Your Guide To Insurance


“Are you insured?”, asked Ramesh

“Of course I am insured. Everyone in my family is insured. What kind of a question is this?” Suresh felt offended. Ramesh is Suresh’s childhood friend and now his financial planner.

His reaction was natural because many families in India buy insurance cover for each member without even understanding the product and its need.

The objective of buying insurance might differ, like for some the purpose is tax benefits, while for others it’s an investment. And there are some insurers who buy insurance products without really understanding it.

Mind you, having an insurance policy is not a must.

But insurance is a financial protective shield which comes to your rescue during uncertain times.

Wikipedia defines insurance as, ‘a means of protection from financial loss. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.’

Read on this guide to learn everything you wanted to know about life insurance.

Chapter 1: What is Insurance?

To simply put insurance means safeguarding against a specific risk which one is exposed to.

Well you may be wondering how does this happen? - It is through transfer of risk from one person to a group of individuals.

These group of individuals are ready to assume (take) that risk for a price paid (the premium) paid by you.

And when you confront the risk, the damage caused to you (and your family members), is paid back to you by the risk taker (the insurance company) in the form of claims.

So, by buying insurance policy you are buying a protection shield for the risks you face. It enables you to live peacefully, without bothering much about the risk you face.

Hence by doing so, you try to save yourself from the financial crunch which you may face in case if you don’t have insurance to face such contingencies.

Chapter 2: Who Needs Insurance?


These days, with greater awareness due to more advertising, many wonder whether they are adequately insured or not.

But the first question they should be asking themselves, is ‘Do I really need life insurance’. Contrary to popular belief, while most people do need life insurance, this need doesn’t apply to everyone. Let’s see why. 

What does life insurance do?

Life insurance, and by this we mean pure term insurance, makes a one-time lump sum payout on the death of the policy holder, to the beneficiary registered with the insurance company. 

What purpose does insurance serve?

The Sum Assured is meant to replace the income of the life insured hence, the dependents are secured financially.
Alternatively, your death should not financially paralyse your loved ones. 

This implies 2 things: 

  1. If you want to insure your life, you are doing it for the benefit of your financial dependents

  2. If you have any kind of liability, you should insure yourself atleast to the extent of the liability, so that in case of your death, it does not devolve on to your family.

Hence, if you have no financial dependents and have no loans, you don’t actually need life insurance. 

Keep in mind that situations change constantly.

While you may have no dependents and no liabilities today, tomorrow you can be the sole breadwinner, with kids and a home loan. In this situation, life insurance is not just required, but it is vital.

And if you need life insurance, the first step is to check how much life insurance you need.

Read the next chapter to understand your insurance need.

Chapter 3: How much Insurance Do You Need?


Many investors we know buy insurance products on the agent’s opinion.

There are many ways to calculate the insurance requirement but the best and the most effective way of calculating insurance requirement is given under:

Human Life Value (HLV)

Human Life Value evaluates the need for insurance cover in terms of money required to sustain the same standard of living by the family in case something happens to the bread earner of the family.

Human Life Value has two approaches to it:


To calculate Human Life Value on the basis of income, we have to take the annual income of a person and deduct all his personal expenses.  And assume the age at which he wants to retire.

Personal expenses can be defined as those expenses which will not be needed in case the person is not there tomorrow. Net annual income of all the personal expenses is assumed to be spent for the welfare of the family.

For e.g.

Mr. A aged 35 years earns Rs. 12 Lakhs p.a. and he spends Rs. 2 Lakhs p.a. for his personal consumption. Therefore, he saves Rs. 10 Lakhs p.a. for the family welfare.

Net of his personal expenses, which can be used by his wife and children for household expenses, savings and host of other things they want to do with the money.

Now assuming he will retire at the age of 60 years and they can earn a return of 6% p.a. on the amount invested, so their total expense requirement for next 25 years comes out to be 1.35 crores.


