Monday, February 25, 2013

Buying Insurance? Pick By Value, Not Price


We are always looking for cheaper options for things we need, and insurance is no exception. Such an approach may, however, not be in your best interests all the time, says our experts






The Indian psyche is hardwired to try and get good deals. Hence, it comes as no surprise that we want to buy insurance at the lowest rate possible all the time. Of course, cheap life insurance can be purchased from most providers since there are many ways to cut down a policy's price. However, if you are buying life insurance with the sole intention of taking care of the needs of your family in unforeseen circumstances, it is paramount to identify the right insurance company as well as the right product.

Here are some of the factors that you should consider before signing an insurance agreement:


Are the service levels satisfactory?
This parameter can be experienced only once you have purchased the policy. Hence, it makes sense to check with friends and relatives who are already dealing with the company you are considering instead of going by the element of low premium alone. There are also certain other thumb rules – in case of a health insurance policy, it is better to choose a company that handles claims itself rather than outsourcing to a Third Party Administrator (TPA).


Who should you buy from?
Agents generally sell products of a single company. Hence, it may be a better idea to approach a broker who deals with multiple companies, as dealing with an agent will limit your choices. Also, as a buyer, it’s always a good idea to get the necessary information from the broker, while simultaneously checking the details with some online portals before taking the final decision. 

Some of the other aspects to consider are product simplicity, ease of paying the insurance premium through offline and online channels, and the company’s history of dealing with policies distanced by agents so that you are not adversely affected in case your agent suddenly moves out of the picture. Ensure that the agent/broker answers all your questions and read every word of the policy before signing on the insurance agreement. Integrity and honesty of the intermediary is an important factor while making a decision.


Are grievances addressed adequately?
The experiences of friends and colleagues who hold policies in the same company are helpful in understanding whether the company you are considering has an effective grievance redressal mechanism


What is the claims settlement ratio?
The claims settlement ratio, although an important parameter, cannot be the sole criterion to choose an insurance company. Every year, the report released by the Insurance Regulatory and Development Authority (IRDA) lists the claims settlement, rejection and pending ratios of all life insurers. However, the claim settlement ratios of general insurers are usually over 100 per cent, which can make it confusing. In such cases, you should look at the claims rejection ratio, which is a measure of the number of claims rejected as against the total number of claims. Also note the claims pending ratio, which refers to the outstanding claims of the company.

The claims settlement ratio may be more pertinent in case of general insurance companies with respect to health, motor or home insurance, which are more claim intensive in nature. In case of life insurance, death claims are usually accepted except in the most extreme of cases or if the death occurs under suspicious circumstances within the first year or so of the policy.

Of course, it must be remembered that the claims settlement history of new life and general insurance companies cannot be comparable to those of older life insurers which have been in the business for a long time.


Have you seen the policy long form and short form?
The company/agent may not openly agree to share the policy long form. However, if you ask for a copy, they cannot deny the same. This is important, as without the policy long form you may miss out on the finer details of the policy during final negotiations.

For instance, if you have mentioned any family medical history, the policy may include a cooling-off period with respect to those medical conditions. These would be over and above the general terms and conditions related with pre-existing conditions of the health policy offered by the insurer. Similarly, in case of accident riders, each company may follow a different definition, which can again work against you in case of lack of clarity.


How strong is the insurance company financially?
The solvency margin is an extra capital/provision an insurance company has to maintain to meet claim requirements. Solvency margins are declared by every company to the IRDA, and this helps you understand the company’s ability to meet unforeseen contingencies in terms of claim settlements. For example, a major accident is a tremendous liability on the insurer but a higher solvency margin should cushion such extreme situations comfortably.