choosing an insurance policy is not just about the premium. it involves checking coverage, insurer credibility, customer service, and long-term financial implications. a decision made without looking at all these factors can leave a family underinsured or paying for features that are not needed.
start with the purpose. what is being protected
insurance products are specialised tools for specific scenarios. the first question is not which policy is cheaper. it is what risk needs to be covered.
term insurance. pays a lump sum if the policyholder dies during the policy term. the nominee receives the money. the purpose is to replace income. if the policyholder survives the term, there is no payout. the return of premium variant is an exception. but pure term insurance is not a savings plan.
health insurance. pays for medical expenses. hospital bills. doctor consultations. diagnostic tests. treatments. it covers illness, accident, or hospitalisation. cashless treatment is available at network hospitals.
personal accident cover. provides a lump sum for permanent disability from an accident. it often includes a weekly income benefit if the policyholder is temporarily bedridden. it does not replace health insurance. it does not pay hospital bills. it pays a lump sum for the impact of the accident.
critical illness cover. pays a lump sum upon diagnosis of a life-threatening disease like cancer, kidney failure, or stroke. it is not a mediclaim. a mediclaim pays for hospital room and medicines. a critical illness plan gives a cheque to use however needed.
combining term insurance and health insurance is necessary. term insurance protects the family when the policyholder is not around. health insurance protects the policyholder during a medical emergency. neither replaces the other.
compare policies. premium is not the only factor
premiums vary widely across insurers. buyers who compare health plans pay at least 20% less on average. motor buyers can save 15-20%. term insurance buyers can cut first-year premiums by nearly 30%.
but comparison behaviour is increasing. nearly 75% of health buyers now compare at least three plans. just over 40% of term buyers compare three or more plans, up from 32% in 2023.
examples of price variation. a ₹10 lakh family floater in delhi can cost between ₹773 and ₹2,426 per month. a 30-year-old non-smoker seeking ₹1 crore term cover can get quotes ranging from ₹635 to ₹958 per month. lower premiums may come with trade-offs like a smaller hospital network, deductibles, or fewer benefits.
what to check beyond the premium
claim settlement ratio (csr). the percentage of claims approved. the industry’s four-year average is 98.66%. a four-year average above 99% is preferable. but csr alone does not tell the full story.
claim amount settlement ratio (casr). csr tells how many claims get approved. casr tells how much money actually gets paid. a company with 99% csr but 80% asr means families receive only 80% of the sum assured on average. look for both a high csr and a healthy casr.
solvency ratio. the ratio of available assets to liabilities. irdai mandates a minimum of 1.5. a ratio above 1.80 provides a meaningful buffer and indicates financial strength to weather adverse conditions.
customer experience. csr alone does not reflect customer experience. check net promoter scores, independent reviews, grievance redressal mechanisms, and the company’s responsiveness during actual interactions.
coverage and exclusions. every policy has exclusions. term insurance excludes certain causes of death. health insurance excludes pre-existing conditions for a waiting period, cosmetic treatments, and self-inflicted damage. reviewing exclusions before purchase prevents claim disputes later.
free-look period. the free-look period allows new policyholders to review the policy terms and cancel if not acceptable. the period is at least 15 days (30 days for electronic policies). if cancelled, the policyholder is entitled to a refund after deductions.
calculate the sum assured
the coverage amount should not be a guess. the old rule of thumb—10 times annual income—is now considered the absolute floor. a more robust approach is the income replacement method. if the annual income is ₹12 lakh and the remaining working years are 25, the family would lose ₹3 crore in potential earnings. adjusted for inflation, a cover of 15 to 20 times annual income is the modern benchmark.
outstanding liabilities like home loan and car loan should be added to this sum assured. factors like age, income, lifestyle, and future financial goals also influence the right sum assured.
what to avoid
bundled products. agents often push unit-linked insurance plans or endowment plans as “investment + insurance.” these typically offer a low sum assured (usually only 10 times the premium) and high commissions. for a young earner, these are a poor fit. buying a cheap term plan and investing the rest in mutual funds is more effective.
hiding information. false or misleading information on the proposal form can lead to claim disputes. disclosure of smoking, diabetes, previous surgeries, and existing illnesses is necessary.
ignoring the free-look period. life insurance policies can be cancelled within 15 days (30 days for electronic policies) of receiving the policy bond if the terms do not match the agreement.
underinsuring. buying a lower cover to save on premium is a common mistake. the marginal premium cost for an extra ₹50 lakh of cover is small. inflation erodes cover over time. buy as much as the budget allows.
frequently asked questions
1. how much term insurance cover is enough ?
a minimum of 15-20 times annual income, plus outstanding liabilities. the income replacement method provides a more accurate estimate. the old rule of 10 times annual income is now the absolute floor.
2. is a ₹10 lakh health insurance policy sufficient ?
it may be a practical base, but medical inflation in india is 14-15% annually. for older adults in metros, ₹15-25 lakh coverage may be more appropriate.
3. what is the difference between term insurance and health insurance ?
term insurance pays a lump sum to the family if the policyholder dies. health insurance covers medical expenses during hospitalisation. neither replaces the other.
4. what is the free-look period in insurance ?
a period during which the policyholder can cancel the policy if the terms do not match the agreement. 15 days for policies bought offline. 30 days for policies bought online. the finance minister has also urged insurers to extend this period to one year.
5. what is the claim amount settlement ratio ?
the percentage of the claimed amount that actually gets paid. a company with 99% claim settlement ratio but 80% claim amount settlement ratio means families receive only 80% of the sum assured on average. both ratios should be checked before buying.
