your needs. As sales representative, we were trained to sell large policy.
- Speak with multiple and independent broker. These brokers will have access to many more products than just one company can provide.
- Avoid one-meeting recommendations. If your advisor makes a recommendation in the first meeting, you know that they have not really analyzed your situation and looked for best options.
- Recognize that insurance is for protection — not investing. Term insurance provides protection only, without a savings component. ULIP, Moneyback and Endowment policies policies have a savings component and are much more expensive. You are almost always better off just paying for term insurance, and using the cost savings to invest elsewhere.
- Ask every single question you have in your mind. Its better to be foolish for some time rather than being foolish for life. Don’t be afraid to ask the advisor questions. You should know the product inside out before buying it. Is the policy renewable and non-cancelable? How long are premiums guaranteed for? Is there an accidental death rider? What are the exclusions?
- Compare similar products. When you price shop, make sure you compare similar products. Its very easy now a days as all information is available with the click of mouse.
- Take riders only if it is required. Remember few types of toppings on the pizza can be very expensive sometimes. Always try to find the real value of the Riders. The advisor might ask you to add on all types of riders. Stay away from them unless you fully understand them and need them. Again, in training there was always an emphasis on selling riders. Often I didn’t see any benefits to the client.
- Do your Research. Make sure you do your homework before purchasing an insurance product. Make sure it fits your needs and budget, and make sure you understand the contract. The advisor is obligated to explain it to you. Also now a days you can generate an illustration Online by visiting the website of the insurance companies as this facility is offered by all top insurance companies.
- Take a 15-day free look. You have 15 days to look at the policy and understand it. If you are not satisfied with it during that time, cancel the policy and you will get your premium back.
- Keep it simple. Do not make your insurance planning complicated. Because it is based on protecting your family, it should be based on your needs. Don’t fall for all the bells and whistles the company may try to sell to you.
- Compare charges in ULIP Policies: Have a look on all the charges like Allocation Charge/Policy administration charge/Switch Charge/guaranteed return charge etc and compare.
- Ask for illustration and compare the Gross Yield and Net Yield. Remember, Higher the net yield in shortest possible term, better the policy.
I hope these twelve steps will help in your insurance planning. The basic idea is to educate yourself by doing your homework diligently as well as intelligently so that you can understand what you are buying.
