Only govt authority (IRDAI in India) can allow individuals/entities to set up insurance firms and sell policies to other individuals or agencies. Always verify the relevant license issued to the such insurers by the relevant government authority in your country/region.

Most of the policies on the ground are sold and distributed by licensed insurance who are employed or contracted by insurance companies. You should always verify that the agent is licensed, and working directly with the insurance company. You should also try and take feedback and reviews about their approachability and availability in cases of claims.

Sometimes insurance companies sell their policies directly too without utilizing the serves of insurance agents. There is an increasing trend of online policies which are directly sold online by the insurance companies themselves. Since there is no 3rd party to pay a commission to, insurance premiums are often lower for such policies. You can always opt for these policies as long as you do your research on the merits of a particular policy well

Today and Now is generally the time to buy insurance. Having said that everyone’s situation is different and much consideration must be given before deciding to buy insurance.

When it comes to life insurance, all earning members of a family must be insured without any delay if they are young enough and healthy. In case they are not young anymore, a cost benefit analysis w.r.t. premium paid vs sum assured must be made, and the best policy should be chosen basis that.

In case of minors, try and get them insured as soon as they attain adulthood in order to enjoy the best premiums on offer. However you have more scope of deliberating here.

Similar considerations would be applicable to health insurance. Basis the health and age of a family member, the right insurance policy must be purchased without delay.

In case of motor insurance, 3rd party insurance is made mandatory by the government and you are required by law to purchase it if you own a vehicle. 1st party insurance must be purchased basis the perceived value of the vehicle, and its age.

Similar considerations of age and perceived value of a possession should decide their insurance worthiness.

Always buy insurance from a reputed govt authority approved insurance company. While the govt of the land ensures via regulations that all insurance companies work according to guidelines, we should be mindful of their history, claim fulfilment statistics, their policy terms and exclusions, as well as how a given policy compares with its competitors’ in the market. Only after this we should consider the friendliness, helpfulness and/or accessibility of the insurance agent. A bad agent may make a particular insurance policy difficult to work with, but a good insurance agent can definitely not salvage a bad policy. So always choose your policy and your agent carefully.

There are two kinds of insurance companies in India- govt undertakings like the LIC of India, and private entities like HDFC Life, Tata AIA etc.

What is important to note here is that all these companies are governed according to the regulations laid down by IRDAI in India. Many private insurance companies are joint-ventures between foreign insurers with long histories and reputed Indian corporate houses/banking and financial institutions. All of these companies are well-funded and closely monitored by the IRDAI for corporate and financial governance.

In this scenario, it’s reasonable to trust any of them. However do have a look at their history, claim settlement statistics, reviews and long-term market performance.

Please note that every insurance company has good and bad policies for your specific needs. In that scenario it’s important that you perform your due diligence and look for a capable and honest advisor. Choosing the right policy is more important than any question you may have regarding the trustworthiness of the insurance company as a general mater.

How is the insurance industry regulated?

Every country has rules and regulations created by their respective governments and often a regulatory body authorized by the govt which oversees the business of insurance in that particular country and ensures that the incumbent players operate ethically and legally.

In India, insurance is governed by various acts of the parliament enacted both before and after the independence. The Insurance Act of 1938 was the first law in India which allowed insurance and related activities in the country. Thereafter the Life Insurance Corporation Act of 1956, The General Insurance Business Act of 1972 and the Insurance Regulatory and Development Authority Act of 1999 made various changes and brought about a robust governing mechanism for companies to operate in.

Under the Insurance Regulatory and Development Authority Act of 1999, India’s primary Insurance Regulator, the IRDAI (Insurance Regulatory and Development Authority of India) was formed.

IRDAI oversees, maintains and regulates the industry in India and ensures a level playing field for all insurance firms and allied firms to operate in legally, ethically and with transparency.

How to decide on the right insurance policy?

Every kind of insurance policy has its own set of dos and don’ts that you should look at before making the decision to purchase. For example, in case of life insurance, future cost of living for your dependents is an important consideration, whereas in case of health insurance your current ability to pay the premium, cost of quality healthcare in the present day and age as well take presence. Yet, there are a few factors which are underlying across categories and matter the most.

In order to select the best policy for you or your family, it is important to pay attention to the three critical components of most insurance policies—the premium, the deductible and the policy limit.

