Understanding Insurance Basics

Basics of Insurance

• Insurance reduces or eliminates the cost of probable loss of life or assets, acting as a financial product.
• Insurance serves as a risk transfer tool where, by taking a policy, the risk is transferred to the insurance company.
• Insurance companies assume risk against premiums paid by numerous individuals.
• Insurance companies provide payment to those who incur loss and file a claim.

Why Insurance is Important

• Insurance does not reduce the probability of adverse events
• Insurance helps in managing the financial impact or amount of loss when adverse events occur.
• Insurance should not be solely for saving tax; it should not be considered primarily as an investment.
• Buying certain types of insurance can help save on income tax, such as life and health insurance.
• Certain types of insurance, like motor insurance, are mandatory.

Types of Insurance

• Life Insurance and Non-Life (General) Insurance are the two types of popular insurance

Life Insurance

• Term Insurance
• Whole Life
• Endowment
• Unit Linked Insurance Plan
• Money Back
• Retirement Plan
• Child Insurance
• Annuity or Pension Plan

Non-Life or General Insurance

• Health Insurance
• Travel Insurance
• Motor Insurance
• Home Insurance

Insurance Sector in India

• The Insurance Regulatory and Development Authority of India (IRDAI) is the regulator of the insurance sector in India.
• Numerous players offer a wide range of products to suit various needs.

Deciding if you need Insurance

• Insurance is needed if the financial impact of an adverse event would be difficult to manage.
• A life insurance policy is needed when one is the earning member of the family.
• Life insurance is bought to protect dependents who will need money after one's death.
• Health insurance is needed if you or a family member may fall sick and the treatment costs would be difficult to bear.

How to Choose a Life Insurance Policy

• One's current income and expenses
• The amount of money the family may need if the insured is no longer there
• How much premium one can afford
• The insurer's claim settlement record
• Any policy exclusions

Determining Life Insurance Sum Assured

• Ensuring adequate insurance amount or coverage
• Ensuring sum assured is enough to maintain the family's lifestyle in the insured's absence
• A general coverage rule is 10 to 25 times the gross annual income, based on age
• Minimum coverage amount should equal the sum of liabilities

Understanding the Free Look Period

• A policyholder can review the policy terms to determine that their needs are met
• If unsatisfied, the policy can be returned without any penalty or charge during this period
• Certain expenses, such as medical check-up costs and stamp duty, may be recovered by the insurance company
• A 15-day free look period is available for all Life Insurance policies after the policy issuance date
• Health insurance policies with a term of at least three years have a free look period

Understanding the Grace Period

• An insurer provides additional time to pay the premium after the due date with a grace period
• The grace period is 30 days if the premium is paid annually, and 15 days for other premium frequencies.
• Life cover continues during the grace period.
• Health insurance cover is not available during the grace period.

Consequences of Lapsed Policies

• An insurance policy lapses if the insured defaults on renewal premium payments beyond the grace period
• All the policy's benefits lapse when the policy lapses.
• In order to reactivate it, insurance companies generally provide this option.
• Companies typically provide an option to reactivate a lapsed policy for a limited time after the grace period, called the revival period.
• Policies can be reinstated or revived during the revival period, subject to conditions like paying due premiums with interest and proving good health.
• Policyholders continue to enjoy policy benefits through a system even after a missed premium payment.
• A lapsed policy’s revival is cheaper

Buying Health Insurance

• Coverage of various diseases including pre-existing conditions
• Minimum required hospitalization period
• Pre and post hospitalization expenses
• Various limits and sub-limits
• Coverage of OPD expenses
• Critical illness coverage
• Exclusions
• Cashless facility
• Acceptability and network of empanelled hospitals
• Cost of health check-up

Channels to buy Insurance

• Directly from the insurance company
• Individual Agents
• Corporate Agents (e.g. Banks)
• Insurance Brokers
• Web Aggregators

Agent vs. Broker

• An insurance broker represents you as the client
• An Insurance Agent represents the insurance company

Buying Insurance Online vs. Offline

Why Online

• More product information is in a user-friendly format.
• Offers wide comparison features across products and companies.
• Lower premiums, as the online insurer saves on agent commission.
• Convenient to buy anywhere, anytime.
• Hybrid online and offline models are available.

Why Offline

• Insurance products are complicated and difficult to understand.
• Premium negotiation is possible.
• Suitable for those who are not tech-savvy.
• Beneficiary or nominee should be comfortable with online processes to submit a claim.
• There are difficulties in reaching a remote call center for claim or inquiries.
• Agents are generally easily approachable.

