How to go about getting Life Insurance

In one of my previous blogs, I had mentioned that you must never mix up investments and insurance. In this post, I will focus on Life Insurance. It is always advisable to go in for a pure risk product for Life Insurance as opposed to an Unit Linked Scheme giving both Insurance & Investments.

By pure risk term insurance I mean a Life Insurance Cover without any returns attached to it. You pay a fixed annual premium (which may be paid in monthly, quarterly or half yearly instalments) and you are entitled for a Life Cover ranginf from 10 lakhs to 1 Crore. This Insurance will be paid out to your nominee in the event of death or permanent disability.

The extent of cover can be determined by the following 3 rules.

1. A thumb rule for determining the extent of cover should be 8 times your annual slary package or 1 Crore whichever is lower.
2. The insurance cover should be more than the value of assets for which you have taken a Loan. I have a Home Loan of 40 lakhs, a Personal Loan of 10 lakhs and a Card Loan of 5 lakhs, hence I need to ensure that my life insurance cover is more than 55 lakhs. (please use the outstanding amounts for calculation at any given point of time)
3. You should insure yourself only upto the age of 40 years or lastest 45 year. After 45 your investment pool will be far in excess of the insured amount. In my case, I am working towards getting a corpus of about 10 Crores by the time I am 40, so after that the insurance cover is immaterial as in the event of death, I have significant investments to take care of my family. So my suggestion is that we should insure ourselves only upto the age of 45. If you insure yourself for longer periods of time beyond the age of 45 the annual premium charged to ou is also higher.

There are several companies where you can apply for Life Insurance, however I would suggest that you apply to LIC. The reasons for recommending LIC are as follows.

1. Simple process and no hidden charges, personal service from agents, they come to your house / office and are more knowledgeble with regards to product features and claims processes. Other company agents will try to cross sell other products which are more profit making for the company and will also give you incorrect information to prevent you from taking pure term insurance. These insurance companies love to sell Unit Linked Plans which are more profitable for the companies.
2. Medical tests conducted at convinient locations.
3. Vareity of options for making payments. LIC has tied up with various banks to receive online payments. Payments can be made through agents as well.
4. The are supposed to have the easiest claims procedure (though this opinion is based on information prevailing in the market and not my on experience)
5. The premium for a fixed insurance cover is lowest in the case of LIC. All other insurance companies charge a higher premia.
6. In case of premium payment delays and policy revivals in case of delays, the LIC charges are the least and the most customer favouring.

LIC has a fairly simple process for applying for Insurance. The agents visit you and help you sign up for the same. I have a policy of 1 Crore and the annual premium for the same is Rs.24,000. In the first year, the agent refunds a part of the premium between Rs.3,000 and Rs.5,000 back to the customer as a sign on bonus. This is paid out in the first year from the agents commision as he will make a percentage out of every annual payment you make thereon. Be sure to ask the agent for this rebate in the first year if you are signing up for an LIC Policy. This rebate may be available with som other company agents as well.

For most life insurance companies, you will have to undergo a medical test and fill up a detailed application form. Be sure to fill the Nominee details correctly.

For more details on which life insurance policy is best suited for you and for contact details of insurance agents, you can write to me on Ask.Pranav@Gmail.com and I will revert to you within 48 hours.