uying insurance has never been tougher!
In fact, I will go so far as to say it might be easier to pick the colour of your wedding dress or decide which set of wheels to own.
Insurance companies launch scheme after scheme and their advisors enter the market with renewed zest and vigour to sell their wares. 
Where does that leave you? Utterly flummoxed.
Don't jump at the first scheme offered to you or get carried away by the glossy brochures and sentimental talk about protection for your family.
Ask your insurance salesman or advisor as many questions as you can think of.
Their polished pitch might fumble and the replies might make you see the schemes in a new, more realistic, light.
1. Is there any other policy that offers the same cover at a lower premium?
You might be surprised to learn that Term Insurance policy is rarely sold by advisors.
A term policy requires you to pay a premium every year for the number of years you take the policy. If you die during this period, your beneficiary gets the money. If you survive, nobody gets anything.
Let's say you are 25 years old and take a term insurance cover of Rs 10 lakh (Rs 1 million) for 20 years. You pay a mere Rs 2,500 per annum every year for 20 years.
If you take an endowment policy for the same amount and same number of years, you dish out a premium of Rs 45,000 per annum.
What a whopping difference!
Don't fret if you have already taken an endowment policy. The latter carries the all-important savings and you get a large kitty of returns when it matures.
After 20 years, a term policy will get you nothing (if you are still alive) but an endowment will get you about Rs 20 lakh (Rs 2 million) on maturity.
Make an informed decision depending on your needs. If you have no dependents, you really do not need a term policy since it is meant for those you name as your beneficiaries after you pass away.
To understand the various types of policies, please read How much is your life worth?
2. Which portions of the maturity benefits are guaranteed?
The insurance advisor will tell you how you can get Rs 30 lakh (Rs 3 million) or even Rs 45 lakh (Rs 4.5 million) on maturity.
But hold on! Did he say this amount is guaranteed? Chances are, he didn't!
In actuality, only a part -- and NOT the entire amount -- is guaranteed.
Maturity benefits are generally divided into three parts:
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Sum assured (assured)
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Guaranteed bonuses (assured but generally never given for more than five years)
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Reversionary bonuses (not assured)
You need to be wary about reversionary bonuses, which are non-guaranteed. They are declared by the company every year, based on their performance. Make sure that number is not worked out on over-optimistic projections.
If it is a unit-linked insurance policy, the returns are market-linked and not guaranteed at all.
3. Are the advertised returns of the policy for real?
Insurance companies advertise their bonuses or returns in bold letters.
Don't get lured.
This can be a deceptive number, especially since the returns are exempt from tax under Section 10 (10d) of the Income Tax Act.
Very often, the number publicised is the simple interest which the plan earns. The actual rate of return could be much lower.
A good way to assess the return is to calculate how much you will end up paying the insurance company and how much is paid back to you eventually.
So you take into account the outflow (premium) and inflow (survival benefits + maturity benefits + bonuses).
Take the Komal Jeevan policy of Life Insurance Corporation. It is a money-back policy. This means you get returns and your money back at specific intervals during the term of the policy as well as on maturity.
In this policy, the premium has to be paid for 18 years and the policy matures when your child is 26.
Let's say you take a policy cover of Rs 100,000.
What you pay
For a newborn baby, the annual premium is Rs 7,281 per Rs 100,000 of insurance.
The premium has to be paid for 18 years and the scheme matures when your child is 26.
So you end up paying = Rs 131,058 (Rs 7281 x 18).
What is promised
According to its advertisement, the Komal Jeevan claims to give you guaranteed additions of Rs 75 per 1,000 of the insured amount. That will work out to Rs 7,500 per Rs 100,000 of insured amount.
LIC is well within its rights to publicise that. But to a layman it might appear as if the plan will earn a 7.5% tax-free return.
What you get back
20% of sum assured at age 18 and 20 (Rs 20,000 + Rs 20,000)
30% of sum assured at age 22 and 24 (Rs 30,000 + Rs 30,000)
The policy terminates when the child is 26, and you get back Rs 195,000 (which is Rs 7,500 x 26 years).
You get back Rs 295,000 totally, while you would have paid Rs 131,058.
This works out to a yield of about 5.4% assured (not 7.5% as you believed).
If LIC deems fit, it may pay you a loyalty addition which may increase your return on maturity. But that is purely discretionary.
Also, if your child is older, your premium goes up and your return may go down considerably.
To figure out how much insurance you need, read Your life is expensive. Here's why!
4. Is there a free look period?
Once you buy the plan, companies offer a free look period for about 15 days.
You can study the policy document thoroughly. And if you are not comfortable or if you have been deluded, return the policy promptly.
5. What are the exclusions to the policy?
The exclusions sheet is very important and informative. Read this piece of paper well.
Generally, pre-existing illnesses in a medical plan, suicides within a year of policy and death while partaking in a criminal activity are excluded.
Take a look at the rider exclusion sheet. A rider is an optional add-on which can be attached to the policy. For example, a critical illness rider can be added to your main policy. But you will have to pay additional premium for this.
6. Can I backdate my policy?
Why would you want to do that? Because insurance premiums are calculated on your age.
By backdating your policy, you save by paying lower premium every year.
Every six months, the age is increased .So if you are 25 years and 7 months, the age is considered as 26 years. If it is 25 years 4 months, the age considered 25 years.
Of course, this is the general rule and could vary between companies.
Let's see how this actually works out.
Say, your date of birth is August 9, 1975 and you buy a policy as on March 9, 2005. You pay the premium for a 30-year old. If you buy 20-year endowment policy for Rs 10 lakh, your annual premium would be approximately Rs 114,200.
If you backdate it by a month, your policy would be issued on February 9, 2005. Your premium would be for a 29-year old and would work out to Rs 113,850.
The insurance company will charge you an amount for the number of months you backdate. This is a one-time payment and would work out to less than what you will end up paying by more premium.
Insurance is a long-term contract. These savings may appear insignificant, but they amount to a tidy sum over the years.
7. Is there a discount on the yearly premium?
Companies offer up to 3% off if the premium is paid yearly as opposed to monthly or half-yearly.
Avail the discount even if it means a bit of a jugglery in managing your finances.
Illustration: Dominic Xavier
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