Saturday 4th of February 2023

Go by Performance, Not only Insurance Premium

Insurance is a product that is usually sold, rarely purchased. People normally buy it when it is hard-sold by an agent. Very few make the effort to research the product themselves and buy the one they like best, as happens commonly in the case of investment products. The more evolved buyers go to aggregator websites and compare premiums. While this number is important, especially in the case of term insurance, you should also evaluate a few others to get a holistic picture.

Premium: When buying a term plan, the premium you pay is by far the most important number. “The product features and exclusions in term plans are all standardised. Hence, I would give a 60 per cent weightage to premium in my purchase decision,” says Kapil Mehta, founder and chief executive officer, Secure Now Insurance Broker. The best places to look for premium rates are the web sites of insurers. While aggregator websites do give you premium rates of many players at one go, there is sometimes the risk that some of the lowest-cost players might be excluded. Besides premium, pay heed to payment structure in case of term insurers. Many now offer annual or monthly payouts to the family, at times even adjusted by inflation, a useful feature if money management is not your spouse’s forte.

Historical performance of funds: When buying a unit-linked insurance plan (Ulip), the historical returns of funds should be your primary criterion.

In the case of Ulips, going with an older company can work to your advantage, as longer-term data on fund performance will be available for it.

The Morningstar India website is one resource you could turn to for this information. It offers comparison of the fund’s performance vis-a-vis the category average. The fund’s rank within the category is also provided.

Persistency: It tells you the percentage of policies sold by an insurer that continue to be in force after a certain period (one year, two years, etc). If a company has a higher persistency number, it indicates that it sells products that people are comfortable in holding. This data is available in the Handbook on Indian Insurance Statistics (go to Irdai’s home page/Reports/Handbook).

Claim settlement ratio: This tells you the number of claims settled by the life insurer vis-a-vis the total number of claims received. Aggregate data on the industry is available in Irdai’s annual report. While Life Insurance Corporation (LIC) settled 98.2 per cent of claims in 2014-15, the private players settled 89.4 per cent. The sector as a whole settled 97 per cent of claims made (by number of policies). However, data from the Handbook says that only 90.9 per cent of claims by value were settled.

Speed of claim settlement: Delay in claim settlement can be a major headache for the near and dear ones, hence it is important to go with a player that settles claims faster.

Size: When buying a traditional plan, go with a bigger company. Information on business in force is available for individual companies both by number and value of policies in the Handbook.

These numbers can provide another crucial insight.

Since life insurance is an important purchase, do spend a few hours on the internet doing the necessary research to get this decision right.

Source: Business Standard

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