Various factors are needed to be considered to calculate Human Life Value on the basis expense method.  

Some such factors are life expectancy of spouse, number of children and their dependency period on him, monthly household expense of the family excluding his personal expense, cost of inflation and outstanding loans.

For e.g.

Mr. A aged 35 years earns Rs. 12 Lakhs p.a. and he spends Rs. 2 Lakhs p.a. for his personal consumption. The age of the spouse is 30 years and her life expectancy is 80 years.

Yearly expense of the family is Rs. 6 Lakhs, so the net family expense excluding his personal expense comes out to Rs. 4 Lakhs p.a. Assuming she can earn an interest of 6% p.a. on the amount invested and the inflation is 5% p.a., so he will require 1.60 crores of insurance cover. This will help to meet the expense requirement of his spouse for the next 50 years i.e. till her life expectancy.

Among the two methods followed above, in our opinion the latter, is a more rational approach for HLV calculation.

It considers the expenses required to meet the household and other lifestyle expenses of your dependents, thus revealing a more realistic picture about your insurance needs.

For some it may be a little complex exercise, but if you don’t follow it and simply go by what your insurance agents says you may end buying unsuitable insurance products, which don’t cater to your insurance need, and thus the story of betrayal will continue.

Remember to undertake “insurance planning”, don’t simply buy insurance.

Once you know what the figure is, and it might be larger than you anticipate, you should opt for a straightforward term plan.

Chapter 4: How To Choose An Insurance Plan For Yourself?


Buying insurance is very important for each and every individual, so selecting the right insurance policy is also very important. Selecting the right insurance product according to your requirement is a very difficult task for anyone, as there are so many companies in the market and all of them have their own variety of insurance products. It becomes more difficult for you to select the right product when you receive at least one call per day from different insurance companies and all of them claiming that they have the best product available in the market.

When buying insurance, don’t go by what insurance companies or agents or your family members or friends are telling you. Don’t even buy insurance by looking at which product is doing best in the market.

Buy insurance only when you know there is a need of insurance for you. First analyze what you are looking for from the insurance policy. Here are some points which you should keep in mind before buying an insurance policy:

  1. Are you buying insurance for protection purpose?

  2. Are you buying insurance for investment purpose?

  3. Are you buying insurance just for saving TAX?

Different policies available in the market cater to different needs. Therefore, don’t buy insurance for sake of buying it; buy insurance because you need it.

There are 2 types of insurance which cater to everyone’s need.

  1. Life Insurance

  2. Non-Life Insurance or General Insurance

1. Types of Life Insurance Plans

Do all life insurance policies pay out only on death of the policy holder?

  1. Term Plan

    Term insurance is the purest form of insurance policy. It provides you a high amount of coverage at a very low premium. These types of policy cater to the need for protection.

    A Term insurance policy provides you the coverage for the specified number of years by paying the small amount of premium every year. Generally, term insurance policies are for the duration of 10, 15, 20, 25 or 30 years.

    Death Benefit

    In case of your demise during the duration of the policy, the amount of coverage taken under the policy is payable to your nominee.

    Maturity Benefit

    In case of your demise after the policy term, nothing is payable to your nominees.

    Tax Benefit

    The premium paid qualifies for deduction u/s 80 C.

    New Features

    Now the insurers are charging different amount of premium depending upon the risk profile of the person taking the policy. For example, your risk profile will likely be assessed on the following parameters:

    1. Medical History

    Your medical history and that of your family is a crucial factor that insurance companies take into account while assessing risk. If you have any existing (and possibly life threatening) diseases at the time of taking the policy, then the insurance company will charge an extra premium known as ‘loading’, as the risk to insure you increases in comparison to insuring a person without any pre-existing diseases.

    2. Non-Medical History

    Apart from medical history, life style habits such as smoking, drinking, occupation etc. are also considered. Generally, the premium of a client who has a smoking habit is higher as compared to a non-smoking client.


