Insuring wisely: What you need to know

While everyone aspires to a future marked by stability, the unpredictable nature of what lies ahead remains a constant challenge. Opting for insurance stands out as a crucial financial choice, particularly for those with dependents susceptible to financial adversity in their absence or in the face of events that significantly impact their income-generating capacity. Given the numerous insurance providers, it's crucial to weigh key factors before buying a policy.

Choosing the right policy

Consider your insurance objectives. According to Bangladesh Insurance Academy guidelines, life insurance covers temporary, term-based, education, pension, and group insurance. Non-life insurance, per Section 5(3) of the Insurance Act of 2010, excludes human life contracts, covering property, fire, marine, motor, and engineering insurance, among others. Consult an insurance planner for tailored advice.

Affordability

Assessing affordability involves considering financial obligations such as dependents' expenses, debts, and foreseeable costs. For life insurance, deduct liquid assets from these obligations to determine necessary coverage. It's advised that the annual premium not exceed 10 to 15 percent of total annual income, as recommended by SM Ibrahim Hossain, director of Bangladesh Insurance Academy.

Compare premiums from various insurers for competitive rates and comprehensive coverage. Timely payments are crucial to prevent policy lapses, with a one-month grace period typically provided. Failure to submit the premium within this timeframe may lead to policy lapse, with reinstatement rules in place.

Coverage period

Life insurance typically involves a long-term commitment, ranging from 10 to 24 years, with annual or semi-annual premium payments. For term-based insurance, SM Ibrahim Hossain recommends a minimum coverage period of 16 years to maximize benefits.

In micro-insurance, premiums are paid on a monthly basis. Property insurance, on the other hand, requires annual premiums, necessitating renewal each year.

Age

The standard age for opening an insurance policy is typically between 25 to 35, but individuals can open a policy at the age of 45 as well. However, opening a policy at an earlier age is advantageous as premium amounts increase with age.

Surrender policy

Policyholders have the option to discontinue their policy based on current affordability and personal preference. However, understanding certain rules is crucial to maximize insurance benefits.

After holding the policy for certain years, policyholders can convert it into a paid-up insurance policy using the cash surrender value, entailing a relatively low one-time premium. This paid-up insurance eliminates subsequent premium payments.

Shamim Nasrin, Vice President of Prime Insurance, advises against early policy surrender due to the higher associated costs compared to received premiums, potentially resulting in dissatisfaction with the payout amount.

Accurate Disclosure

Ensure you provide precise and comprehensive information when initiating an insurance policy. Failure to disclose relevant or accurate details may lead to claim denial or policy termination.

Exploring additional coverage options

Tailor your coverage beyond standard policies by considering supplementary options like riders or endorsements. These customizable additions enhance protection to match your specific needs, such as critical illness, accidental death, or natural disaster coverage.

Razu Ahmed of Guardian Life Insurance Limited notes, "Health insurance, as supplementary coverage, can be tailored to meet client eligibility, typically including hospital benefits, critical illness coverage, permanent disability, and double indemnity.

Assessing insurers and seeking advice.

Prioritize an insurer's reputation for fulfilling financial obligations. Before buying a policy, assess their financial strength, tenure, market perception, customer service, and governance. Seeking input from trusted contacts aids informed decision-making. With the introduction of Bancassurance, a collaboration between banks and insurers, confidence is set to rise. Consult your bank for available insurance options.