The premium is an indicator of your current and projected near-term ability to pay for the cover.

Your age. Higher your age, more critical may be the need for health cover. However if you are retired and your kids well settled, you may not have the need of a life cover since the goal of a life cover is to help sustain your dependents in the event your untimely demise. However a higher age also implied higher premiums. However if you have opted for an optimal cover at the right age, you will pay a relatively lesser amount as premium at an advanced age, vis-s-vis if you opt to buy yourself an insurance policy for the first time at a later age. So as a rule of thumb, starting early is a better choice. You medical state- If you are a regular healthy person, you will pay lesser as premium and vice versa.

Your future financial plans- Let’s assume you are making a big ticket financial purchase like a house or an expensive car. Apart from ensuring these assets which are a must, you also need to consider a right amount of life insurance. Esp. in case of housing loans, you and your family will stay in peace knowing that they are covered at least financially against any mishap.

Cost-Benefit Ratio- While you can keep increasing the cover, benefits and riders by paying higher premiums, you also need to take cognisance of the cost to benefit ratio. Are you paying unreasonably higher vis-à-vis your paying capacity and future outlook. That may not be worth the price. There is always a possibility to fall into a tendency to get over insured. Your money that you have is equally important to be preserved and invested. Depending on your micro and macroeconomic indicators, you have to decide on the optimum cover and price you can pay for that. Cover- It’s imperative that you cover all your dependents, their future cost of living, and all present and perceived medical problems.

Your understanding and need of investment with insurance- India has traditionally been heavy on selling insurance policies that are a hybrid between pure coverage and an investment component. This is primarily true of life insurance policies. If you have at least a beginner’s level understanding of investment tools such as mutual funds and/or market related investments, it’s advised to separate your insurance and investment activities, in order to enjoy best cost-benefit ratio and potential returns on either. However if you are just starting out with your investments and are not comfortable with market tools, you may look at investment oriented insurance plans like endowment and money back plans.

Let’s take an example. Raj is 30 years old and plans to put 50,000 Rs into his insurance and investment needs this year. He has two options:

1. Option 1: Buy term life insurance of Rs 50 lakhs at Rs 6000 per year, ad invest the rest (Rs 44,000) in mutual funds. Over a significant duration, considering an average market, of Raj makes well-researched choices, he may gain around 5-8% on his mutual funds’ investments every year, which compound year after year. However, assuming and praying for Raj’s life, his term plan premium is an expense with no returns.
2. Option 2: Buy an endowment/money-back plan with premium of Rs 50,000, and an insurance cover of Rs 2-4 lakhs. Returns at the end of the period will be as per the returns and bonuses declared by the insurance company. For the sake of brevity, let’s keep that at the same market level of 5-8% minus the profits taken out by the insurance firm. So in a good market, you will make some money. But your insurance component will be miniscule and you will actually go underinsured

Make an informed choice.

How is insurance premium calculated?

There are many kinds of insurance like life, health, car, property and more. When it comes to calculating insurance premiums, there is no one size fits all approach that insurance companies can take.

Having said that there are certain underlying basics and common factors that make up bulk of the factors which determine how insurance policies are priced.

In general, insurance premiums depend on:

1. 1. Your mortality probability calculations, that comprise your age, health, sex, occupation, lifestyle, policy tenure, hereditary issues, claims history etc.
   
   Insurance companies have departments dedicated to figure out both generic and person specific probabilities when it comes to likelihood of claim situations. They adopt a mix of actuarial/statistical sciences and their own interpolations. Basis these each insurance company assigns risk to each client and offers insurance premiums accordingly. In general, younger healthier people get better prices than older ones. People in hazardous occupations get higher prices than those indulging in office jobs. Smokers would get higher prices than non-smokers and so on.
   
   However the process may differ for different insurance categories. For example in case of motor insurance, new/young drivers may get a higher premium on account of lesser driving experience. More experiences drivers will get lower premiums, while it may rise again as the age of driver advances further into old age (which brings about slower reflexes).
   
