Do you understand your insurance policy?
Over the course of this pandemic, we have been reminded of life’s harsh realities in one form or the other. There is a realisation that life can be uncertain and being prepared to tackle any situation is key. It is only because of the pandemic, people queued up to boost their immunity, both physically and financially. Power foods like turmeric, lemon, ginger, garlic etc. boost our health immunity, an adequate insurance plan provides us financial immunity and a financial safety net in the event of an unexpected loss.
However, the question we need to ask ourselves is, ‘Do we completely understand our insurance policy?’ We go through the task of selecting the best life insurance which will ensure our family’s financial immunity, in case of an unforeseen eventuality. But is it enough to just register a purchase? Insurance being a long-term product, one needs to have the right understanding of its features, benefits, exclusions etc.
Here is a simple guide to help you better understand your insurance purchase:
Understanding your insurance policy – some of the common types of life insurance covers available today include; Term insurance, Loan protection, Critical Illness, ULIPs and Annuity. It is important to understand the exact nature of protection offered by these categories and the covers and exclusions associated with them. Having a proper understanding of your insurance policy will help you gauge inadequacies, if any in your current financial plan. Let us now see the details of the key types of Life covers:
- Term insurance – A term insurance is the simplest form of life insurance. It provides a substantial financial cover for a definite time period or ‘term’, wherein in an event of any uncertainty like unfortunate demise of the insured person, the nominee/s is/are paid the pre-determined sum of The nominee/s can use this sum towards to sustain the current lifestyle. One major benefit of this plan is that it provides enough time for other family members to grown into the shoes of the chief wage earner and start earning comfortably. It is also considered as the most basic insurance for any sound financial plan.
- Critical Illness Policy – A critical illness plan is a product designed to manage the financial distress caused by a serious life-threatening This cover provides a lump sum amount to the policyholder in case he/she is diagnosed with any of the specific critical illnesses like cancer, heart attack, paralysis, kidney failure etc. This cover besides taking care of all the medical treatments also covers loss of income which one suffers due to the inability to work when diagnosed with a serious ailment. Here it is most essential to be aware of the insurer’s pre-determined list of illnesses covered by your policy.
- Loan protection – Typically, larger purchases in life like buying a home or a vehicle are done through loans from banks. But in case of any unforeseen eventuality, the family stands to lose the asset due to the non-repayment of the EMIs. A loan insurance can protect the family from defaulting on loans and losing the house or car, in such a scenario. This is one of the most efficient ways to cover your expensive purchase and comes at a fraction of a cost. Here, one needs to understand that the loan insurance only covers the remainder of the loan that needs to be paid to the bank, it does not provide any additional sum Though, in case there are certain prepayments done towards the loan, the additional amount is returned to the nominees.
- ULIP – A ULIP is specifically for people with a larger risk appetite. It provides benefits of both an insurance product and an investment Under this plan a policyholder has to make regular premium payments. Part of the premium goes towards insurance coverage while rest of it is invested in equities or bonds. ULIPs also provide flexibility to investors to choose between various kinds of funds depending on their investment needs. Policy holders gets returns & risks associated with market linked instruments.
- Annuity Plan – Annuity Plans are generally used for retirement purpose. Under this plan, the investor gets a stream of payments for the remainder of the investor’s This kind of plan addresses the risk of outliving their savings as it provides a steady cash flow to people during their retirement years.
Now that you have understood various types of life insurance policies, their functionality and benefits, there are a couple of simple tips, to ensure that your insurance policy serves its purpose when you are not around.
- It is essential to update your nomination details which ensures that the proceeds go to the rightful nominee without any dispute.
- Always keep a record of all your investments. This practice will give you a clear idea of where all your money is parked in case of any unforeseen
- It is extremely important to review your sum insured from time to time to match up with the increased earning as one progresses in their career and achieves various milestones like getting married, becoming a parent etc.
The bottom line is, buying an insurance is a smart decision to boost the family’s financial immunity, but one has to constantly review it and have a clear understanding of all the offerings and exclusions under it to avoid any kind of disappointment at a later.
Also Read – Booming industry of General Insurance