Get smart, get the right life cover

Publication: The Economic Times Mumbai; Date: Jul 16, 2008; Section: Personal Finance; Page: 19

Scan The Market For An Insurance Policy That Provides Pure Risk-Protection Facility

It’s a cool December evening and Arjun Kanetkar, a high-profile insurance salesman, marches into the office of one of his prospective clients Pooja Mistry, a successful entrepreneur in her late thirties. He knows that Pooja’s husband is a high-profile corporate executive and they have two daughters.

After the initial pleasantries, Arjun directly shoots off: “I have got something for you that can save some tax and earn you returns of over 25%. For the past two years, we have delivered more than 48% and hence, we are confident of delivering at least 25% this year, which is 50% lower than our previous performance.”

Pooja, however, was exposed to some basic insurance concepts through one of her friends and seemed to be well-informed. “Do you have term-plans?” asked Pooja.
“Well Pooja, don’t look at term-plans as they do not give you any returns and it’s just a cost. Why do you want to go in for such a plan when I can give you something that offers better returns, tax savings and insurance cover?” retorted Arjun.

He added: “The product I am recommending is a Unit-Linked Insurance Plan, where you can get returns based on the options that you choose. It’s a product where a portion of your premium goes towards insurance and another portion towards the investment option chosen by the customer. You can even choose 100% risk-free returns.” But such persuasive sweet-talks failed to cut ice with Pooja. Her alertness saved her from a ‘predatory’ insurance salesman whose only aim is to sell insurance products to meet targets. Others might not be so lucky.

You must ask the following questions before buying an insurance policy:
Do I really need a life insurance policy? (saving taxes and high rate of returns should certainly not be the reason). Be ready to pay the agent a fee for doing this thorough analysis. How much insurance do I need? What is the premium and premium-paying term of the policy? Are there any riders in this policy?

If someone pitches an investment oriented policy to you, then ask:
What is the sum assured of the policy? What are the various costs in this policy? What are the surrender charges and liquidity options of the policy? How much would a pure term plan for a similar cover cost?
How to look at life insurance?

Look at insurance as a pure risk transfer and risk protection tool. It should cover the financial loss faced by the policy buyer’s family such that it takes care of lifestyle expenses and his family’s goals should be addressed comfortably. Life insurance companies cover the goals aspect in their advertisements and promotional literature — whether it is Mr Sharma of LIC or ICICI Prudential’s Jeetey Raho campaign. But you will not see a single pure risk product such as Term Plans being promoted aggressively.
In conclusion, you must look at life insurance only to transfer your risk to an insurance company in case you are unable to retain the risk financially.

The author is the director of My Financial Advisor

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