Bankable insurance?

28 August, 2007:

A friendly officer across the banking counter is not a valid reason to buy insurance.
She is someone never fails to smile across the counter. You notice her every time you walk into the bank. No wonder, you had the time to sit across and listen to her speaking about the importance of having adequate insurance cover. However, should you buy an insurance cover from her only because she always smiles at you?

What you just experienced is a business called bancassurance. Not just banks, but even credit card companies have started offering insurance products to their customers. Do not be surprised. It is just that these banks have become partners with some insurance companies to sell their products. So, if you have multiple banking accounts and more than one smiling bank official, you are going to be face the dilemma of how to deal with insurance counseling more often.

Let that friendly official stay that way. But please remember a few points before nodding your head affirmatively. One, please keep in mind that the official is offering products of a company which do not have to be necessarily ideal for you. Two, the official need not be an expert in the field of selling insurance. So, she may be selling you wrong products unknowingly.

“People feel obliged to friendly bank officials and hurry to buy insurance products without considering their merit,” says a financial advisor. “The mandatory 100 hour training with IRDA doesn’t make one an expert insurance counselor.” The point is: just because your friendly official was picked up by her bank to sell insurance need not make her the best insurance advisor.

How do you tackle this prickly situation? Simple. Have a fair idea about your insurance needs and proceed smoothly. This will convey the impression that you were genuinely interested in dealing with the bank official, but could not do it because they did not have the right product at the right price.

The first thing is to have an idea about how much cover you should buy. If you already bought a cover, the question is how much additional cover you should have. That is, you should know how much cover would be adequate for you. A simple step to calculate that is to find out how much money should you put in a fixed deposit to earn your current salary. The idea behind the step is to ensure that your dependants will get the same amount even after your death.

The next step is to fine-tune the figure. You can deduct some of your personal expenses such as clothing, traveling, eating out, etc. to arrive at an exact figure. If you sit with a financial planner or insurance advisor, they may use financial calculators and make this figure inflation proof to get the accurate figure.

Now, since you know your requirement, you should be asking what should I buy. This may call for a nodding acquaintance with various insurance products such as term, endowment, and whole life plans. Simply put, from financial point of view term plans are the cheapest, followed by whole life plan. Endowment plans are the costliest.

The difference in cost is because term plans return nothing on maturity. At the most, some may return the premium paid on maturity. Whole life plans have longer premium paying term hence they are cheap. The problem with whole life plans is that you will not see any money from them in your lifetime. Your dependants will get the money only after your death. Endowment plans, on the other, give you the insured amount with bonus on maturity. So, you should be buying a product or combination of products that will suit your pocket. If you know this concept, your bank official will find it easy to choose the right product for you.

The next question you should ask the official is about the insurance company you are going to deal with. If you are not familiar with the name, tell the official that you will get back to her after speaking to your friends about the service record of the insurance company. Remember, it is essential that the insurance company should have a strong financial record, as an insurance contract is always a long-term relationship. It is also equally important to see the reputation and service standards. If the insurer does not inspire trust on these counts, tell the bank official so and scoot.

The next step is to find out how the products compare with other competing insurers. Does it offer you riders, which you were hoping to attach to your basic insurance cover? Or, does the insurer offer you various investing options on your endowment policy?

If satisfied on all these counts, proceeds to the money part. Is the premium comparable with other insurers? Note, premiums can be a little bit higher or lower. But you should find out why is it so. For example, a conservative insurer may price your products higher but he can justify that with his performance and sound finances. Similarly, an insurer pricing his products cheap could be hurt financially in the long run.

Now, the crucial question? What are the extra services you can expect if you are buying insurance cover from the bank? Does it mean that you do not have to deal with the insurer at all? Do you save anything on premium? “People should find out how exactly the bank plan to service them,” says an insurance advisor. “Make sure the bank will take care of your problems like claims, etc. with the insurer. If you have to deal with the insurance company directly you cant justify paying the broking fee to the bank.”