COVID-19 crisis continues to have a significant impact on individuals, society, business and economy at large. Over the course of this pandemic, life’s harsh realities have been repeatedly reminded to us in one form or the other. The realisation that life can be rather uncertain has dawned upon everyone and we see people queuing up to boost their immunity, both physical and financial. An insurance plan provides us financial immunity by providing a safety net in event of an unexpected loss.
While the pandemic has made most of us realise the importance of insurance to boost our financial immunity, as can be seen in the rising insurance sales numbers, the question we need to ask ourselves is, ‘Do we completely understand our insurance policy’. We go through the task of selecting the best term insurance which will ensure our family’s financial immunity, in case of an unforeseen eventuality. But is it enough to just register a purchase? Insurance being a long term product, one needs to have the right understanding of its features, benefits, exclusions etc. Life insurance policies are often intricate, hence, to avoid any disappointment at a later stage, it is extremely important to understand the various nitty-gritties of your protection plan.

Here is a simple guide to help you better understand your insurance purchase

Understanding your insurance policy – some of the common types of life insurance covers available today include; Term insurance, Loan protection, Critical Illness, ULIPs and annuity. It is important to understand the exact nature of protection offered by these categories, the covers and exclusions associated with them. Having a proper understanding of your insurance policy will help you gauge inadequacies, if any in your current financial plan. Let us now see the details of the key types of Life insurance covers:

i) Term insurance – A term insurance is the simplest form of life insurance. It provides a substantial financial cover for a definite period of time or ‘term’, wherein in event of any eventuality like unfortunate demise of the insured person, the nominee/s is/are paid the pre-determined sum of money. The nominee/s can use this sum towards payment of various obligations like children’s education, Rent or home loan EMI, daily household expenses . One major benefit of this plan is that it provides enough time for other family members to grow into the shoes of the erstwhile chief wage earner and start earning comfortably. Term insurance is considered an essential part of any sound financial plan.

ii) Critical Illness – A critical illness insurance is a product designed to manage the financial distress caused by a serious life threatening disease. This policy provides a lumpsum amount (sum assured) to the policyholder in case he/she is diagnosed with any of the specific critical illnesses like cancer, heart attack, paralysis, kidney failure etc . This cover besides taking care of the cost of medical treatments, can also covers loss of income which one suffers due to the inability to work when diagnosed with a serious ailment. Here it is most essential to be aware of the insurer’s pre-determined list of illnesses covered by your critical illness policy.

iii) Loan protection – Typically, larger purchases in life like buying a dream home or a vehicle are done through loans from banks. But in case of any unforeseen eventuality, the family stands to lose the asset due to non-repayment of the EMIs. A loan protection insurance can protect the family from defaulting on loans and losing the dream house or car, when you are not around. This is one of the most convenient ways to cover your expensive purchase . The sum assured under this policy keeps declining in line with outstanding loan schedule. But in case there loan amount outstanding is lower than the original schedule (say due to prepayments), the excess amount available after paying the bank loan, is paid to the nominees.

iv) ULIP – A Unit Linked Insurance Plan or ULIP is specifically for people with a larger risk appetite. It provides benefits of both an insurance product and an investment instrument. Under this plan a policyholder has to make regular premium payments. Part of the premium goes towards insurance coverage while rest of it is invested market linked funds. ULIPs provide flexibility to investors to choose between various kinds of funds equities , debt depending on their investment needs. Here one needs to understand that while opting for this plan, provides policyholders the benefit of profitable returns, but there is also an external risk associated with market linked securities in terms of the amount of returns expected being dependent on market fluctuations.

v) Annuity Plan – Annuity Plans are used for retirement income. Under this plan, the investor gets a stream of payments in the future for the remainder of the investor’s life. This kind of plan addresses the risk of outliving our savings as it provides a steady cash flow during our retirement years.

Now that you’ve understood various types of life insurance policies, their functionality and benefits, there are a couple of simple tips, to ensure that your insurance policy serves it purpose when you are not around.
1) It is essential to update your nomination details which ensures that that the proceeds go to the rightful nominee without any dispute.

2) Always keep a record of all your investments. This practice will give you a clear idea of where all your money is parked in case of any unforeseen circumstance.

3) Finally, it’s extremely important to review your sum insured from time to time to match up with the increased earning as one progresses in their career and achieves various milestones like getting married, owning a house, becoming a parent etc.

The bottom line is, buying an insurance cover is a smart decision to boost our family’s financial immunity, but one has to constantly review it and have a clear understanding of all the offerings and exclusions under it to avoid any kind of disappointment at a later.

Mr. Abhjit Gulanikar
President – Business Strategy
SBI Life Insurance Company Ltd.