    Certain term insurance policies are also available with additional benefit known as riders:

    Accidental Death Benefit Rider

    Under this rider, if a person dies due to an accident, then he gets an additional benefit in the form of increased sum assured.

    If a person dies because of some other reason than accident, then the sum assured under accidental benefit rider is not payable.

    A small amount of extra premium is being charged with the regular premium.

    Return of Premium

    In this type of rider, the premium amount for the policy is much higher than the regular premium and all the amount of premium paid during the policy duration is paid back if the life assured survives the policy term.

    Waiver of Premium

    If the life assured becomes permanently disabled, then he/she does not have to pay future premiums, all future premiums are waived. Insurance companies charge a nominal fee for this rider.

    This rider might increase the cost of insurance but keeps you covered even when you cannot pay premiums.

    For e.g. Mr. A has taken a term insurance policy with waiver of premium as a rider. He was thereafter badly hurt in an accident which left him disabled.

    In this case, thanks to the Waiver of Premium rider, he does not have to pay the remaining premiums, but his policy will continue as before.

    Critical Illness

    In this type of rider if a major disease (as specified in the insurance policy) is diagnosed within the term of the policy then an amount equal to the sum assured in the critical illness rider is disbursed.

    The important thing to note in this rider is that if a critical disease as specified under the contract is diagnosed then a lump sum amount is paid out.

    This rider is not to be confused with a Mediclaim policy, in which hospitalization expenses are paid.

    Most critical illness riders have a waiting period of around 90-180 days after you buy the policy.

    During this waiting period no claim can be made for critical illnesses.

    Further, even after the critical disease is diagnosed, the insured must survive the minimum of 30 days to be eligible for the claim.

  1. Endowment Plan

    Life insurance companies modified their term plans because for many it seemed like a waste of premiums paid if the insured survives the policy period.

    So, they came up with Endowment Policy.

    An Endowment policy is a combination of a protection plan and a saving plan.

    These types of policies cover the risk for the specified period. Premium of such policies are much higher as compared to premium in term plans.

    Death Benefit

    In case of your demise before the policy term, the sum assured and the accumulated bonuses are paid to your nominee.

    Survival Benefit

    In case you survive till the end of the term, you will receive the sum assured and the accumulated bonuses as declared by the company.

    • Endowment policies are useful for those who are looking to make some regular savings.

    • If you require a less amount of sum assured.

    • If you want a lump sum amount at a desired age.

    • Endowment policy offers lower sum assured than offered in a term plan.

    • The premium is much higher than term insurance policy for the same sum assured.

    • Bonuses are not guaranteed. They are generally paid only when insurance company is making profits.

    • If you wish to surrender this policy within first 3 years, you will not receive any surrender value.

    • If you surrender this policy after the completion of 3 years then you will get less than the amount of premium paid during the 3 years.

    • If you hold this policy for the whole policy term, then the yield you will get on this type of policy generally varies from 4 - 7.5% depending on term of the policy, which is a very low yield keeping in mind the long term of the policy.

  1. Money Back Plan

    Now the term plan addressed the needs of those who wanted pure life insurance, and the endowment policy addressed the needs of those who wanted a payout even on survival of the policy period.

    Then there were some who wanted interim payouts on surviving part of the term, and didn't want to wait until the end of the policy period to receive their Sum Assured. 

    So, the money back policy was born - giving interim payouts (or money back) depending on survival of a certain defined period.

    A Money Back Policy periodically provides survival benefits; it means that you will be paid back certain percentage of Sum Assured at a fixed interval.

    The payment frequency varies from policy to policy.

    These types of policies cover the risk for the specified period. Premium of such policies are much higher as compared to term plan and endowment plan.

    Death Benefit

    In case the policyholder dies before the policy term, then the sum assured and the accumulated bonuses are paid to the nominee without any deduction or adjustment for the amount that may have been paid earlier by way of survival benefit.

