Mind-boggling: Choosing the best coverage to suit your needs can be a difficult task. Photo: AFP

If it?s insurance you?re looking for, you are in all likelihood going to face a problem of plenty. Ever since the sector opened up to private players four years ago, the market has been flooded with schemes of every description. So much so that you now have more than a dozen private insurance companies vying for 10.95 per cent share of the Indian market. The remaining 89.05 per cent? With good old Life Insurance Corporation (LIC) of India, of course.

Five years back, life insurance was simple. There was just one company ? LIC ? and a few products to choose from. But with the entry of the ICICI Prudentials, Bajaj Allianzs and Birla Sun Lifes, things have changed. Today, you have the option to choose the number of years you are going to pay your premium, the sum assured you want or the kind of cash value you want to build at any stage of the policy.

Even though the lay investor is now spoilt for choice, the nitty-gritties of the schemes are quite complex. So mark out your priorities. First, make sure that the sum assured (the amount you are going to receive on maturity) is substantial. ?Don?t look at life insurance as a saving. It is primarily a protection against future contingencies, the savings is purely incidental,? says vice-president of insurance broker Srei International Jaffer Nayeem.

The unit-linked plans (see box) allow you to choose where your money is going to be invested. Your premium could be invested in stocks, equities and or debt/government securities. They could multiply your money faster but also make your investment risky. So, it is ideal for young people who are going to earn for many years to come and have time to recover from temporary vagaries of the market. But don?t go by the projections that agents often show. They are not guaranteed.

Speaking of agents, be prepared to talk to them as frankly as you would to your doctor. Unless they know your requirement, they won?t be able to come up with the appropriate plan.

Look at the tax repercussions. While the maximum benefit that you can get is 30 per cent of the premium amount under section 80 (CCC) I, Section 88 won?t give you more than 20 per cent. Remember, though, that all policies don?t offer tax benefits.

Check what charges are being deducted from your capital. Insurance firms often deduct service charges, mortality charge and investment charge that eat into your investment portfolio. In some cases this could be as high as 50 per cent which means after some years you may find that the accumulated fund isn?t half as much as you had expected. There is no regulation for this, leaving companies free to charge as much as they like. But with fierce competition, firms are now trying to keep this as low as possible.

You can also amend your policy by adding an insurance rider. Some of the common riders are accidental death rider, guaranteed insurability rider, waiver of premium rider and family income benefit rider. They supplement an existing policy with more coverage. Keep in mind that adding extra services to your policy may increase your premiums, sometimes substantially. Make sure the coverage is worth the extra cost. On the other hand, eliminating unneeded coverage is an effective way to reduce your cost. While an accidental death rider is cheap, surgical expenses riders would be expensive. Remember, no riders are free even though that is the general impression given by agents. And if you?re older, they could cost more.

And they?re tricky. For instance, the accidental death or double indemnity rider stipulates an age when this coverage will unconditionally expire. Before going for this rider read the terms and conditions carefully. Pay close attention to the insurance company?s definition of ?accidental death? which is often very restricted. Similarly, find out how your company defines ?disabled? to let you qualify for a premium waiver.

Finally, if you are going for a unit-linked plan, it?s very important to know who your fund managers are, that is, where your money is being invested. Unless you have been keeping a track of the stock market it would be difficult for you to decide. So, ask questions all around and don?t sign any paper while you still entertain any doubt. And insist on a regular update of your investment so that you know what?s happening to your money at all times.

BROAD WAYS BEFORE YOU

• Whole-life policy: This lasts for the entire lifetime of the insured. Only the nominee gets the money. Premium is low compared to the other policies.

• Endowment / money back policy: You pay premium for a fixed number of years and get the money back as a lump sum or annuity along with coverage. Could be for 10 years or even for 40. The rate of premium is higher than the whole-life policy.

• Term policy: You pay premium for a specific number of years for a limited period of coverage. The duration of this policy has to be at least one year while the maximum is 20 years. The premium charged is lowest among all the policies.

• Unit-linked plan: Actually a whole-life, endowment or a term policy. The only difference lies in the fact that your money is invested in stocks ? which is supposed to make it grow faster. The premium charged is high and so is the risk factor