   To know how insurance premiums are calculated for motor insurance click here:
   
   To know how insurance premiums are calculated for property insurance, click here:
2. The type of coverage: In general most insurance policies offer options of coverage to choose from. The more comprehensive the coverage is, higher the premium will be. For example, in case of motor insurance, a 3rd party liability insurance (which is mandatory as per govt laws) is cheaper when compared to a policy that includes 1st party (owner) insurance. When you remove deductibles like those for plastic parts etc or make it a zero depreciation policy, the cost goes further up.
3. The amount of coverage: Needless to say, higher the coverage amount, all else being common, higher will be the premium. In certain cases, esp. health insurance this amount also depends on the deductible. For the same coverage amount, if the deductible is higher (meaning your own mandatory contribution before insurance kicks in is higher), the premium will be lower. However it is advised that you do not make this the tactic to reduce insurance premiums. Work with these ideas only to figure out the most apt and relevant plan and premium for your needs and paying capacity.
4. Expenses and profit margin considerations: Almost always, beyond scientific calculations of risk and associated premium calculations to cover the same, insurance companies will also have a component to include their own expenses and profit goals in the final premium. It is advised that you explore multiple policies before deciding on one.
5. Exigency element: Lastly insurance companies also include an exigency component to tide over anything sudden and previously unconsidered, like epidemics, natural disasters and so on. This helps them tide over cases of mass claims without going delinquent. These components may not add much to each premium calculations, but surely are an important consideration for the industry.

It is imperative that you as a shopper for insurance look around at multiple options and weigh each as per features, benefits and history, before deciding on one with the best cost-benefit ratio.

Should I use a known agent or get the policy directly from the company?

Many insurance companies nowadays are offering direct plans, often delivered and serviced online. Most of these are simple plans like term, health and motor plans. However, a few companies have started offering even investment led plans online, but these are still rare, and we still don’t know if there is any ambiguity regarding their wordings or terms.

In case of directly sold plans (often online), premiums are often lower than the regular rate, since the company saves on the cost of training, employing, and managing the advisor workforce and distributing costs associated with the policy itself.

However, it’s advised that you try and check if there is a difference between the claim settlement ratios of direct as well as agent distributed policies. Also, at least in the case of complex policies, as well as for people who are new to buying policies, having someone to talk to at a personal level, get explanations and assistance during claims is worth the extra price to be paid towards premiums. Make your choice as per your needs and situation.

What is the difference between online plan and conventional plan?

Many insurance companies nowadays are offering direct plans, often delivered and serviced online. Most of these plans are term, health and motor plans. However, a few companies have started offering even investment led plans online. In these cases, premiums are often lower than the regular rate, since the company saves on the cost of training, employing, and managing the advisor workforce and distributing costs associated with the policy itself.

Regular/Conventional plans are those that are sold by insurance advisors either on the rolls of the insurance firm or contracted to them on commission basis.

Are medical reports needed for buying insurance?

Traditionally, a medical test has been a must before you can buy an insurance policy. Most companies have required medical reports before they underwrite your term life, policy, endowment plans, or more obviously health plans.

With new innovations in the last decade, many companies have started offering insurance policies across categories without conducting or asking for any medical report, at least for people who are not categorized as senior citizens or thereabout. However, it must be noted that more often than not, such policies have higher premiums and may not offer the best coverage possible in the category. This is because they take a risk upon them when selling you the policy and have to compensate for the increased risk to their business. Also, in such cases, claim settlement rations may be lower, since the company may find something that was not declared beforehand as a pre-existing condition and as per the contract, they may refuse to pay the claim, thus rendering your policy meaningless.

It is advised that the buyer does a proper comparison of policies with health-checkup mandatory and those without, before making a nuanced decision. A little effort in the beginning may save a lot of time and money when it matters.

What to do if my policy lapses?

We can get busy in life and forget to pay our next premium instalment on time. Thankfully insurance companies understand this and allow us to make the payment for a certain duration of time after the end date of the policy. This period is known as the Grace Period.

If for some reason, you are unable to make the payment even during the grace period, it lapses. This means that your insurance contract is no longer valid, and you are no more entitled to death and other benefits you may have on the policy.

Generally, insurance companies offer a further short time period, during which if you make the premium payment, the policy is reinstated, and your benefits restored. However, if the premium is not paid even during this period, the policy finally expires and cannot be reinstated.

It’s a good practice to keep an eye on your policy premium dates and keep them active for your own benefit and peace of mind. If you have missed payment even during the grace period, call your insurance company immediately to inquire your options. The same applies after the policy lapses.