    Survival Benefits

    In case the policyholder survives then the following amounts are payable by the insurance company to the policyholder:

    • After fixed interval  – 15-20% of the Sum Assured (Depends on term of the policy)

    • At Maturity – Sum Assured + Bonus – Survival Benefits already paid.


    An individual of 30 years buys a Money Back Plan from LIC. He is getting the Sum Assured of 6 Lakhs for 20 years and he is paying the premium of ` 37,678.

    In case he dies during the term of the policy, then the nominee will get the full amount of Sum Assured and the accumulated bonuses as declared by the company, without any deduction for the amount that may have been paid earlier as a survival benefit.

    In case he survives the policy term then he will get the following amounts.

    At the end of Year Return from LIC
    5 20% of Sum Assured
    10 20% of Sum Assured
    15 20% of Sum Assured
    20 40% of Sum Assured + Bonus

You may also like to read:  Term, Endowment, Money Back - Which Is the Best For You? 

  1. ULIPs and ULPPS

    As you know endowments and money back plans invest in safe fixed income instruments yielding very low rates of return.

    Hence, the need of diversification prompted the creation of a life insurance product that invested into equity. So, the ULIP and ULPP were born.

    Unit Linked Insurance Plans and Unit Linked Pension Plans invest a chunk of the very high annual premium into equity. And a very small component goes towards paying for actual life insurance.

    Thus, these products are market linked investment plans. 

If you look at these plans based on return you are getting, then you will feel that Endowment plan is the best, while Term Plan is the worst plan.

But analysing these plans based on only return is not right.

If you do a deeper analysis, then you will find that Term Plan is charging you premium only for protection purpose and not for investment purpose. On the other hand, Endowment Plan and Money Back Plan charge premium for both protection and investment purpose.

The return provided by Endowment and Money Back Plan is very low, keeping in mind that you have taken the plan for 20 years.

According to PersonalFN, Endowment or Money Back Plans are not at all for protection purpose, which is the main purpose of insurance.

Endowment or Money Back Plan should be bought by only those individuals, who want little bit of protection and 100% guarantee of their investment.

If you really want to protect yourself against any unexpected contingency then buy a Pure Term Plan, which will come at a very low cost and if you want to invest something then look for other avenues which can give you better return.

Always remember, insurance is for protection and not for investment.

2. Types of General / Non-Life Insurance

Insurance other than life insurance falls into the category of general insurance. General Insurance is also known as Non-life Insurance.

A general insurance policy is not meant to provide any returns but provides protection against almost everything which has some value in your life and needs to be protected against any kind of damages.

General insurance products are meant for a period of one year and are renewable every year thereafter.

It’s not always that our life is only at risk, due to which our dependents get financially affected but there our various other risks as well.

Risk associated with our health- with progression of age chances of getting prone to diseases are more. Similarly, risks against fire and burglary to property, risk due to an unexpected accident and so on.

They might seem as small risk but when they affect you. But they have the capacity to erode financial assets and eat into hard earned savings. These kinds of risks are covered by General insurance policies.

There are various types of general insurance policies; some key types are as follows:

  1. Mediclaim

  2. Top Up

  3. Personal Accident Policy

  4. Critical Illness

  5. Travel Insurance Policy

1. Mediclaim


A Mediclaim policy is a health insurance policy which covers all medical treatment expenses up to the sum assured in case you are to be hospitalized due to an illness / accident.

Mediclaim policies are issued for a period of 1 year and is renewed annually.

They have the following benefits:

  • Pre – Hospitalization Expenses

    Mediclaim policies generally cover 30 days expenses immediately before you have to be hospitalized.

  • Post – Hospitalization Expenses

    The medical expenses you incur in the 60 days immediately after you are discharged from the hospital.

  • Tax Benefit

    The premium paid for these policies are deductible under section 80 D of Income Tax act up to a maximum limit of Rs. 25,000 and Rs. 30,000 in case of senior citizens.

