Ch. 6: How To Buy A Life Insurance Policy?

We learned about how life insurance was introduced in India, and how life insurance companies and policies work in our previous articles. In this article, we will look at the step-by-step process of buying a life insurance policy.

Remember, a life insurance policy is one of the most crucial investments you will make for both yourself and your family. Hence, it is essential that you are aware of how to go about buying it - so that you do not face any hassles in your journey.

Without any further ado, let’s get right into the steps involved in buying a life insurance policy from insurance companies!

Selecting The Type Of Plan

The first thing you will have to do is select the type of life insurance policy you want to buy. When you visit the website of any insurance company, you will come across several types and products to pick from. Based on your goals and needs, you can choose the product you think will be best for you and your family.

After you select the plan you want to buy, you will have to fill in a few personal details in order to get a quotation for the premium amount. You will be asked to enter your name, age, gender email, mobile number, pin code, etc. The details you will need to provide at this step will vary from insurance company to insurance company - some insurance companies may also ask for details related to your occupation, education qualification, income, lifestyle-related details, such as your smoking habits, etc.

Once you fill in all the required details, you will get the quote for the premium you will need to pay under the life insurance policy.

Next, you need to choose the cover amount you want to buy under the plan. On some insurance companies' websites, a cover amount will be selected by default - and, you will be given an option to change the coverage amount as per your preferences and requirements.

Make sure you select a cover amount that will be sufficient to achieve the goal or purpose behind which you are purchasing the life insurance policy. For instance, if you are buying a Child Life Plan to save for your child’s higher education, you will have to estimate the amount your child will require, consider inflation, and then select a cover amount accordingly. If you are buying a term insurance policy, then the cover amount you choose must be enough to support your family financially in your absence. And so on.

After you choose the cover amount, the next step involves customising the life insurance policy.

You will come across various customization options that will help you design the life insurance policy you are buying exactly as per your preferences. Based on the insurance company you buy from and the life insurance policy you select, the options will differ. Generally, you can -

• Choose The Policy Term
  The policy term is the duration till which the insurance company will offer you a cover. You will have to choose the policy term based on your goal behind buying the life insurance policy.
  
  For example, if you are buying a term insurance plan, you will have to estimate the age by which you will be free from all major responsibilities and build enough wealth to last your family a lifetime. If you are buying a policy to save for your daughter’s wedding that may happen after 20-22 years, you can select a policy term of 22 years.
• Select The Premium Payment Term
  The premium payment term is the duration till which you will have to keep paying the premiums under your policy. The premium payment term can either be equal to your policy term or it can be less than the policy term.
  
  Generally, there are 3 premium payment term options most insurance companies offer -
  
  ➔ Regular Pay Option
  Here, your premium payment duration will be equal to the policy duration. You will have to keep paying the premiums until the end of your policy term.
  
  ➔ Limited Pay Option
  This option allows you to finish your premium liability in fewer years compared to the policy term. If you choose this option, you can complete your premium payments in quicker and bigger instalments - and enjoy the insurance cover for the rest of the policy duration.
  
  There are various types of limited payment options you will find on the insurance company’s website, like 5 pay, 10 pay, 15 pay, etc. If you select the 5 pay option, you can complete your premium payments in 5 years. If you choose the 10 pay option, you can finish paying the premiums in 10 years. And so on.
  
  ➔ Single Pay Option
  Under this option, you are required to pay the entire policy premium as a lump sum amount, in one go. You need to make the premium payment only once - at the time of buying the life insurance policy.
  
  
• Choose The Premium Payment Frequency
  Most insurance companies also allow you to customise how frequently you want to pay the premiums under your life insurance policy. Based on your convenience, you can choose from among the following four options -
  
  ➔ Yearly Premium Payment Option, where you need to pay the premium once a year.
  ➔ Half-yearly Premium Payment Option, where you need to pay the premium once in six months, i.e., two times a year.
  ➔ Quarterly Premium Payment Option, where you need to pay the premium once in three months, i.e., four times a year.
  ➔ Monthly Premium Payment Option, where you need to pay the premium every month, i.e., twelve times a year.
  
  
• Opt For The Increasing Cover Feature
  Some insurance companies give you an option to opt for the increasing cover feature. With this feature, your cover amount will keep on increasing gradually by a specific percentage until it reaches a maximum limit. If you are not eligible to buy the cover amount that you want to buy, or if you want to inflation-proof your life insurance cover, you can choose the increasing cover option.
  
