Checklist before buying a Insurance policy

It is important for you to know answers to a few crucial questions before buying an insurance policy. This not only helps in understanding the policy better, but also ensures peace of mind during the entire policy term. Here’s helping you get started.

Charges and covers

If you buy a term plan, your life cover should ideally be 10 times your annual income. For other policies such as a child plan or a retirement plan, you should decide on the cover based on your future financial needs. Do take into account inflation as well.

What are the exclusions? Every insurance policy is unique, and therefore, it is not necessary that two policies will have the same exclusions. Enquire about the exclusions in the policy while buying it, and read the policy document in detail to have complete clarity. But there are some common exclusions to payout, such as suicide within a year of buying the policy, death during war, death due to drug abuse and so on.

Each insurance company levies some charges on an insurance policy. The four key ones are premium allocation charge, mortality charge, fund management charge (in case of ULIPs) and commission paid to the agent. It is always advisable to understand these as they are deducted from the policy’s account value.

While some charges such as fund management charge and policy administration charge are constant, some reduce with tenure.

Documents and premium

Having all the relevant policy documents in place is extremely critical at the time of claim settlement. Misplacing any of these can lead to claim repudiation. Therefore, in case you lose any of your policy documents, make sure that you immediately apply for duplicates.

Usually, insurance companies have a duplicate policy request form, which can be downloaded from the respective Web site. You can also call up the customer care.

As far as premiums go, unless it’s clearly mentioned in the policy documents, the option to change premium during the policy period is very rare. But there are policies which offer flexible premium payments, wherein you can change the frequency of premium payment – monthly, quarterly or annually, or can even split the premiums over a period of time.

You can use this option in case of a sudden financial liability, making it difficult to pay the insurance premium regularly.

There is also an option of top-up to those who wish to increase their savings component in the policy. Say you get a windfall. You can add this to your policy fund, enhancing your overall fund value.

As per the current guidelines, you also get a life cover at the rate of 1.25 times the top-up premium paid.

You might need to change your nominee during the policy period. Usually, you can change or add a nominee through a simple Change of Nominee form.

Your lifestyle habits such as drinking and smoking are critical in determining your premium. There is no change in the premium if the habit is acquired post buying the policy. However, in case of health cover, where one needs regular medical check-ups, the premium is determined by current lifestyle habits.

Policy lapses

It is possible that, due to some unaccounted personal financial crisis, you may miss paying your premium, and risk a policy lapse. Insurance companies usually allow a time period of 15-30 days during which you can pay your premium without any penalty.

If the premium still remains unpaid, the policy goes into a state of lapse. But even after the policy has lapsed, insurance companies give an opportunity for reinstating the policy within a defined time period.

At the time of revival, the insurer may ask you to declare your state of health or appear for a medical test before the policy can be revived to ascertain whether there has been a change in health status. Depending on the report, an insurer may increase the premium or even decline the revival of the policy.

(The writer is Director, Marketing and Products, Aviva India)