Insurance is one of the most underrated financial products in existence. India, especially, is severely lagging in terms of insurance penetration compared to many other countries. Having an adequate and comprehensive insurance plan can help you protect yourself and your family from life’s uncertainties.
However, with so many different categories and subcategories of insurance, you might find it tough to choose the right policy. Approaching the insurance purchase process with a detailed checklist of things that you need to consider can go a long way in helping you get the perfect plan for yourself. Continue reading to find out more about this insurance checklist.
Factors to Consider Before Purchasing Insurance
Whenever you purchase an insurance policy, be it health insurance or a life insurance plan, you should always consider the following factors.
1. Type of Policy
The first factor that you need to take into account is the type of policy you require. In the case of health insurance, you have individual plans and family floater plans. An individual plan covers only a single individual, whereas a family floater plan covers an entire family.
And in the case of life insurance, the choice is even more. You have term plans, whole life plans, endowment plans, annuity plans, and ULIPs, among others. Each one provides different benefits and advantages.
As a prospective insurance policy purchaser, you should always pay attention to the type of policy that best fits your requirements. This is the only way to ensure that you and your family are adequately protected.
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2. Amount of Coverage
Once you’ve determined the type of policy that’s right for you, the next box that you need to tick on your insurance checklist is the amount of coverage. The amount of coverage determines the compensation that you’re likely to receive if the insured event takes place.
The higher the insurance coverage amount, the more compensation you receive. However, choosing a higher amount may not always be favourable. This is because insurance coverage is one of the many factors that determine the insurance premiums you have to pay. So, if you opt for a higher amount, your premiums will also go up.
Choosing a low amount can leave you unprotected, whereas a high amount can lead to the premiums becoming unaffordable. Therefore, you need to strike a fine balance when determining insurance coverage. Always choose an amount that you need and can afford.
3. Policy Tenure
Choosing the right tenure for your insurance policy is another major factor that you need to look at when purchasing one. The general rule of thumb is - the longer the tenure, the better. This way, you can ensure you’re covered for a long time. Also, opting for an extended tenure can lower the premiums that you need to pay, creating a win-win situation.
In the case of a life insurance plan, the maximum tenure that you can opt for is 99 years. Such plans are called whole-life insurance policies. However, with health insurance, the maximum tenure that you can opt for is 3 years, beyond which you will have to renew the plan.
4. Policy Premium
The premium is the amount that you need to pay the insurer in exchange for the insurance policy. The lower the premiums are, the better it is for you since you get to save money. Not all insurance plans charge the same premium. It may differ depending on factors such as the insurer, the type of plan you opt for, the coverage, the tenure, and even your age.
Therefore, you should always look to opt for insurance plans that charge lower premiums. One way to effectively do that is by comparing different insurance plans with one another. This way, you can not only ensure that you opt for the plan with the lowest premium but also get the plan with the maximum features and benefits.
5. Riders
Riders are optional add-ons that you can opt for at the time of purchase of an insurance plan. Such add-ons enhance the coverage beyond what’s typically offered under the base plan for a nominal additional premium. Depending on the kind of insurance policy you opt for, the riders that you can opt for may vary.
If you wish to enhance the coverage of your policy, consider opting for riders. That said, it is advisable to only opt for riders that you require. Otherwise, you may end up having to pay a huge premium due to unnecessary add-ons.
6. Inclusions and Exclusions
Every insurance policy document has inclusions and exclusions listed on them. Inclusions are essentially situations or scenarios where the policy’s coverage is applicable, whereas exclusions are situations or scenarios that the policy explicitly won’t cover. As a prospective policyholder, knowing what the inclusions and exclusions of a policy are is very important. This is one of the many ways in which you can choose a policy that’s perfect for you.
7. Premium Payment Terms
Almost every insurance plan gives you the freedom to choose the premium payment term. You can opt to pay the premiums regularly in the frequency of your choice - monthly, quarterly, half-yearly, or annually. However, opting for ‘regular pay’ would mean that you need to pay the premiums till the end of the policy’s tenure.
Alternatively, you can also opt for ‘limited pay’. Such an option allows you to pay the policy premium only for a limited period. The premium payment term is often far shorter than the policy’s tenure. For instance, let’s say that the tenure of an insurance plan is 25 years, with the limited pay option, you would only have to pay the premium for about 5 years. For the remaining 20 years, you can continue to enjoy the policy’s benefits without having to make any payment whatsoever.
Conclusion
By checking off the 7 points listed above, you can ensure that you pick the policy that’s perfect for you and your family. In addition to the ones mentioned above, here is another key point that you need to keep in mind. When purchasing insurance, make sure to disclose all material information regarding you, your lifestyle habits, and your health status. Failing to disclose important information at the time of purchase can lead to claim rejections in the future.