Buying insurance? Here's a checklist

Since the nationalisation of the life insurance business in 1956, the state-owned Life Insurance Corporation of India had been the only source of life insurance to the Indian consumer for over 40 years.

With the opening up of the insurance industry in 2000 and the activation of private participation, the Indian insurance landscape has changed entirely. Today the consumer is presented with unprecedented choice and will benefit from the liberalization and competition in numerous ways.

This article aims to help customers select their insurance from the abundance of choices available.

LIC has done an admirable job in the past 40+ years. Nonetheless by its own admission, market penetration in insurance has stagnated at 12-15 per cent. India has a 250-million strong middle class segment, much of which is uninsured or underinsured. As a result, life insurance premia has been contributing a mere 1.4 per cent of the GDP.

Obviously, there is need to raise this figure to globally competitive standards of two-digit share percentages. As in every sector of world economies, competition will benefit the consumer through enhanced market savvy and consumer responsiveness of players. With the entry of the private players, the Indian insurance individual retail market is estimated to be worth $25-27 billion in the next 7-8 years.

Most certainly, premium contribution to our GDP will increase to double-digit share percentages, up from the current 1.4 per cent of GDP.

In many international markets, the product offerings of the insurance industry are fairly similar. The true differentiators come from delivery and service. Consumers while studying the market for an insurance plan should certainly look at an innovative and comprehensive product line in companies. This helps in times of repeat sale and for addressing differing needs at various stages of one's life.

Certainly, the service the company offers is an important criterion for careful examination. An agent trained to consider long time needs, who is helpful and believes in full disclosures for a consumer to make informed decisions about his / her financial planning, will help in making the choice.

Global experience has shown that life insurance is never bought but always sold and the only real way of reaching consumers is face to face. Hence personalized service that includes regular reviews, updates and the flexibility to adapt insurance solutions to suit consumer's changing needs are also important.

A strong business foundation and a robust distribution network are some of the essentials while considering any life insurance company. The reputation and standing of a company are also indicators that reveal the kind of products and service one can expect.

Insurance companies are periodically rated by international rating agencies for their financial stability and ability to settle claims. Large insurance companies receive high ratings from rating agencies, like Standard & Poor's, Moody's Investors Services and A M Best.

A company's reputation will also indicate its ethics, its integrity

and best practices. These metrics too are significant and go a long way to inspire confidence in consumers and also shareholders. Companies with solid a reputation usually believe in fairness to all stakeholders (consumers, shareholders, employees and agents) and it is reflected in all aspects of the business including financial prudence in all its dealings.

Insurance coverage is essential for every individual. How much and what type of insurance one needs will differ with every individual. Review the following with your financial advisor to arrive at the life insurance solutions that suits your needs:

• Review your own insurance needs and circumstances. Choose the kind of policy that offers benefits that most closely fit your needs.
• Make sure you can afford the premium payments. If the premium amount increases later, can you still afford it?
• Do not sign an insurance application until you review it carefully to be sure all the answers are complete and accurate.
• Do not buy life insurance unless you intend to stick with your plan. It may be very costly if you quit during the early years of the policy.
• Do not drop one policy and buy another without a thorough study of the new policy and the existing one. Replacing your insurance may be costly.
• Read your policy documents carefully. Ask your advisor or company about anything that does not appear clear to you.
• Review your life insurance programme with your financial advisor or company every few years to keep up with your changing requirements.
• Your insurance policy gives you long term protection while offering immediate tax benefits. Your insurance needs are usually greater than the need for a tax benefit in the current financial year.

Insurance in the future will no longer be bought as a savings tool but will be sold for protection. An insurance policy offers much more than returns from tax planning and investment. It offers one the ability to plan for unforeseen events that could affect the individual and the family's financial well being adversely.

Life insurance is universally acknowledged as an effective tool to eliminate risk, substitute certainty for uncertainty and ensure timely aid of the family in the unfortunate event of the death of the breadwinner. Hence life insurance provides assistance if premature death occurs which may leave a dependent family to fend for itself and also for old age without visible means of support.

Buying life insurance cannot be compared with other investment decisions especially stock market investments where one waits for the right time to buy or sell. As far as life insurance goes, the best time to buy it is right now!

The author is chief marketing officer, Metlife India Insurance.

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