Investment priorities – insurance needs


It is said that we never get our insurance needs right. We wrongly emphasize on the premium or returns and mostly remain underinsured, say insurance pundits. Is there a right way to buy insurance? The points to be considered for an affirmative answer are,

A consumer needs to be aware of three key issues before deciding his investment plan:

(a) his horizon
(b) his financial objectives,
(c) his ability to save

While most consumers would be quite clear about their ability to save, the first two issues typically tend to require careful thinking.

The need analysis process is the start of the financial planning decision. A careful understanding of the assets and liabilities that a consumer has and his financial goals, creates a roadmap.

The product selection process immediately follows the need analysis process. In mot cases, financial planners represent companies and, therefore, would offer immediate financial advice with solutions. The important thing in product selection is:

(a) The products must be selected as per the profile of the customer.

(b) The product must be understood clearly, including costs and benefits.

(c) The consumer must ask for comparisons or must check out comparisons through intermediaries.

(d) The funds chosen must be as per the risk-asset profile desired.

The next step, the fund selection process, is an intricate one which involves understanding of the market, the costs and the risk-taking profile. While tools are available to assist a consumer, he is best advised to chosen options that take away the risk of a bad decision or bad timing.

Constant review of investments is the final byword when investing in any market-linked instruments. Getting the maximum out of the market requires a review of investments. Another thing that requires review is whether the consumer requires more cover. Typically, a thumb rule of 12 times the annual salary is used for evaluating cover adequacy. This is to ensure that the family maintains the life style it is accustomed to while the consumer was alive.

It is also important that the consumer asks for a specific illustration with each policy and reviews the same once he receives his documents. In case, he is not satisfied with the same, he is within his rights to seek clarification or cancel the policy under the free look cover period without any obligations.

Finally, consumers must find the right advisor for getting a proper need analysis done, followed by a carefully searched product selection. Choosing the right products and the right kinds of funds ensure that the consumer is able to carry out his financial objectives as per his plan. Maintaining adequate cover also requires regular adjustment and review. Seeking specific illustration and using facilities like free look cover are services that a customer can and should demand.