Wednesday, December 06, 2006

Tips for buying Insurance (Part I)

Each person's requirement is different. With so many companies and so many products available, the selection of the right policy could be difficult. One needs to spend time to identify what their primary requirement is and then select a policy which meets your requirement. The following are some of the factors that one should consider prior to selecting an insurance policy.

High Sum Assured with small premium
If your requirement is buying a policy which offers maximum cover with minimum premium, the "Term Plan" best suits your needs. Please be aware that with term insurance you don't get anything back. Kotak offers one of the best term plan for non smokers. You might also want to get the quotes for term insurance from other companies like LIC, ICICI and HDFC and checkout which term plan works out to be the best.

Maximum Term
If your priority is to have insurance cover for the rest of your life without any age restrictions, then "Whole Life" ULIPS should suit you best. There are ULIPS from Metlife, LIC which offer insurance cover for the rest of ones life without any age restrictions. You might also want to check with other insurance companies if they offer Whole Life ULIPS.

Maximum Insurance Cover with Returns
If ones priority is to get maximum insurance cover with the option that you get decent returns at the end of the term, then the best plan for you is regular ULIPS. You might want to get quotes from Reliance, Bajaj Allianz, ICICI which offer sum assured of 100 times the premium.

Childrens Education
If one is looking for an insurance product for saving towards their "Childs Education/Marriage" then I would recommend Children's ULIPS. I would recommend getting quotes for HDFC Young Star and ICICI Smart Kid or a children's ULIP from any company. In my opinion, these are very well designed ULIPS which offer excellent security for your kids future. Incase anything unfortunate happens to the proposer, these plans offer immediate "Sum Assured" to the beneficiary. The company also pays the balance remaining premiums towards your kids education. On maturatiy or whenever the need arises, the kid is entitled to all the funds contributed by the proposer and also to the funds contributed by the insurance company. (If it is for your Children's future, please donot go for anything less than a Children's ULIP. You might run into insurance agents who might be selling you regular ULIPS for your kids education but this in my opinion is a bad deal!).

Guaranteed Returns
If ones priority is "some guarantee on returns" rather than maximizing returns, then one should opt for traditional endowment plan from LIC. These plans guarantee the "Sum Assured". But please be aware that traditional endowment plans are not flexible like ULIPS and might not yield as much returns. There are also some ULIPS which guarantee the premiums paid and with the added benefit of investing in equities for maximizing returns like Kotak Safe Investment Plan 2.

Investments/Maximizing Returns
If ones priority is mainly investments/"return on investment" with decent insurance cover, then one needs to opt for a good ULIP with less charges and good returns. I would recommend getting quotes from SBI, HDFC. These have been the top performers among ULIPS and have been yielding good returns (better than many MF's).

No one product will suit the needs of every person. One will need to identify what his priorities/needs are and then select a product that will meet his needs.