Not very long ago, taking out an insurance policy meant talking to a local Life Insurance Corp. of India agent and signing a bunch of forms for a plain vanilla life insurance policy.
But, with the entry of private insurance companies in 2000, there is now a bewildering array of choices, not only in the number of providers but also in tailor-made insurance products. These range from policies that cover life to those that protect against liabilities, such as the inability to pay home loans or theft and fire.
“Many of us don’t actually chart out our insurance needs,” says Rahul Aggarwal of Optima Risk Management Services, a New Delhi-based insurance broking firm. “We simply take up the most aggressively marketed policy. It is very rare to come across people who plan out their insurance portfolio according to their earnings and age.”
Here are five must-have insurance policies:
Life insurance
Life insurance products typically comprise term plans, endowment plans and unit-linked insurance plans (Ulips). All these policies pay a predetermined sum if the insured dies before the policy matures. However, in case of term insurance, all premiums paid are used to cover the cost of insurance protection. While in endowment policies, in addition to the premium paid, you also earn a bonus, in Ulip, you predominantly invest in stock markets.
A term policy typically ranges from one year to 20, though it could be longer in some cases. The insurance coverage also ends when the term of the policy expires, which explains why the premiums on such term insurance policies are relatively lower than in other life insurance policies.
Of late, a number of companies have started paying the premium back on their term insurance plans. For instance, in Birla Sun Life Insurance Co.’s “premium back term plan,” the entire amount is returned to the insured at the end of a policy period. “Ulips, which predominantly invest in stock markets, have an element of saving in them. That is why they are comparatively costlier than term plans, and, therefore, you don’t invariably get the desired coverage amount,” says Sanjiv Bajaj, joint managing director of Bajaj Capital, a financial services company. Experts suggest you should opt for Ulip policies only after the required sum assured has been taken under a term plan.
When do I buy a policy?
The ideal age to buy a term policy is when you are between 30 and 35, because the older you are, the higher will be the premium. Once you have sufficient cover and have saved enough money, you can invest in other savings-linked insurance plans.
How do I decide the sum insured?
It should ideally be 100 times your monthly salary if the personal accidental policy is not opted for. Otherwise, it should be 50 times. The premiums will vary depending on the age: it will be approximately 3% of the annual salary if you insure for a sum equivalent to 100 times of the monthly salary and if you are between 30 and 35 years of age.
What should I watch out for?