How to Compare Life insurance products from different Life Insurance Companies?
Life insurance is contract between the Life insurance Company and the customer where by the life insurance company agrees to settle the claim in case of death of the policyholder or maturity of the policy in return for a considerable amount paid by the customer known as premium. Compare life insurance products from different life insurance companies on our portal and select the best life insurance policy plan as per your requirements. Life insurance premium can be paid periodically or at one time depending on the financial capacity of the insured customer.
Since life insurance policies are long term policies it is of utmost importance to select the right life insurance product and the right life insurance company. There are more than 25 life insurance companies operating in India out of which Life Insurance Corporation (LIC) of India is the oldest and government owned life insurance Company in India. Life insurance policy contracts are made by mutual understanding between the life insurance company and the customer. Life insurance in the beginning was meant to be only Savings and Investment products, but with the advent of private life insurance companies in Indian market after the Nationalization a new product known as Term life insurance has been introduced in the market which has become quite popular within a few years of its launch.
Life insurance consists of different types of policies such as Term insurance, Endowment Insurance, Annuity or Retirement Plans, Child Plans, Return of premium plans etc. Each of these plans has one thing in common: Life coverage against death which is the soul of the policy. All the life insurance policies include coverage for life and a certain percentage of the overall premium paid goes to secure your life against uncertain events while the rest of the premium goes into investment. Pure term insurance policies are those which do not have any investment option and these plans purely cover the life insurance policy of the insured against specific perils.
Let us understand what are the points to compare before selecting the life insurance policy from different life insurance companies in India:-
Premium & Sum Assured:
Premium is the amount paid by the insured in return for the life insurance coverage offered by the insurance company. The premium to be paid for a particular Sum assured should be at par with the premiums of other insurance companies. Life insurance policy should not solely be selected on the basis of premium quoted by the insurer, but still the premium should be compared with different life insurance companies for the same sum assured and other coverage.
The premium to be paid by the customer for the policy period would be constant in the life insurance policies and this premium would depend on the age of the customer and the sum assured opted by the customer. Since the same premium would be paid by the insured each year it is of utmost importance to check the premium quoted by the life insurance company and compare life insurance policy quotes before deciding on the life insurance company.
For instance let us assume that Mr. Anil is planning to take a life insurance policy and has not compared the premiums from different insurance companies before finalizing on the life insurance policy. He has taken the life insurance policy from Company X for a term of 30 years, Sum assured being 1 Crore and premium to be paid each year is Rs.10k. After taking the policy he casually compared it with the other life insurance products where he found that the premium from Company Y is Rs.2k less than that of Company X, all the other requirements being the same. In this situation he would end up paying Rs.2k extra each year which would amount to Rs.60k till the end of the policy term.
Had Mr. Anil compared before taking the life insurance policy from he would have saved Rs.60k in the long run which if invested somewhere he could have got better returns. This is the importance of comparing life insurance policy quotations before deciding the best life insurance company in India as the premium is a major factor.
One more thing to compare is the Sum assured offered by different life insurance companies. As a thumb rule, 10-15 times the annual income of a person is considered for the sum assured calculation purpose. Few companies even give Sum assured 25 times the annual income of the customer which would be very important in the long term as the income generating capacity of the customer would increase over a period of time and the sum insured selected would remain constant.
Most of the life insurance policy plans have few inbuilt add-ons which are charged in the basic premium. These add-ons are like extra coverage to the customer apart from the base coverage. Let us understand the add-ons which are offered as extra coverage under the life insurance policy:
- Critical Illness Coverage: Critical illness is the illness which is life threatening in which the insured gets lump sum payout from the insurance company. Critical illnesses include Cancer, Heart disease, Bypass surgery etc. Few insurance companies offer critical illness coverage in the base plan itself with some percentage of sum assured being paid to the insured in case of diagnosis with critical illness. The premium for this cover is included in the base premium of your life insurance policy.
- Wavier of premium in case of Disability: In case of accidental disability the insured customer is exempted to pay all the future premiums and the policy will continue to cover the life of the insured till the policy period. This is known as the waiver of premium cover in case of accidental disability where the insured is waived off the entire future premium with the insurance cover remaining intact.