Government Insurance Schemes

Saral Jeevan Bima

• Standardized Term Life Insurance Policy offered mandatory by all life insurance companies.
• Consistent terms and conditions across all insurance companies.
• Sum Insured: Minimum of ₹5 Lakh, Maximum of ₹25 Lakh, in multiples of ₹50,000.
• Companies can offer sum insurance of more than ₹25 Lakh.
• Accident benefit rider is included.
• Each company independently determines the premium.
• Individuals between 18 and 65 years can purchase a policy.
• Policy terms range from 5 to 40 years, with a maturity age of 70 years.
• A compulsory waiting period of 45 days is required after the commencement date.

Arogya Sanjeevani Policy

• Standardized Health Insurance Policy offered mandatory by all insurance companies.
• Terms and Conditions of the policy are the same across all insurance companies.
• Each company can independently determine the sum insured in multiples of ₹50,000.
• Each company can independently decide the premium.
• The policy mandatorily covers most common diseases including COVID-19 and Ayush treatments
• Anyone between 18 and 65 years of age can purchase a policy.
• The policy term is one year but can be renewed every year if needed.
• The policy can cover spouse, parents, parents-in-law, and dependent children.

Pradhan Mantri Jeevan Jyoti Bima Yojana

• A one-year term life insurance scheme
• Can be renewed each year until the age of 55
• Eligibility: Any individual between 18 and 50 years with a bank account.
• Aadhaar linked policy, purchasable through any bank account.
• Fixed premium: ₹330 per year, auto-debited from the bank account.
• Premium payment period: May 25 – May 31 every year.
• Policy Period: June 1 to May 31, every year.
• Sum assured: ₹2 Lakh
• To buy this policy, contact your bank

Pradhan Mantri Suraksha Bima Yojna

• One-year Accidental Death and Disability Insurance
• Renewable yearly
• Eligible: Individual bank account holders (single or joint) aged 18-70 years.
• Fixed premium: ₹12 per annum per member.
• The premium is auto-debited from the bank account of the holder.
• Premium payment period: before May 31, every year.
• Policy Period: June 1 to May 31, every year.
• Sum Assured: ₹2 Lakh for accidental death and permanent disability, and ₹1 Lakh for permanent partial disability.
• Contact your bank to buy this insurance policy

Defining an Insurance Repository

• IRDAI licenses insurance repositories, which allow insurance policies to be stored electronically.
• They maintain policy data on behalf of insurers.
• Also serves as a central point of service for e-policies held by a policyholder.
• Insurance Repository makes it easier to convert paper policies into electronic formats.
• NDML, a wholly owned subsidiary of NSDL, is one type of insurance repository.
• An e-Insurance account opened with NDML provides access to details on the Consolidated Account Statement.
• E-Insurance accounts can be opened online.

Buying Insurance Best Practices

• Insurance is a subject matter of solicitation, meaning it is purchased, not sold.
• Responsibility to understand the product.
• Ensure the agent is licensed by the insurance company.
• Make payments directly to the insurance company, and not to an employee or agent.
• Ask for and understand the Product Suitability Matrix and Benefit Illustration Document.
• Insurance is a long-term contract requiring good faith; fill up the proposal form correctly.

Reminders

• Insurance is not the same as investment; avoid purchasing it solely for tax benefits.
• If used as an investment tool, it may prove costlier than standalone investment options.
• Understand the claim process and ensure your beneficiary feels comfortable with the claim process.
• Understand the complaint process.
• Update your Beneficiary or Nominee in your insurance policy as needed.
• Keep your beneficiary or your family members informed about your insurance policy.
• Add the nominee for the policy and review occasionally whether you want to change it.
• Pay premium on time.
• Insurance Companies are not required to send Premium Due Notice or Renewal Notices.

Actions for Insurance Problems or Complaints

• Every insurance company must provide contact information for any query, problem, or complaint.
• These details can be found in the policy documents and the company's website.
• Information about escalation matrix and nodal officers for complaints is also available.
• For unresolved complaints, approach Insurance Jurisdiction.
• Lodge complaints in the Integrated Grievance Management System available at https://www.policyholder.gov.in/ on the IRDAI portal.

Insurance Jurisdiction Overview

• Available to all individual policyholders.
• Approach Jurisdiction only if your insurance company rejected complained, or had no resolution within 30 days
• The value of the claim, including expenses, should not exceed ₹30 Lakh.
• All complaints should be made by the jurisdiction office over one's area.