Insurance is one of the bed rocks of proper financial planning. Insurance in its pure sense was never intended and is not actually intended to be an investment. Its objective is protection against unforeseen risk due to which the financial future of your family could be endangered. India is a grossly under-insured nation and insurance is an oft-neglected instrument by most people when they plan their finances. There are a large number of different insurance schemes and an umpteen number of insurance products and vendors in the country. I shall briefly explain some of the common insurance product classes on offer:

1.       Term Insurance: Term insurance is the conventional insurance product which promises to pay an assured sum if the policy holder’s life is terminated during the policy term. If the policy holder survives the insurance term, he does not get anything. This is similar to your vehicle insurance where you pay premiums for protection and unless you are involved in an accident, the insurance company does not pay anything. The advantage of this policy is that this policy is priced very cheap. For eg. A 35 year old person for a term of 20 years and for an annual payment of Rs 9000 can insure his life for Rs 20 lakhs (Rs 2 Million) which will be payable to his family in case of his death.

2.       Whole Life Policy: A whole life policy is one where a policy holder has to pay premiums for his entire life. And his nominees receive the insurance amount only upon his death. The typical disadvantage of this policy is that, a person might have taken this policy whilst he were young to protect his family against risk but by the time he is 60, his children would have been well settled and he would no longer have need for this insurance cover. Only in very specific cases do people take a whole life policy.

3.       Endowment Policy: An endowment policy is another insurance product which tries to combine insurance and investment. The certain portion of the premium paid is invested by the company and the company pays out a certain bonus every year which accumulates and is given to the policy holder at the end of the policy term. Click here to see the detailed article on endowment policies.

4.       Money Back Policy: A money back policy has been designed to give periodic payments to the policy holder (unlike an endowment plan where the survival benefits are paid only at the end of the policy term). For example: If you have a 20 year money back policy, 20 % of the sum assured would be paid back at the end of teh 5th, 10th and the 15th year respectively and the remaining 40% at the end of the 20th year.

5.       ULIP: Kindly refer to the ULIP tab on top of the page where this instrument has been discussed in detail.

While selecting an insurance product, it is very important to choose the correct insurance vendor also. If you go to the IRDA (Insurance Regulatory and Development Authority) website, you can view the Annual reports of all Insurance companies and check for the following information:

      a) Percentage of pending claims
b) Percentage of claims booked
c) Percentage of claims processed
d) Percentage of grievance pending
      e) Percentage of grievance processed 

This information would help you select a good insurance vendor. And next time an agent talks to you, you could check to see if your agent is aware of these details about the products of the company they are trying to sell! I bet that 99% of them wouldn't even know where to get these details from!