    In case an individual pays Mediclaim policy premium for his or her dependent parents then an additional deduction up to a maximum limit of Rs. 25,000 and Rs. 30,000 paid for senior citizen parents is allowed.

  • Cumulative Bonus / No Claim Bonus

    Generally, Mediclaim policies provide an additional cover of 5% of Sum Assured in the subsequent renewal of the policy in case there is no claim in the current policy year.

    This increased sum assured of 5% every year in restricted to a maximum of 50% of the initial Sum Assured. If there is a claim in the policy, then this additional cover is decreased by 10% on the next renewal.

Mediclaim policies are of two types:
  1. Individual Mediclaim Policy

    Individual policy covers only one single person under one policy. The premium in this type of policy is calculated according to the age of the person to be covered under the policy. Under this policy, if the sum assured is Rs. 5 Lakhs then the person insured can claim up to the maximum limit of Rs. 5 Lakhs.

  2. Family Floater Mediclaim Policy

    Family floater policy covers the entire family i.e. self, spouse and the dependent children under one single policy. The premium under this type of policy is calculated according to the member with the highest age in the family.

    Under this policy, if the sum assured is Rs. 5 Lakhs then any one person individually or the entire family jointly can claim up to the maximum limit of Rs. 5 Lakhs.

2. Top Up

As most of the Mediclaim policies provide a cover up to Rs. 5 Lakh only, people had very little choice in case they wanted to increase their insurance cove.

But with the rise of medical costs some insurance companies came up with top plans which provide you additional coverage at a low cost.

Top up plan covers medical treatment cost over and above the actual Mediclaim policy and thus increase the total sum assured.

Top up plan can be taken for an individual as well as for the entire family. However top up plans are available only if the sum assured taken in the Mediclaim policy is between Rs. 3 to Rs. 5 Lakh.

For example

Mr. X has taken a Mediclaim policy for a sum assured of Rs. 3 Lakh and a top up plan for Rs. 7 Lakh, so his total sum assured is Rs. 10 Lakh.

If a claim arises for a sum of Rs. 8 Lakh then the first 3 Lakh must be borne by the Mediclaim insurance company and next Rs. 5 Lakh is to be paid by the company from which top up plan has been taken.

Please note: Insurance Company from which the top up plan has been taken will not be responsible for claims arising up to the sum of Rs. 3 Lakh.

Top up insurance plans are targeted by insurance companies to those customers who already have Mediclaim insurance policies but find their cover to be low and hence these customers want to add additional cover.

Now, if you are also thinking that your Mediclaim policy is not sufficient to cover your expenses in case of hospitalization and the present insurer is not ready to increase the cover, then a top up policy from another insurer is the solution for you.

3. Personal Accident Policy

You must be thinking that buying a life insurance policy and a Mediclaim policy is enough to protect yourself from all the uncertainties in life, but what if you meet with an accident and are not able to go to work?

In such case life insurance policy will not help you as it pays the nominee only in case of death of the life insured nor the Mediclaim policy will pay because it pays you in case of hospitalization, then which policy will help you take care of loss of income for not being able to go to work? The answer to this is the Personal Accident Policy.

A personal accident policy protects the insured in case of an accident resulting into the death of the insured, permanent disablement of the insured or temporary disablement of the insured.

Personal accident policies are relatively very cheap policies in comparison to life insurance policies.

These policies are especially pertinent to individuals who travel more than usual, due to their jobs. Following are the features available under personal accident policy.

Death Benefit:

In case of death of the insured the full amount of sum assured is payable to the nominee of the insured.

Permanent Disablement Benefit:

In case of permanent disablement due to an accident the insured gets an amount depending upon the extent of disability. Generally the amount varies from 50%-100% of sum assured depending upon disability.

Temporary Total Disablement:

In case of temporary disablement due to an accident, a person might not be able to go to work for a certain period of time; in that case this policy will ensure that you get certain amount of weekly income for the loss of job.

