Policy duration: The ultimate objective of buying an insurance policy is to ensure that your dependents are covered financially after your death. So, for example, if you are a family of two and your spouse is financially independent, then buying insurance does not make sense. However, if your family comprises more than two members, then your children would be financially dependent on you till they attain the age of at least 25 years. And, that should be the ideal duration of your insurance product.
Amount settlement ratio: Many insurance companies harp on their claim settlement ratio but an equally important metric should be the amount settlement ratio. For instance, if an insurer settles 99 of the 100 claims it receives, then its claim settlement ratio is 99%. In case a company settles ₹95 crore of the total ₹100 crore claims it receives, then its amount settlement ratio is 95%. So, there is a high possibility that the company settles 99% of the claims it receives but might reject one claim that entails a higher amount to be settled, thereby reducing its amount settlement ratio. Therefore, it becomes important to check both the metrics in tandem before finalizing on any specific insurance company. The amount settlement ratio can be directly checked from the annual report of the Insurance Regulatory and Development Authority of India.
Riders: There are typically four riders associated with a policy: waiver of premium, accidental death benefit, critical illness rider, and terminal illness rider. The waiver of premium is one of the most important riders—it waives of the premium in case you are identified with any pre-defined illness and comes at an additional minimal cost. All other riders may be chosen as per your specific requirements, but can be ignored if you have a comprehensive health insurance plan and keep a sufficient emergency fund.
Prepayment: Once you have decided with all the above factors, the final decision should be regarding the payment methodology—whether you a want to pay the premium for the next five years, 10 years, till retirement or till the policy duration. Its normally recommended not to go beyond retirement as the constant cash flow in terms of salary stops thereafter. The early prepayment option (five years, 10 years, etc.) may seem more attractive as the amount paid in absolute terms would be lower compared to the amount paid till policy duration or retirement (at the age of 60 years) but it is important to consider time value of money as well before drawing any conclusions. It is advised to calculate the current value of future payments that you would be making under different scenarios and then take a decision that would be more financially viable.
Some of the other important criteria should include how smooth the claim settlement process is as you don’t want your family members to be burdened with operational inefficiencies of any company. This means that you have to ensure that you are dealing with a big company, in terms of the number of claims it deals with, and whether it has good paid-up capital which would ensure its smooth functioning in the long run.