Buying anything that you are not too sure of is confusing and can get complicated if not looked into deeply. In case of life insurance, the language, terminology and the numerous people you encounter can further make it difficult. Sales persons and agents online, on the phone and offline can be quiet something to handle. To make matters worse, there are well meaning friends, colleagues and family members to share their wisdom. All of these factors more or less make it very difficult to determine how the policy will work for you.
Here is a way out, at least to counter an agent who would finally catch up with you at some stage: ask the agent to give you an authorised policy illustration for the policy being suggested to you as authorised by the insurance company. The illustration is a document that explains the policy’s features and benefits and, more important, projects payments and benefits over the term of the policy.
Once you get the illustration, do not get complacent—read it and mark points that you do not understand. This may get tedious, but it is necessary. The policy illustration always tells the truth. Both the regulator and insurers consider the illustration a key instrument to set reasonable policyholder expectations. Therefore, while nobody can predict the future, the illustration is the insurer’s best view of things to come. So, before actually taking the policy, this is your shot at making an informed decision.
As most insurance policies are for the long term, understand that the decision you make after going through the illustration will live with you for a long time. And, if you decide to buy the policy, you are wedded to it till maturity or the tenure of the policy. The illustration is also your chance to change the policy cover or type.
Illustration authenticity: Authentic documents will list guaranteed and non-guaranteed benefits separately, and will include surrender values on terminating a policy and cash flow projections assuming different interest rates. Customers are well within their rights to ask the insurer to directly mail them an illustration or certify that the copy they have is authorised. Some companies mail illustrations to customers along with the policy contract.
Policy benefits: One figure to definitely look deeply into is the sum assured—the money that your family will get if you die during the policy term. This is the most fundamental question you can ask about an insurance policy. The illustration generally has a column called death or mortality benefit and specifies how much of that is guaranteed. Take a long hard look at these numbers. Think if this sum will do justice to your dependents in case of a calamity and be sufficient to pay off outstanding loans, educate your children, and ensure that the family continues to maintain its standard of living for the foreseeable future? If not, increase the death benefit.
Survival benefit: You should also use the illustration benefit to check how much you will get if you live through the policy term. Ask this question once you have adequately addressed the death benefit question above. The illustration typically lists the maturity benefit by year and also indicates the proportion that is guaranteed. Both death and maturity benefits are projected at two interest rates as defined by IRDAI, so a higher permissible rate is a straight giveaway that the illustration is not genuine.
Policy flexibility: Try understanding the flexibility that the policy provides. In real life, priorities change all the time. It’s important to think about what might change and how the policy can accommodate these changing priorities. For example, can you stop paying premiums after some time? What will you get if you terminate the policy? Can you add medical riders later? Can you increase the death benefit at a later date? What if you forget to make a policy payment? Don’t hesitate to ask as many questions as you wish and ask for a policy illustration for every important situation.
Remember; buying a life insurance policy is a major step towards ensuring the financial security of your family. It’s a long-term financial commitment and customers would do well to do a detailed due-diligence before buying. The policy illustration is the most critical document to complete a rigorous, fact-based due diligence.