Generally, this weekly compensation is 1% of sum assured up to a maximum limit of Rs. 5,000 varying from company to company.

Worldwide Coverage:

Most of the personal accident policies provide coverage for accidents occurring in any part of the world.

No claim Bonus:

Generally personal accident policies provide an additional cover of 5% of Sum Assured in the subsequent renewal of the policy in case there is no claim in the current policy year.

This increased sum assured of 5% every year in restricted to a maximum of 50%. If there is a claim in the policy, then this additional cover will be decreased to zero on the next renewal.

4. Critical Illness

Most people may not be aware of what a critical illness policy is and what the benefits of this policy are. Generally, people tend to mix up a critical illness policy with a Mediclaim policy, but the benefits available in both the policies are for entirely different types of expenses.

Nowadays, medical treatment costs are soaring high and a simple Mediclaim policy is not enough to cover expenses relating to major diseases. This is where a Critical Illness policy comes into play.

While your Mediclaim policy will reimburse your hospitalization bill, the critical illness policy pays out a lump sum amount (sum assured) if you are diagnosed with a major disease that is covered under the policy.

Most people think that a major disease will not happen to them, but remember, your neighbor is thinking the same thing. The fact is that critical illnesses such as heart attacks and others can happen to anyone.

Critical illness policy certainly won’t decrease the chances of you becoming critically ill but will surely ensure that you have sufficient amount of money for the treatment of the critical disease. Following are the benefits available in the critical illness policy.

Lump Sum Amount:

Critical illness policy will give you a lump sum amount (full amount of Sum Assured) irrespective of the expenses on the treatment, in case a major disease is diagnosed.


Generally, a critical illness policy covers 10 major diseases, but it varies from company to company. The 10 major diseases are as follows:

  1. Cancer

  2. Coronary Artery Bypass Surgery

  3. First Heart attack (Myocardial Infarction)

  4. Kidney Failure

  5. Major organ transplant

  6. Multiple Sclerosis

  7. Stroke

  8. Aorta Graft Surgery

  9. Paralysis

  10. Primary Pulmonary Arterial Hypertension

Tax Benefit:

The premium paid for a critical illness policy is exempt under section 80 D.

Survival Period:

Under this policy the insured person should survive at least 30 days after the diagnosis of the disease to be eligible for claiming the amount.

Also read: Do You Need Critical Illness Cover? 

5. Travel Insurance


We all want to take a break from work, and travel to our hometown, go for a nice vacation somewhere… and just have a ball of a time. For some of us for the profession which we are in, requires us to travel for business purpose.

We can decide to go to any part of the world in split second either for a leisure trip or for business purpose. But have you thought of the risks involved in case of an unforeseen event taking place (on your trip), which is completely out of your control?

We generally wish “happy journey” but forget about making it a “safe and peaceful” journey.  Yes, it is very important to minimize the risks that you are directly exposed to while you are travelling to make your trip safe and peaceful.

Most travelers forget to buy a “travel insurance” policy in order to make their journey safe and peaceful, be it a domestic or international trip. While some buy one (travel insurance), they often ignore to recognize the ideal insurance cover required by them.

And that’s because of ignorance or lack of knowledge for risk evaluation, pre-occupied with work, or sheer excitement and enthusiasm when it comes to a leisure trip.

It is important to assess the travel insurance cover, keeping in mind a host of factors such as income, expenses, contingency reserves, existing other insurance policies, nature of visit, duration of the visit and destination. Your travel insurance can be purchased for a travel as brief as 5 days.

There is no need to buy it ahead of your actual commencement of travel. It is relatively cheap, and the terms and conditions of travel insurance policies are flexible. You can purchase the same, if you are travelling away from home for a maximum term of 1 year.