- Waiver of premium in case of Critical Illness: Under this cover the insured customer is exempted to pay all the future payable premiums in case if he/she is diagnosed with any of the critical illness mentioned under the life insurance policy terms and conditions. The life insurance company waives off the future premiums payable by the customer in case of diagnosis with any of the critical illness mentioned in the policy conditions. The life insurance cover of the customer would continue to run even without the payment of premiums and the death or maturity claim would be settled subject to the terms and conditions mentioned under the policy.
Policy Issuance/Endorsement Time:
Life insurance companies are known for taking their time for policy issuance which could range anywhere between 7 days to few months depending on the data available with the insurance company. Most of the insurance companies issue a life insurance policy within 15 days from the date of submission of all the relevant documents. There are few companies which would not ask for all the documents in a single go which ultimately leads to the delay in policy issuance time.
One cannot expect the life insurance companies to issue the policy immediately like the general insurance companies would do. This is due to the medical underwriting and the process involved in the life insurance policy issuance. Public sector life insurance companies are notoriously known to delay the issuance of the life insurance policies. This is due to the lethargic attitude as well as the incomplete information provided by the agent of the life insurance company. These days’ private life insurance companies are issuing life insurance policies with telemedical declarations from the proposer instead of demanding for physical medical tests. This also reduces the time taken to issue the life insurance policy as the physical medical test reports need to be sent to the life insurance office from where the life insurance policy issuance would be done.
The other thing to be considered is the time taken by the insurance company for the endorsement. Endorsement to an life insurance policy is the addition or deletion to the existing terms and conditions of the policy. The endorsed terms and conditions override the existing terms and conditions and the endorsed terms would be considered by the insurance company at the time of claim settlement. Endorsements could be Name change, Address change, Occupation change etc. which are to be intimated to the insurance company immediately. The time taken for an endorsement could be a couple of day depending on the type of endorsement.
Endorsement might attract extra premium from the insured depending on the type of endorsement. There are two types of endorsements namely: - Financial and Non financial endorsement. Non-financial endorsements include Name correction, Address correction etc. which do not alter the risk taken by the insurance company while the financial endorsements include addition of riders such as Disability rider, Critical illness rider, increase of sum assured etc. Endorsements such as addition of riders and increase of sum assured might require the insured to undergo certain medical tests and which may increase the time taken for issuing the endorsement.
Solvency ratio is the ratio of companies assets to its liabilities any given point of time. Solvency ratio can be defined as the measurement of an insurance company’s ability to meet its financial obligations and other commitments. Solvency ratio is the company’s cash flow which can meet the long term and short term liabilities of the insurance company. As per the IRDA guidelines, all insurance companies are required to maintain 150% solvency ratio to minimize the risk of bankruptcy. In simple terms solvency ratio indicated the capability of the insurance company to settle the entire claim in any extreme situation.
Higher the solvency ratio, higher would be financial strength of the insurance company. Any company which fails to maintain 150% Solvency ratio will be directed by the IRDA to stop sourcing any new insurance business until the solvency ratio is brought back to the required percentage. It is important to check the solvency ratio of the insurance company before purchasing the life insurance policy because the life insurance policy has a longer time period and the company should be able to survive for such as long period of time without which the insured customer would face issue if the company no longer exists in the market.
Medical tests are done by the insurance company before accepting the risk to ascertain the type of risk and the premium to be charged under the life insurance policy. Medical tests can be done via Phone or Physical. Medical tests done via phone are known as Tele medicals while the other tests done through diagnostic centers or hospitals are called as Physical tests. The time taken for both these policies is different and the physical tests take a little bit more time for the life insurance policy to get issued.
Tele medicals are a form of medical tests where the insurance company executives call the proposer over phone to ascertain the details of any existing diseases, previously hospitalized scenarios and other conditions which would affect the risk taken by the insurance company. The tele medicals are done on the basis of “Good Faith” in which the customer is expected to provide all the reliable and correct information. The life insurance policy would be underwritten on the information provided by the proposer and any fraud activities would lead to the cancellation of policy and denial of claim.
Physical tests are done in any hospital or diagnosis center where the reports are directly sent to the insurance company to underwrite the risk. The reports contain the true details of the customer such as pre existing diseases, previous admission in hospitals for treatment etc. It is important to note that the life insurance policy will be solely issued based on the information provided by the proposer, hence only the correct information should be shared with the insurance company to prevent any future claim rejection due to the false information provided at the time of declaration.
