Saturday, 2 January 2016

2016: Clean up your Insurance Closet!

2016: Clean up your Insurance Closet!

This year let’s pledge to clean our Insurance closet which we always keep pending for another time. Have you ever counted how many insurance policies you have – Endowment Plans, Money Back Plans, ULIP’s Home Insurance, and Child Plans, the list keeps increasing so on and so forth. We buy insurance policies on so many occasions.


Like this, many a times you will be forced to buy plans without knowing their true purpose. This New Year we should make an effort to take out all these policy documents from our closet and take a look at them. You should keep the ones which you really need and surrender the ones which are not required. How would you know if the policies taken by you are good or not? There are few thumb rules which you should follow.
1.       Are your policies and their maturity payouts countering inflation? Many a times we take policy just to pacify someone we know and the premium we agree upon is too low, and the maturity amount is really small. There is no sense continuing with such plans and managing them itself becomes a big burden. It is better to surrender them.
2.       Are your ULIP’s giving returns at par with their benchmark? One should always compare their Unit Linked Insurance Plans with the respective benchmarks and see if returns are at par or not. If this is not the case and your plan is not even offering any exclusive feature in terms of insurance cover, then it is better to surrender the plan(please check surrender charges first) and move the money to equity mutual funds.
3.       Are you fully insured as per your human life value? Sometimes even after having 7-8 insurance policies, the cumulative life cover is not even 50% of what we need. One should always check how much insurance he/she needs depending upon family expenses/goals etc. If you are lacking there, it is better to opt for an Online Term plan to get the remaining coverage.
4.       Is the policy maturity date in reference with major life goals? Let’s take an example here, suppose you have bought a money back policy for your Son’s graduation expenses. You should calculate whether the payout dates of your policy are in accordance with your Son’s graduation years. Otherwise, you should assign this policy to some other goal, and make clear plan for funding your kid’s education expenses.
5.       What are the charges you have paid during initial premium payment years? We as human beings have normal tendency not to look into charges which gets deducted from the premium every year. And as soon as Policy Document arrives home, we keep it in our Closet without giving it a closer look. This year, take these documents out and check on the charges. You should also check for how long is the policy deducting charges on your premium amount.
You can also check for online reviews for your policies. There are multiple websites which provide unbiased review on various insurance plans. The key input is that one should always try to keep the portfolio simple especially in case of Insurance. After all, the true purpose of Insurance is to take care of financial expenses of our loved ones in case we don’t see another day. And God forbids if that day does arrive, making them run through the doors of multiple Insurance Companies for small-small amounts is not what we take insurance for.


Charu Hastir, CFPCM is founder member of www.theriteplan.com. Rite plan is an online financial planning portal created to achieve a single objective of providing easy and Do It Yourself Financial Planning to netizens. Rite Plan is wholly owned by Tikkun Olam Financial Planning Services LLP. Please visit: https://theriteplan.com/index.php?route=common/home/

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