Debunking 5 life insurance misconceptions

Insurance has numerous benefits that could help you secure your family’s future. Don’t let common misconceptions keep you away from enjoying these benefits, Viswanarayan K stresses

Life insurance is almost a basic need. It’s the first step in personal financial planning. It fulfills various purposes  for different people and can provide valuable benefits if you make your choices carefully.

Like many think mistakenly, it is not just for financial protection in the event of untimely death of a family  breadwinner. Life insurance can also be a comprehensive wealth accumulation solution that benefits almost all.  Whether you are young or old, rich or poor, employed or a business person—you can get a plan tailor made  for you.

But while everyone may need life insurance, they do not ask for it. Many believe life insurance is difficult to  understand, the selling process is pushy or cumbersome and most importantly the life insurance industry is not  regulated.

So while on the face of it, it may seem like the life insurance industry in India has recorded phenomenal  growth—both in terms of the number of insurance companies and their contribution to the country’s GDP (gross domestic product); the penetration of life insurance in India has been dismal.

As mentioned above, this is mostly due to common misconceptions about the life insurance industry. Let’s look at some of the most prominent amongst these and identify whether they are actually true.

Misconception 1: Life insurance companies can do what they want. There is no regulatory body to check their activities.

If, like many others, you too believe that there is no legal body which monitors life insurance companies to protect your interests, you can be rest assured that this is not true.

The Insurance Regulatory and Development Authority (IRDA) was set-up in 2000 with the main objective of ensuring ethical business practices in the insurance industry (both life as well as non life). It has created specific guidelines across all business functions from product conceptualisation to marketing and sales. These guidelines ensure that you are able to derive maximum value from your policy…

Misconception 2: Life insurance is a long-term product. How do I know that the insurance company won’t winds up its business before the end of my plan?

Most private insurance companies in India are relatively new and lack a past track record, which may act as a deterrent. This is where the Insurance Act 1938 comes in. It is compulsory for all private insurance companies to maintain a ‘minimum solvency margin’ of Rs. 1.5 billion. Simply put, this solvency margin is the additional capital that an insurance company is required to hold. As the business grows, the company needs to bring in additional capital to maintain the required solvency margins. These funds are kept in custody for repayment in case the company declares bankruptcy or decide to wind up its business before paying out the policy benefits (claim and/or maturity) of all the policies that it issues.

Misconception 3: Most life insurers make huge promises while selling the product. However when it comes to paying the claim, they have a myriad of excuses. There is no one to help me…

The basic premise of life insurance is to ensure that an event such as death or disability does not render the family helpless and financially insecure. To ensure that this objective is met in totality, IRDA has set up various checks and balances. In case of any claim dispute, you/ the nominee can approach the insurance ombudsman which is a non-judicial authority formed. The insurance ombudsman has been empowered to redress claim disputes up to Rs. 2 million within a limited timeframe. With 12 centers spread across the country, your insurer must update you (through the policy document) about the insurance ombudsman in whose jurisdiction its office falls for the purpose of grievance redressal. The decision passed by the ombudsman is binding on the insurer, though not on you/ nominee. In case you are still dissatisfied, you/nominee can approach the judiciary or the consumer forum as well.

Misconception 4: In all likelihood, the policy sold to me will not match the agent’s description and I will have no recourse once I have signed on the dotted line.

It is the agent’s primary responsibility to ensure that he/she explains all policy features to you to ensure that you understand what you are buying. However, sometimes knowingly or unknowingly agents may misguide and advise unsuitable policies. To overcome this problem, the IRDA has stipulated that all policies come with the ‘free look’ period of 15 days from the date you receive your policy. If you decide that the policy purchased does not suit your needs, you can return the policy to the insurer and get back the premium that you have paid, less expenses, if any…

Misconception 5: The agent may provide me with false information. How do I verify whether what he is saying is true?

To pre-empt the problem of inadequate information or inaccurate advice, all insurance companies have corporate websites which provide detailed information on all their offerings. Further, there are several life insurance specific websites that aim to collate and compare products across insurers. By taking some time off to study what is available before you buy insurance, you can double-check on the information that your agent has shared with you.

Remember, that insurance has numerous benefits that could help you secure your family’s future and consequently, your own. Don’t let common misconceptions keep you away from enjoying these benefits.

The author is head–governance and is responsible for compliance, legal, secretarial, risk, audit & claims functions at IndiaFirst Life Insurance

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