Persistency ratio in life insurance policy is the number of life insurance policies which are being renewed each year with timely payment of premium by the customers. Persistency ratio can also be defined as the number of net active policies with the life insurance company to the total number of issued policies. This ratio indicates the number of policyholders paying their premium regularly to the insurance company without any default.
Persistency ratio also indicates the time customers stay with the insurance company. It can also be considered as the overall satisfaction of the customers with the particular insurance company and the product. There might be many instances where the agents of an insurance company have sold a wrong product to the customer and the customer after realizing this has stopped paying the premium thus affecting the persistency ratio.
The ratio is measured for the financial year or a combination of financial years starting from 1st year to 5th year. First year’s persistency ratio is estimated in the 1st month of second year and so on, that’s the reason why the persistency ratio is indicated as 13th month ratio, 25th month ratio, 37th month ratio and so on. There could be many reasons for policyholder defaulting on the premiums to be paid to the life insurance companies and few of them include:
- Customers do not value the policy. There would be few customers who do not know the real value of the policy and thereby stop making payments to continue the life insurance policy.
- Customers often take life insurance policy in the heat of the moment when they hear about the merits of the policy without analyzing the need and ability to pay the premium in the long term. At the time of renewal they would decide not to pay the premium as they no longer find the life insurance policy financially viable.
- There could be few cases where the policies are taken by customers due to force of the agents or family members and friends who work as the life insurance agents. After paying the first premium, customers would neglect paying the next instalment resulting in the policy getting lapsed.
- There could be few customers who are not at all satisfied with the after sales service of the life insurance company. Customers feel that if the insurance company cannot serve now how can they settle the claim once the insured expires without any hassle?
- Some customers might not be satisfied with the returns from the product, and then discontinue the premium payment after few years, which in turn increase the persistency ratio of the life insurance company. This happens mostly in the case of ULIPs where the returns promised by the agent would turn out to be false forcing the customers to cancel the policy or stop the premium payments.
- There might be few cases where the policyholder expires and the family was not aware of the life insurance policy and hence the premium payment stops thereby increasing the persistency ratio of the life insurance company.
Persistency ratio should also be observed by the customers before deciding on the life insurance policy as the persistency ratio plays a major role on the goodwill of the insurance company. Most of the life insurance companies operating in the Indian market have 50% 13th month persistency ratio which is treated as acceptable due to the above mentioned reasons, anything above this limit should be carefully analyzed by the customer before purchasing the life insurance policy from the life insurance company.
Terms & Conditions:
99% of the agents and intermediaries of the life insurance companies never explain the terms and conditions in the life insurance policy. They would only concentrate on the returns from the product thereby keeping the customer in the dark regarding the terms and conditions mentioned in the policy copy. Few insurance companies might ask for compulsory FIR without which the claim would not be settled even though the reason for death of the insured is available in the public domain. This creates unnecessary delay in getting the claim settled at the most important time. There is an instant where the Army soldier has taken a life insurance policy from Government life insurance Company, the soldier has expired while discharging his duties and the information of death is available in public domain. The life insurance company without stressing for the FIR and other documents paid the claim to the family thereby increasing their trust among the general public.
There would be many terms and conditions mentioned in the life insurance policy where one would come to know of them only at the time of claim settlement. Neither the insurance company’s agent not the customer would be bothered to ask the terms and conditions under the life insurance policy. It is advisable for the customer to read the prospectus and exclusions, terms and conditions before making the premium payment to the insurance company. There are few insurance companies which demand a list of documents to be submitted to them for claim settlement such as the Policyholder health status for 3 years before his/her death. After the death of the policyholder it might not be possible for his/her family members to collect this data and it would unnecessarily delay the claim payment to the family who are already in distress.
According to the insurance laws (amendment act),2015 Section 45, no claim can be repudiated by the insurance company after 3 years of the life insurance policy being in force even if the fraud is detected by the life insurance company. This section is included to prevent the families of the innocent policyholders from suffering any grief as there are many instance where the agents issue policy to the customers with wrong information and the insured’s family members cannot be punished for the deeds of the agents. These kinds of terms and conditions should be checked by the proposer before making the payment to the insurance company. If the insured is not satisfied with the service of the insurance company he/she is permitted to cancel the policy and get refund of the premium within the “Free look period” which would normally be 15 days from the date of receipt of policy.
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