  Under some types of life insurance plans, you can also choose to increase the payout you will be receiving in the future. You can enhance the payouts by a certain percentage, like 5%, 10%, etc.
  
  
• Choose The Benefit/ Claim Payout Option
  Next, you also get to choose how you want to receive the maturity benefit or how you want your family to receive the death benefit if you pass away while your policy is active. Although the benefit payout options or claim payout options will vary based on the type of policy you opt for, and the insurance company you buy from, here are some common payout options you can choose from -
  
  ➔ Lump-sum Payout Option:
  If you choose this option, you or your family will receive the entire benefit or claim amount in one go.
  
  ➔ Monthly Income Payout Option:
  If you select this option, the insurance company will pay the benefit or claim amount in monthly instalments for a certain number of years.
  
  ➔ Lump-sum With Monthly Income Payout Option:
  This is a combination of the above two options. If you choose this option, the insurance company will pay a part of the claim as a lump sum, in one go. You or your family will receive the remaining claim amount in monthly instalments for a specific number of years.
  
  
• Opt For Riders
  You can enhance the scope of your base life insurance policy with the help of riders. Riders are easy-to-buy add-ons that offer an extra payout on the happening of a specific event.
  
  For example, if you buy the waiver of premium due to critical illness rider, all your future premiums will be waived off if you get diagnosed with a disease listed in the policy document.
  
  While the types of riders you can choose will differ based on the life insurance policy and insurance company you choose, some common riders you can select include -
  
  ➔ Critical Illness Rider
  ➔ Accidental Death Benefit Rider
  ➔ Accidental Disability Rider
  ➔ Waiver of Premium due to Critical Illness Rider
  ➔ Waiver of Premium due to Accidental Disability Rider
  ➔ Surgical Care Rider
  ➔ Hospital Care Rider

The benefit illustration is a document that is provided to you by the insurance company before you make the payment.

After you select the customizations, insurance companies provide you an option to download the benefit illustration or they will email the PDF to you directly. If you do not see the download option on the website or the insurance company does not email it to you, you can ask the insurance company to send it to you. After you get the benefit illustration from the insurance company, make sure you go through it properly. Because it will give you an idea of how the money you invest under the life insurance policy will perform for the entire duration of the policy.

The benefit illustration will have the details of the features, riders, etc. you are going to buy. The document will help you understand how your premium will get invested, the charges that the insurance company will deduct, how the fund value under the life insurance policy will grow over the years, etc. Details related to the guaranteed and non-guaranteed benefits payable under the life insurance policy, the loyalty and guaranteed additions (if any), the death and maturity benefits that the insurance company will pay, etc. will also be included in this document.

Basically, the benefit illustration will show you the value for every metric for every year as well as how your money will grow every year. Thus, it is very crucial that you go through all these details and get an in-depth understanding of the life insurance policy you have chosen. You may also take help from a trusted financial advisor to understand this document properly.

After you go through the benefit illustration of the life insurance policy you selected, you can go ahead with its application process. This step basically involves entering a list of details on the insurance company's website. The details you will have to provide will include your personal, lifestyle, medical, and other details.

● Personal Details
Here, the insurance company will ask for details such as your -
Name
Mobile number
Email id
Email id
Education
Occupation
Temporary and permanent address, etc.

● Lifestyle-related Details
Insurance companies will request details about your lifestyle habits, i.e., your smoking and drinking habits, if you intake any drugs or narcotic substances, etc. In case you smoke, the insurance company will want to know how many cigarettes you smoke per day. If you consume alcohol, the insurance company will want to know about the type as well as how much beverage you drink in a day or in a week, etc.

● Medical Details
The insurance company will also want to know your health status. So, they will ask for details related to your medical history, illnesses, diseases, medical conditions, surgeries or treatments you may have undergone, your family’s medical history, and so on. They may also ask for your basic body measurements like your height, weight, blood pressure, etc.

● Other Details
These include -

Nominee details
A nominee is a person who will receive the claim amount in case you pass away while the life insurance policy is active. You will have to provide details about your nominee too. You can choose any member of your family as your nominee, including your spouse, children, parents, siblings, etc. as your nominee.