Features of travel insurance policies that you can buy are:

  • Personal Accident

  • Passport Loss

  • Dental treatment

  • Hijack distress allowance

  • Checked-in baggage loss

  • Compensation of medical expenses due to accident or sickness

  • Compensation for reasonable expenses incurred for purchase of personal requirements due to delay in arrival of checked in baggage while overseas

  • Compensation for expenses incurred in obtaining a duplicate or new passport

  • Compensation for damages to be paid to the third party resulting from death, bodily injury or damage to property, caused involuntarily by the insured

However, the following claims are excluded from travel insurance:

  • Claims arising due to terrorism and war (some policies cover the risk)

  • Injury or pre-existing medical conditions

  • Travelling against advice of physician

  • Extreme sporting activities for example, bungee jumping, scuba, mountaineering etc.

Remember to make your journey “safe and peaceful”, along with “happy and joyful”; because when you travel you want safety and peace of mind too!

You may like this article: A 4-step approach to your vacation planning

Chapter 5: How To Buy Insurance Online?


Insurance agents try to capitalise on tax-saving season to promote insurance products. More often, insurance is sold as an investment product in India.

Going one step ahead, some insurance agents have sold their clients multiple policies with different maturities collectively labelling it as a customised pension plan.

But as awareness grew, people became aware of these infamous tricks of insurance agents.

To make insurance more a "buy" product and bring in more transparency; Insurance regulatory and Development Authority of India (IRDA) issued new guidelines.

Unit Linked Insurance Plans (ULIPs) which was considered a "hot" product a few years ago has all of a sudden become unattractive under new rule.

As a result, agents too started promoting more and more traditional plans. According to the annual report of IRDA about 2.36 lakh insurance agents exited in 2012-13. With falling commissions many agents have found it unattractive to do business, especially the part timers. 

To eliminate intermediaries, many people prefer buying insurance online these days.

PersonalFN is of the view that, although buying insurance online is convenient; you must buy a product which is suitable to you the most. One must understand one's own insurance requirements before finalizing the product. There are various approaches to arrive at the insurance needs and your financial planner may help you arrive at the sum you need get yourself insured for. 

Term insurance provides your cover purely against risks and has no investment element. Content available online is not always authentic. There is another interesting finding that, although people search online not all of them comfortable buying online that is why they still prefer to buy through agents. 

Things that do not change whether you buy insurance online / offline 

There are certain things which do not change irrespective whether you are buying insurance online or offline that include disclosing all the facts such as your health history, family health history, smoking habits, occupational details and any other facts which could lead to rejection of the claim in the future. Moreover, basic principles of insurance contract remain the same whether you buy online or offline. Same set of medical tests would be performed, wherever needed, in both cases. 

How to shortlist insurer?

Promoter's Background:

 Remember, the insurer indemnifies you against the risk, which you face, and hence assessing the promoter's background and their philosophy becomes very crucial. 

Number of years of existence:

 Well, it is always said that experience counts and in our opinion too it does! It would be prudent to go with season players (insurers) rather than the one who are relatively new entrants in the business of insurance. 

Financial Background:

 A well-established insurance company with a proven track record is in a better position to give you that extra bit of peace of mind. 

Claim Settlement Ratio (CSR):

 CSR will help you assess the percentage of claims settled, against the total claims lodged with the insurer. 

Solvency Ratio:

This ratio reveals the strength in the balance sheet of the insurance company and the capability of the insurance company to settle insurance claims. It takes into account the net worth and the reserves and surplus held by the insurer. 

Advantages and disadvantages of buying insurance online

  • Absence of intermediaries and benefit of reduction in policy administration costs helps lower the premium

  • Although premium is low, services provided by the insurance companies remain same for both offline and online customers.

  • The disadvantages include no support of agent. You will have to set your own alert for paying premium in time. There wouldn't be any helping hand at the time of filling claim 

PersonalFN believes that growing awareness about insurance is good news. But buying an insurance policy through an agent or buying it directly online; you must be careful and shouldn't forget that insurance is a contract between you and the insurance company that comes with "terms and Conditions". Reading the Devil in the fine print is important.

Chapter 6: How To Select An Unbiased Insurance Advisor ?


