How to Choose an Insurance Policy that is Right for You?

Insurance plays a crucial role in financial planning and is integral to financial security.
Jul 2022
3 mins read

Indians today are waking up to the importance of insurance plans in their financial portfolios. According to a report published by Swiss Re Sigma, insurance penetration in India grew from 3.76% in FY2020 to 4.2% in FY20211. This increase was contributed by both life and non-life sectors.

Though penetration is still low, it is expected to increase in the coming years as the pandemic has pushed people to look for insurance to protect their families.

However, when buying an insurance policy, you need to do a little research. Insurance is a complex subject and with financial protection at stake, you can’t take chances – so it’s essential to choose the right policy.

But how do you choose the right plan?

Things to consider when buying insurance

1. Type of policy that you need:

Type of policyIs it needed?Why? 
Term life insurance planYesIt covers the risk of premature death and provides your family financial assistance in your absence
Indemnity-based health insurance plan (covers the actual cost of hospitalisation)Yes Medical emergencies have become increasingly expensive. This plan covers your medical bills and allows you to avail of quality healthcare without worrying about costs
Critical illness health planMaybe, if you need to enhance your health coverageIt pays a lumpsum benefit upon diagnosis of specified critical illnesses. This benefit can help you handle high medical costs and other financial obligations 
Motor insurance planYes, if you have a vehicle It is legally mandatory to have a motor insurance policy for your car or bike 
Travel insurance planYes, if you are travellingIt covers the costs of contingencies you might face while travelling, especially overseas 
2. Essential coverage benefits:
After you shortlist the type of plan, you need to choose the coverage benefits. For this, you must assess your coverage needs. Most insurance plans are customisable with inbuilt coverage benefits that allow you the choice of optional add-ons. So, depending on your requirements, ensure that the plan provides all the essential coverage benefits that you need.

For example:
If you are planning to start a family in a few years, buy a health insurance plan that offers maternity coverage. Similarly, when buying a motor insurance plan for your new vehicle, a zero-depreciation cover would help you get a higher claim amount in case of damages.

3. Optimal coverage level:
According to a survey conducted by Lloyd’s , India is the world’s second most underinsured country2. Getting inadequate insurance coverage defeats the whole purpose of buying insurance – it’s like sitting down for a meal when you’re hungry, and then just having one or two bites. Make sure you get all the coverage you need.

When buying term life insurance, opt for coverage at least 10-12 times your annual income. In a health plan, choose coverage depending on your medical needs and the members insured.

4. Affordability of premiums:
The premiums should not pinch your pocket, because insurance plans require regular renewals to provide continuous coverage. If the premium is high, the coverage might prove unsustainable, and you might have to discontinue the policy in the long run.
Always check the premium to ensure it is affordable, and follow these tips to improve affordability:
a. Pay premiums in instalments
b. Look out for discounts
c. Find cost-effective plans

5. Is it the best?
There are multiple plan options available in the market. Always evaluate the available plan options and their coverage benefits vis-à-vis the premium charged, and compare it with other options. Choose the policy that has the most inclusive coverage benefits at the lowest rates of premium.

Do not make a hurried decision when it comes to buying insurance, because the stakes are high. Understand the plan benefits and the associated terms and conditions in detail before you proceed. This handy checklist will help you do the necessary homework before buying a policy.


PGIM India Asset Management Private Limited
(CIN - U74900MH2008FTC187029)
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