Choosing An Insurance Policy

We often plan a lot of things and assume they will work accordingly. But there are also times when unplanned things happen. Like the death of an earning member or costly medical treatment of a family member or a car accident, and this can make our financial planning go at a toss. And this one’s financial planning must include insurance planning too!

Insurance Planning is a planning where one opts for an insurance policy that protects oneself, one’s family,  one’s assets, or one’s business against an unexpected event. An insurer is the one who bears the risk of the insured (an individual who takes an insurance policy). Thus the insured transfers his risk to the insurance company. And in return, the insurer (insurance company) receives a premium on a regular interval by the insured for undertaking the risk.

Major types of insurance policy that are taken are for:

  • Health Insurance for medical expenses
  • Life Insurance for the life of a person
  • Property Insurance for disasters
  • Auto Insurance for car accidents 

There are various insurance companies in the market that offer different types of policies. And, thus, it becomes difficult for an individual to choose among those policies. But one should be wise enough to pick up the policy as per one’s need and for that few factors needs to be considered.

A few factors that are important to consider are:

  • Purpose of the Policy: First and foremost, one must decide while taking a policy, what the purpose of said policy must be. For instance, in case of life insurance, you need to analyze whether you want to invest along with insurance or purely have insurance. You can have a look at a few types of insurance to get a better idea.
  1. Term Insurance: This policy gives the amount to the beneficiaries, in case if the policyholder expires within the policy term. If they survive, no money can be claimed.
  2. Whole Life Insurance: Here, the policyholder tries to protect their life throughout their lifetime and, thus, needs to pay premium regularly until they die.
  3. Unit-Linked Insurance Plan: As it is linked to the market, it is a combination of investment and insurance.
  • Period: You need to consider whether you want the insurance for the short term or long term. This can be determined by the risk factor that will be associated with your asset. For example, a ship (voyage insurance) can be for a few months or years till the voyage gets completed but property insurance can be for a long time.
  • Price: Insurance should have the right price for the policy taken. That means that the risk coverage and the claim should be appropriate for the premiums paid and thus, you shouldn't be getting a less amount for the policy taken.
  • Premium: One should understand their economic conditions and, thus, decide how much premium one can afford to pay for the policy. Often, when the policy expires and nothing can be claimed, premiums are the cost that you pay for the peace of mind during the tenure of having the insurance policy.
  • Policy Limit: Policy limit refers to the amount that has some upper limit when it’s the time for a settlement. Thinking about it at the time of taking a policy can help, since during an emergency, you would be able to arrange the additional amount or take a policy that has more upper limit.
  • Insurance Company: One should definitely analyze the insurance company’s financial strength, its claim settlement ratio, history and goodwill. This will help you to understand whether the company can match up to your expectations or not. One can always see the company's review or ask for feedback from current customers.
  • Process: One should be aware of the process of the policy: is it online or offline, what are the documents required, how long does the company takes to activate the policy and so on. Along with this, one must be also aware of the things that need to be disclosed while signing the policy. There are cases where people are denied the claims as they didn’t disclose the information at the time of taking the policy.
  • Claim: One should be aware of how the claim settlement works of the particular policy. Some policies ask the customer to pay during a medical emergency while a few others have a tie-up with specific hospitals. Hence one must choose it according to one’s convenience.
  • Ease of doing business: While choosing an insurance policy, one must check if the company allows you some flexibility for the payment of premiums and if it can be paid online or not. Also, one must be aware of the company’s customer relationship management, as it helps to coordinate during emergencies or claim settlement processes.
  • Compare: Before buying any product, we tend to compare it with similar products, so is the case with insurance policy. One should compare various insurance policies and, then, pick the one that best suits one’s needs.

An insurance policy is the safety net you fall back on in times of a crisis and for this reason, it is of utmost importance that you weigh every factor of your policy before making the commitment.

3 responses to “Choosing An Insurance Policy”

  1. Uttara says:

    Helpful and informative! Specially the points of checking background of insurance company and comparing policies before buying.

  2. NIKHIL THAKUR says:

    4 minutes..!!!
    Totally worth it..!!

  3. Rajsee warang says:

    Well read

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