With galore of innovative insurance products to choose from, an investor needs to carefully assess his or her protection needs as well as be aware of the various pros and cons of different insurance policies.

And to know them better, it is imperative to seek advice from an unbiased insurance advisor. But one may wonder, how to select unbiased insurance advisor from a plethora of insurance advisors.

Here are some easy steps to select an unbiased insurance advisor:

  1. Certification from IRDA

    The first parameter on which the advisor must be tested is the requisite qualification. Any individual who wishes to be an insurance advisor needs to be certified by the Insurance Regulatory and Development Authority (IRDA).

    According to the IRDA guidelines, an insurance advisor must undergo the prescribed training and pass the qualifying exam. Before seeking advice from an insurance advisor, ensure that he is certified by the IRDA. 

  2. Ability to offer advice

    An incorrect and widely-held notion is that the insurance agent’s core responsibility is to aid in the paper work i.e. filling the form and depositing insurance premiums.

    Nothing could be farther from the truth. While the aforementioned activities are important, the advisor’s main duty is to offer accurate and unbiased advice (this should not be easy as one insurance advisor can be empanelled only with one insurance company, so his advice is likely to be biased in favour of that insurance company).

    Insurance decisions based on inaccurate advice can have adverse implications on one’s entire investment portfolio.

  3. Quality of service

    One of the most common complaints from policyholders is that their insurance agent no longer services their needs. Remember insurance is not a one-time activity; on the contrary it is a long-term commitment and one that needs to be serviced routinely.

    It makes sense to be associated with an advisor for whom insurance is a core activity. Often individuals are known to “turn” into insurance advisors on a part-time basis with the intention of making some income on the side.

    Typically, such advisors are known to lose interest, discontinue their insurance business and in the process leave their clients in the lurch. 

    As such an investor needs to enquire for how long the advisor has been operating in the insurance business. Similarly, ask for referrals and conduct an assessment of his service standards by interacting with his existing clients. Prompt and competent service should be treated as pre-requisites while selecting an insurance advisor. 

  4. Range of products

    In the insurance sphere, one size doesn’t fit all. Every individual has different needs and the same undergo a change over a period of time. The advisor should be capable enough to understand these needs and offer suitable products to fulfil them. Associate with an advisor who can advise and provide the entire range of products. 

    Nowadays, it is not uncommon to find advisors who offer a standard solution (often in the shape of Unit-Linked Insurance Plans – ULIPs) to every individual, irrespective of his or her needs. On a similar note, term plans, despite being the most affordable form of life insurance, usually never feature on the insurance advisor’s recommendation (due to lower commissions on such products). 

    Insurance companies are known to offer a wide range of products. The advisor needs to have thorough knowledge of all the products offered by the company.

    Moreover, the advisor should be informed about the competitors’ products so as to provide unbiased and meaningful recommendations, regardless of how much he stands to gain by way of agency commissions. 

  5. Competence is the key

    Do not hire someone as an insurance advisor simply because he or she is a friend or a relative. The decision to engage the services of an advisor should be based on his competence and skill sets.

    As mentioned earlier, the advisor has a vital role to play and hiring one for the wrong reasons can prove to be costly over the long-term. Emotions should play no role while hiring an insurance advisor.

Chapter 7: Conclusion – Insurance

To conclude buying right insurance is as crucial as your other investments.

But is equally important to not get carried away and signing up for hefty premiums. Take only as much as you require.

Calculate your Human Life Value and consider all the other factors before you zero down on one particular policy.

With an adequate amount of insurance cover, you protect yourself and your family from various life-threatening risks.

Ask pertinent questions to your insurance agents before buying any type of insurance policy. This will certainly help you to select the right insurance policy for yourself and your family.

It will also ensure that you are no longer cheated or misguided by your insurance agent.

In case you wish to know more about insurance, CLICK HERE and download Free Insurance Guide

Author: PersonalFN Content & Research Team