Participation in adventurous activities
Taking part in adventurous activities like bungee jumping, skydiving, paragliding, rock climbing, scuba diving, river rafting, mountaineering, etc. is considered very risky. Hence, the insurance company will ask you if you have participated or intend to participate in such activities.

Travelling plans
Some insurance companies may also want to know if you have any plans of travelling outside India in the near future.

Covid-19 details
Some insurance companies may also ask you to provide details about when you got vaccinated for Covid-19, and the date you took the vaccination of both doses. Further, they may also ask you if you were diagnosed with or had symptoms of Covid-19 in the past or if anyone in your family had Covid-19.

Please note, based on the type of life insurance policy you choose, every insurance company will have a different application process and proposal form. So, this is just an indicative list of the details you will have to provide to the insurance company.

After the application process is completed, the insurance company will ask you to submit some document proofs to support your application. These will include -

• KYC documents such as PAN Card, Aadhar Card, Passport, Voting Card, etc.
• Income proof documents such as Salary Slips of the last 3 months, Employer's Certificate, Bank Statement of the last 6 months, Income Tax Returns, Form 16, etc.

After you have provided all the details asked by the insurance company, they will ask you to pay the first premium under the life insurance policy. The premium you will have to pay will be determined on the basis of several factors, like -

• Age, gender, health, lifestyle habits, etc.
• The cover amount you choose
• The policy duration you select
• The premium paying option you pick (limited pay, regular pay, or single pay)
• The riders you opt for, etc.

At this step, you will also see an e-SI (electronic standing instruction) option on some insurance companies’ websites. If you select this option, your premiums will be transferred directly to the insurance company on every due date. Selecting the e-SI option will save you from the hassles of missing the premium payment due date under your life insurance policy.

Please note:

• The factors used to determine the premium amount may be different for different types of life insurance plans.
• Some insurance companies may ask you to make the premium payment before the application process, while some may ask you to make the payment after the application and documentation process is completed. It will differ based on the type of policy you choose and the insurance company you buy from.

Based on the declarations you make in the proposal form, your medical history, your family's medical history, the life insurance policy you choose, the cover amount you opt for, etc., the insurance company will ask you to undergo several medical tests. Some of these tests may include -

• Basic tests like a Treadmill Test (TMT)
• Blood tests to find out if you have any potential health issues like diabetes, cholesterol, low haemoglobin, heart disease, etc.
• Drug test to know about any drug usage, smoking, alcohol intake, etc.
• Other tests like HIV tests, X-Ray, Liver and Kidney Function tests, Electrocardiogram (ECG) to detect any heart disease or cardiac conditions, etc.

Next, a team of professionals at the insurance company known as ‘underwriters’ will evaluate your application.

They will do a thorough financial as well as medical assessment. They will determine how much cover you are eligible for based on the income proof and other documents you submit to the insurance company. They will also go through the details you fill in the proposal form and your medical test results and determine the risk you present to the insurance company.

Based on the underwriter’s assessment, the insurance company will either -

• Accept your proposal and issue the policy to you.
• Straightaway reject your proposal in case they find your profile too risky to cover.
• Make a counter offer - they will charge a higher premium (known as loading) for the policy. If you are willing to pay the extra premium, they will issue the policy to you.

After the life insurance policy is issued to you, you will get the policy papers or documents from the insurance company. Generally, you will receive both - the hard copy as well as the soft copy of the policy. The hard copy will be sent to you at your address, while the soft copy will be sent to the email address you provided to the insurance company at the time of purchasing the policy.

The insurance company will offer a free look period of 15 days after you buy a policy from them. During this period, you can go through the policy you just purchased. You can check if the details of all the customisations, riders, features, etc. you opted for are mentioned in the policy document. If they are not, or in case there is any error, you can contact your insurance company and get it rectified.

You can go through the policy document again and look at the terms and conditions, check the limitations, exclusions, etc. If you are not satisfied with the policy or if there are exclusions, limitations, conditions, etc. that you are not happy with, you can return the policy to the insurance company.

If the policy is returned during the free look period, the insurance company will not levy any penalty or cancellation charges.

So, that is all on how you can go about buying a life insurance policy. It is essential to be well aware of all these steps so that you do not face any hassles in your life insurance purchase journey.