Source/Contribution by : NJ Publications
Congratulations, You made the right decision to buy insurance. Now for the hard part.
Buying insurance is not an easy, straightforward process, Irrespective of the type of insurance. Be it health or life insurance or any other type of insurance, today, there are multiple insurers to chose from and also multiple choices of products available. Even this is just one side of the story. There are other things critical before and during the insurance buying process. In this piece, we will deep dive into this process and explore some important elements of insurance buying.
For the sake of convenience, let us break up the insurance buying process into the following 4 steps.
Application Process /Proposal
Let us now explore these points in detail.
1. Need Assessment:
The starting point for any insurance purchase is obviously deciding what type of insurance is needed. A comprehensive need assessment to holistically assess your insurance needs should be done regularly, perhaps once every couple of years at least. Need assessment would mostly cover personal risk areas and related solutions like health, life, personal accident and critical illness insurance. Beyond this, covers like motor, home, fire & marine, shopkeepers insurance, professional liability /indemnity, etc, and even Covid-19 related policies may be explored on a case of case basis. For this article, we will limit our scope to the personal insurance covers only.
Buying any personal insurance product depends on a lot of factors like your age, your life stage, number of dependents, existing covers, etc. After a product is decided, the next important question is how much cover you should have and the term of the cover? This again will depend on your earnings, lifestyle, the number of dependents, probability of risk, metro/non-metro city, etc. Needless to say, the higher cover taken at an early age, where medical issues are yet to arise, is highly recommended.
2. Product Selection
With multiple insurers and products, all with different features again is not easy. The right product selection is very crucial, and you will need to go into details to clearly understand the product features and even policy wordings. One important element here is to ensure that the premium fits in your pocket for the required cover. So an optimal balance may be required here. Another choice here is that of riders. Obviously, riders do offer some advantages but may not be always preferred and excessive riders are not required. Stand-alone products, like say critical illness, “may” offer better coverage and features rather than having them only as a rider. To sum up, with the product, the cover, premium amount, premium paying term, policy term and riders /add-ons will be decided at this stage.
3. Application Process:
The insurance buying process normally starts with the quote generation by your insurance advisor which will have the short-listed products. Upon selection of the product with cover, the proposer will be guided to a proposal form. The proposal form is the most important and basic document required for the insurance contract between the policyholder and the insurance company. It includes the insured's basic information like address, age, name, education, occupation etc. It also includes the person's health status and medical history.
The proposal form helps the insurance company to calculate all the potential risks in relation to the insurance policy and hence deciding the premium amount. Needless to say, this has to the filled in as per the principle of ‘Utmost Good Faith’, which we would like to briefly cover here. After submission of the proposal form and payment of the premium, the process will end for you except in cases where the medical test, from an emplaned doctor with the insurer, is required. After this, the proposal is received by the insurer who is free to review the details and either accept or reject the proposal. Based on the information disclosed, a ‘medical underwriting’ may also be done by the insurer.
4. Post Purchase.
After the insurer is satisfied with the details required, the policy will be issued. You are expected to keep all the policy documents safely and handy at your end. Today, insurance policies are also being saved in digital format in your E-Insurance Account, which may be applied for /disclosed during proposal form filing. It is important to check that the details of the policy, including all personal details and disclosures, is accurate to avoid any issue in future. Once you receive the policy document in hard copy, please check all the key details properly. In case of life and health/PA policies do check the medical history, occupation, etc is captured correctly as you have declared. For vehicle insurance, you must check the registration number, fuel type and claim history. In case you find any discrepancy, please contact your adviser to make the required corrections in the policies. If everything is in place, the process of insurance purchase ends here.
An important point to note here is that policyholders get a ‘free look-in period’. If for any reason you feel that the policy terms & conditions are unacceptable or there was any mistake in buying the policy, the policy may be returned. A refund will then be processed, less any expenses and proportionate risk premium for the period used.
Identifying your insurance needs, deciding the appropriate cover and term and closing on the right, the suitable product is easier said than done. We would strongly recommend that the readers approach their insurance advisors for the right guidance. Please note that, unlike investments, buying insurance is a long-term contract that can have serious consequences when an unwelcome event happens. You may not buy another policy of similar nature for at least a few years, if not more, and thus, it becomes even more critical that the right decision is made, something you don’t regret later. To kick-start the new financial year in the right spirit, we would urge everyone to undertake a holistic need assessment with their insurance advisor. We wish you a safe, healthy and prosperous new financial year.