Akshay Dhand – What should a consumer keep in mind when buying insurance

Vivek Law: Hello and welcome to this very special series - Finance Made Simple. Joining me today is Akshay Dhand who's the Appointed Actuary at Canara HSBC Life Insurance. Thanks very much, Akshay, a pleasure talking to you.

Akshay: Thank you, Vivek.

Vivek Law: You know because of the pandemic insurance has been on top of everybody's mind. But the big question that probably everybody wants to be answered is how do I go about selecting the right life insurance for myself? So, first of all, you could tell us a little about that.

Akshay: So, that's a very good question, Vivek. Life insurance is a huge repertoire of products. It's just not just one product. So, before you decide to buy or when you have decided that you need some life insurance, you need to decide the purpose for which you want to buy the life insurance. For instance, you could buy life insurance because you want to cover your family in case of an unfortunate event while you are working - that could be one purpose. The other purpose could be for saving for a particular defining event in the future, for example, your kids' marriage, your kids' higher education abroad. The third could be your retirement, getting you an income in retirement. So, there could be a plethora of reasons why you buy life insurance. So, before you decide you need to decide what is your objective and that will then critically decide what product you choose or what kind of product you choose when you buy life insurance. Suppose you have decided that you want to provide cover for your family when you are working, which essentially means that if something were to happen to you, the income would still be flowing into the family and their living standard will remain the same irrespective of whether you're there or not. See, once you've decided that then the next steps will come what are the other things you want to consider while buying life insurance. Things like what is the policy term you want to take. In the case of pure protection plans, which are what I just explained to you - you would look at things like what is the working life of the individual. So if I'm 30 years old and I'll be working till 60, I would want to buy at least a 30-year pulsator. Similarly, what is the amount of coverage I want to buy? Typically you want to see that whatever coverage you buy in case of your unfortunate demise, your family should be able to maintain the same standard of living, which they would have maintained had you been alive and working. So that should give you an indication about the amount of coverage to buy. An interesting variant in this is an increasing cover option. Because what happens in the case of life insurance is that life rather is that as you go ahead in life, your liabilities only increase they don't reduce. You have one kid, then you probably have another kid and you maybe buy a house that has EMIs and stuff like that. Liabilities increase, so, it's useful if you buy instead of a level cover product - an increasing covered product where the coverage automatically increases every year or every few years which kind of compensates for the increase in liabilities you'll have as an individual. That's one thing you would want to consider. Then you would want to look at for instance things like what is the premium payment term. I would recommend a regular premium policy rather than a limited premium policy in the case of pure prediction plans because they are cheaper and they suit the purpose well. That's another thing to look at then you might want to look at things like the premium frequency. Can you afford an annual premium or do you want to pay monthly and the annual premium is often cheaper as compared to a monthly premium? So, that's another thing you might want to look at. So, once you decide all these parameters and choose what life insurance you want to get and what parameters you need then you might want to look at the available companies who have such products and what company you want to buy go for. You might want to look at the financial strength of the company, how it has performed in the past because you do want a stable life insurance company. Because here you are sitting in a particular area where you are going to be paying a premium for the next 30-40 years and you are looking for coverage for the next 30- 40 years so you want a situation where the company will be there when it's needed to pay a claim. So, you want a financially stable company you might want to look at the TnC's in detail to ensure that you understood the terms and conditions of the product, what is the claim settlement procedures because that's what is going to be needed. In the case of pure protection products, as an example, they're add-ons you might want to buy. For instance, you have a critical illness rider or you have a permanent disability rider. Again you might want to see whether you want those or not depending on what you need is. For example, I would personally buy a critical illness rider because not only then that product will cover me for life insurance, it will also cover me in case one of the main critical illness were to happen to me in my working life. So, then the loss of income and the cost of treatment would be covered using that lump sum. So, all in all, these are the few things you might want to look at when you're buying life insurance. I think that's a few key important points you might want to look at when you're buying life insurance products for yourself. Most importantly, you must tell your family when you bought the product, what are the details and where are the documents kept and whom to contact in case some unfortunate event were to happen. Because often what happens people don't even know that their breadwinners have bought life insurance policies. So, it's important to make sure your family knows that you've bought a life insurance policy and what are the procedures to be followed in case a claim has to be made.

Vivek Law: Thank you very much, Akshay for coming by and sharing your perspective with the viewers. As always a pleasure talking to you. Thank you very much.

Akshay Dhand: Thank you so much.