In case the policy lapses and then expires and cannot be reinstated, you may have to buy a new policy. However, that would mean a new underwriting process, leading to possibly new terms and conditions, higher premiums in case of higher age and probability of ailments. So, you will almost always have to pay higher rates for newer policies. Hence it is advised to be as disciplined as possible when buying insurance and making premium payments.

What is loan on policy and how to avail it?

In case of certain traditional life insurance policies such as endowment or moneyback, a loan can be taken against them by pledging them as collateral.

These kinds of policies have a life cover as well as a savings component. In order to avail a loan, the policy must have a surrender value to it. Typically, loans can be taken up to 80-90% of the surrender value.

Generally, rate of interest on such loan tends to be in the lower double digits (around or above 10%), which in general is lower than most kinds of personal loans. Repayment tenures are typically flexible, and sometimes has the option of making only interest payments while the principle can be adjusted at the time of claim of the policy. However, you are advised to go through the fine print if and when exercising this option.

Can I trust private or foreign insurance companies?

India’s insurance landscape is regulated by the IRDAI constituted by an act of the Indian Parliament. IRDAI reserves the right to allow foreign insurance firms to invest in India. Currently IRDAI allows 49% FDI by insurance companies in India, meaning they can set up business in India via a Joint Venture (JV) with an Indian firm that holds 51%. Additionally, foreign insurance intermediaries like brokers and agents are allowed 100% FDI in India thus making the field competitive and allowing for best practices from the world to come to India. All these enterprises are required to operate as per the guidelines, laws and rules as laid down the Indian Parliament and regulated by the IRDAI.

So, it can be safely said that foreign insurance companies that operate in India under JVs formed with Indian partners are absolutely trustworthy. Having said that it’s advised to check a company’s (whether homebred or foreign) track record before purchasing any insurance policy.

What if my insurance company goes bankrupt?

IRDAI regulations ensure only companies with repute and a healthy financial clout can operate in the insurance segment.

According to Section 64VA of the Insurance Act 1938 there is an initial Solvency Margin of INR 150 crores that needs to be maintained by each and every insurance company, and is submitted with the RBI (Reserve bank of India) under the supervision of the IRDAI, as safety deposit money. This money is earmarked for repayment to customers in case the company declares bankruptcy or closes down in any scenario before paying out client claims.

This solvency Margin keeps increasing as and when the insurance company increases its portfolio. Thus, even if the insurer winds up its business and decides to move out of the country, RBI can repay the customers from the security deposit money that it keeps on behalf of the insurance company.

Also, each Insurance company is obliged to associate with a different Re-Insurance company who takes up the liability of repayment to customers in if the primary insurance company is unable to pay.

What to do in case of dispute with my insurance company?

In case of a dispute, policyholders can approach the Insurance Ombudsman appointed by the govt. The Ombudsman is a non-judicial authority which mediates and settles disputes between the insurer and insured, up to a certain limit and within a certain timeframe. The decision of the Ombudsman is binding on the insurance company; however, the insured party can approach the consumer court or a higher judicial court in case they are not satisfied.

Please visit Ombudsman for details on the Ombudsman in your area.

I have Health insurance from my company. Do I need more?

It’s wonderful that you work in an organization that cares for its employees and that you have health insurance via them.

Surely you know that this policy is valid only while you are working with this company. In other words, the policy ceases to exist the day you leave the company. It is advised that you keep your own health insurance policy too for the following reasons:

• Company Mediclaim policy covers are generally limited. In today’s age and world when quality healthcare is expensive and the costs are only appreciating, an extra cushion definitely will offer a lot of peace of mind and support when needed
• Generally, company Mediclaim policies kick in a month or later than your date of joining at that particular organization, leaving you vulnerable and without cover after your previous job and before this cover kicks in. It’s advisable that you do not play the probability game and be too sure. Life is unpredictable and we should always be ready
• Your company Mediclaim cover may not cover all possible aspects of your health. While it’s certainly very useful to have, it does a lot of good if you sit down and compare features and benefits of multiple policies and pick the one most suitable for your needs

I am changing jobs/cities. Will my policy still be active?

Congratulations on your new job/life. India being a union and a single regulatory market for insurance (regulated by the IRDAI), allows you to settle anywhere and do anything without impacting your insurance policies. Even if you are an NRI, you can buy Indian insurance policies or keep them. However please read the insurance contract to determine if your new job is considered hazardous in anyway. In such a scenario, it may increase your premium or be not applicable at all.