DSIJ Mindshare

Insurance best practices for 2012

 

Making new year resolutions is easy. Over the years, you've probably made hundreds of them. Now count how many of them you've actually kept to. Surprisingly, when it comes to financial matters, even the most well-informed of us often fall for optimistic sales pitches from financial advisors and regret our decisions later. In the new year, we can attempt to correct such habits and make a fresh start.

Here are a few suggestions in this regard:

  1. Buy on the internet to avail yourself of big savings – For the last couple of years, many life insurance companies have launched pure protection covers that can be bought only over the internet. What attracts buyers to these is the fact that they cost about half of what the offline term plans do – a cover of Rs 1 crore costs as little as Rs 10000 a year. While earlier, only three life insurers offered term plans online, this number has gone up to 11 now.
  2. Fill the application form correctly and completely – Non-disclosure of vital information is one of the key reasons for claims to get rejected. One reason why this happens is because policyholders entrust this task to agents who may not be acquainted with their past history. Hence, you should fill the form out yourself. Also, remember never to purchase an insurance policy by providing incorrect information or by suppressing some material information, as these may be reasons for your claim being rejected later.
  3. Pay premiums on time – Various life as well as health insurance plans need to be renewed annually. Don’t forget to renew these, lest your cover lapses. Also, never assume that the policy you are renewing carries exactly the same terms as the expiring policy. Insurers may make small changes, and hence, it is important to check the terms and conditions at every renewal.
  4. Plan according to age and life-stage – When it comes to buying an insurance product, the policy you choose would depend on your age and your stage in life. If you are looking at life cover and are single with no dependants, you should consider a term policy. If you are married and have children, you can move on to buying child insurance plans or ULIPs to arrange for education funds. Simultaneously, one also needs to plan for retirement, and can look at pension plans to that end. Your future income, assets and ongoing loans should also influence the sum assured.
  5. Conserve your wealth – An accident can send all your plans into a tizzy. Hence, one needs to purchase accident and disability cover in addition to life insurance policies. Opting for such cover is critical to providing comprehensive financial protection for your dependants in the event of an accident or your death.
  6. Get health insurance – While people without dependants can afford to ignore life cover, health insurance remains a must. If you buy such a policy early in life, the insurer will cover all illnesses as there are likely to be nearly no exclusions for you at a young age. Further, in most policies you can accumulate the bonus sum of up to 50 per cent of the basic sum insured on account of no claims. Those with dependents may consider family floater options. You would also do well to assess your sum assured every year to ensure that it is adequate to take care of the medical costs that are bound to keep going up.
  7. Weigh your options – Comparison shopping is essential while evaluating which product to buy. Some of the important factors to review in the case of health insurance are the renewability clause, exclusions and the waiting period. Policies with lifelong renewability, fewer sub-limits and exclusions and a shorter waiting period for covering preexisting illnesses are preferable. Premiums should be a consideration only once the products with similar features have been shortlisted.
  8. Beware of last minute purchases – Insurance is a long-term commitment, and hence, you should refrain from making purchases if you don’t really need the cover. Remember that you should not buy a life insurance policy only to save tax. After all, you need to service the premiums year after year, and should you miss these payments, the policy could get terminated, leaving you with a negligible amount. Also, steer clear of buying policies through friends or relatives just to oblige them.
  9. Consider other investment options – While ULIPs and pension ULIPs are highly popular, it would also make sense to consider other products available in the market. If wealth creation is your objective, you can evaluate equity-linked savings schemes (ELSS), diversified equity funds and balanced funds. If your goal is creating a neat retirement corpus, you can consider the option of PPF, which offers tax-free returns at eight per cent per annum.

Finally, don't stress over your resolutions – just see them through! And while you’re at it, simplify your life. Look around – do you really need all that stuff? Use this new year to get rid of what you don't need. Clear the clutter and count your blessings.

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DALAL STREET INVESTMENT JOURNAL - DEMOCRATIZING WEALTH CREATION

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Email: principalofficer@dsij.in
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Email: complianceofficer@dsij.in
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Grievance Officer: Mr. Rajesh Padode
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