A life insurance policy isn’t just a tax saver. It is an essential instrument to keep your family from financial harm. Due diligence must be done when you buy your policy. However, the process doesn’t end with you signing your cheque and receiving your policy document. Let’s walk you through the three stages of life insurance ownership, and the steps you need to take in each stage. Remember, as the policy holder, you need to get these steps right. If something were to go wrong during your claim process, you wouldn’t be around to fix it.
Stage 1 – Before Buying
* Decide what to buy – Life insurance comes in various forms: Term plans, endowment plans, cashback, children’s education, ULIPs, retirement plans, and so on. Determine your need for insurance correctly. We believe your first life insurance plan should always be a term plan. This provides you life protection at affordable costs.
* Ascertain ideal coverage: It’s vital that you calculate your insurance requirements and not limit it to the amount of tax you need to save. As a thumb rule, your insurance should provide at least 15-20 times your current annual income. The amount should be enough to protect your family in the immediate future, and cover the surviving spouse’s income needs, settle your debts and liabilities, and provide for your children’s future needs such as education and healthcare.
* Ascertain ideal tenure & premium: Know your policy’s tenure. Ideally, pick the longest possible tenure — 30-40 years, or more. There are full-life policies in the market as well. A long coverage would protect your family through your working life and even in your retirement. Your premiums, too, would remain fixed through the tenure, as opposed to having to buy new policies at higher premiums later in life. Secondly, know your premium costs and when they’re due. Do not buy a policy whose sum assured isn’t at least 10 times the annual premium.
* Understand policy benefits: Ascertain the policy benefits and understand under what conditions they’re paid out. Beyond the basic sum assured, maturity amount, and surrender value, there may be riders and add-ons. If it’s an investment-linked insurance, study the risks and returns carefully. Compare these to other options such as PPF.
* Read application carefully: Ensure the guarantees of the policy are printed in the product brochure. Do not take verbal assurances alone from the seller. Read the application form carefully. Don’t be hurried into signing it. Share all personal, health, nominee, and contact details correctly on the form. Inducement to purchase insurance is illegal; you can register a police complaint against any persons inducing you to buy insurance.
Stage 2 – After Buying & During Tenure
* Check policy for errors: Once you receive your policy document, ensure it is what you had paid for. The product name, sum assured, tenure, premium, nominee details, and all other particulars should conform to your expectations. Especially ensure your personal details are correct.
* Tell your family: After receiving the policy, tell your family and nominees about it. Keep the policy in a safe place where it can be accessed by your nominees. Also ensure they understand all policy benefits.
* Ensure regular payments: Check for your premium due dates. They could be monthly, quarterly, semi-annual or annual as per your request. Ensure you are aware of the dues. The best way to make your payments would be creating an ECS mandate with your bank account to automate your payments.
* Use free look period if necessary: If there are minor corrections to be made on the policy, you may do these by communicating with your insurer. However, should you find that the policy isn’t what you had expected, you can immediately use the free look period of 15 days (30 days, if purchased from a distance marketing channel) to return it and get a refund.
* Ensure continuity: For a life insurance policy to keep delivering its benefits, you must keep paying your premiums regularly. Breakage in payments leads to breakage in benefits. This not only puts your family at risk, it also means you don’t get optimal returns if you’ve bought an investment-linked plan.
* Re-evaluate coverage: What seems like a sizeable sum assured may not feel so after a few years, during which the value of the rupee would have inflated and your income would have increased as well. Periodically — at least once every five years — take stock of your total life cover and decide if it’s enough. Buy additional coverage if required.
Stage 3 – End of the policy
Scenario 1: Your policy matures: Investment-linked policies have a maturity value which are paid out at the end of the tenure. Determine your benefits and visit your insurer with the required documents to collect your payout. However, a pure insurance cover such as a term plan will not have any maturity benefits.
Scenario 2: You surrender the policy: If you decide to end the policy before its full tenure, you have two options. In case of an investment policy, you can surrender the policy and get your corpus minus some charges back. If you have a term plan, you can let the policy lapse by not paying the premium.
Scenario 3: You have passed away: After your death, an insurance claim can be initiated by your nominees. Make sure they’re aware of the location of the policy document and have all other necessary documents required to initiate the claims process.