Disability insurance policies

When Sunil Kumar Sinha, 34, lost his left hand in an accident, he felt completely desolate. An engineer by profession, Sinha had got married recently, was planning to purchase an apartment soon and then there were other financial goals that he wanted to attain in the years to come. But all seemed lost now.

A sad story that can happen to any of us. In advanced countries, there are support systems for people like Sinha, either in the form of direct financial assistance or in terms of identification of opportunities.

For instance, in New Zealand, if you are above 16 years of age and have been permanently and severely incapacitated, the government has schemes under the head of disability allowance and sickness benefits.

However, in India, there is no protection available for such people. Also, with the rising cost of medical treatment, it is a huge financial hit that one has to incur in case of an unfortunate event. Thus, it is always prudent to plan for such issues in advance.

In order to plan for your financial support in case of disability you need to look into:

Cost of medical treatment: First, you should be aware of the insurance cover that your employer provides for you and your family. If this cover is not enough, you need to buy additional cover.

Ideally, the total insurance should be to the tune of Rs 300,000 to Rs 500,000 per head. The expense is also not too much. For a 30-year old, health cover of Rs 300,000 would cost only about Rs 3,000 per year. Of course, the premiums are higher for older citizens.

It is also important that when you are taking additional cover, mention the existing cover from your employer in the application form. Most insurance agents may ask you not to do it or may not even bring up the subject. But this is important because such hidden facts may allow the insurance company to reject your claim at the time of need.

Transfer of other expenses: If your life insurance policies offer premium waiver benefit, take it. Essentially, these waivers are offered in case you are incapacitated. Here, the insurance company, on your behalf, will pay for the premiums, either till the disability continues or the end of the policy term, whichever comes earlier.

The cost of such riders is not very high. For a 30-year old taking a policy of Rs 50 lakh (Rs 5 million) for 20 years, the premium waiver option comes for a mere Rs 490 a year.

Compensation: While expenses covered above are useful, they do not help in running a household. Here too, there are some good policies available. Almost all policies have a critical illness plan as well as a disability rider.

If you are diagnosed with critical illness like paralysis, stroke, heart attack etc, you will get the entire assured sum. For a 30-year old, a critical illness policy of Rs 10 lakh (Rs 1 million) would cost Rs 3,000 a year.

Likewise, with the disability benefit rider with your life insurance, the company (depending on type of plan) will pay you regular instalments. For instance, Reliance [Get Quote] Life Insurance pays you basic sum assured in ten equal annual instalments.

However, while all these policies sound great, it is important to remember that it is cheaper to create safety nets through investment rather than insurance plans. So, it would be great if you can get rid of such insurance policies as you grow older because the premiums are much higher.

That is, a Rs 10 lakh (Rs 1 million) health cover costs just Rs 3,000 for a 30-year old but the same policy costs Rs 30,000 for a 55-plus person. It is the same case with other policies as well. Moreover, it is at this later age where your chances of such illness or disabilities are higher.

If you plan your finances well, you will be able to knock off the critical illness cover much before your retirement. Later, if need be, you can get rid of other covers as well. The idea is to get rid of these covers as soon as possible. This is because you save the premiums which can be directly used to invest in income generating assets.

Also, since these premiums get higher with age, it becomes particularly difficult to pay them during retirement years when income is practically zero.

But remember, this can only be achieved if you have planned your finances properly and amassed enough resources to take care of any contingency.

Tips on buying the right insurance

In India, insurance is broadly divided into life and general insurance. Life insurance covers a family against the financial implications of the death of the insured.

In addition, it may also provide certain survival benefits, in case the policyholder survives the policy term. Life insurance policies are broadly termed as "benefit policies".

General insurance is a broad term encompassing protection in several areas such as health (For some strange reason, it is not treated as a part of the life insurance sector), property, professional liability among others. These are usually "non-benefit" covers. They will only reimburse losses suffered and not confer any additional benefits to the policyholder.

We shall discuss individual heads of insurance and the products therein in greater detail in later articles.

Before deciding whether you require insurance or not (although all of us certainly require it in some form or the other), take the following into consideration:

The probability and impact of an event:

Assess the probability of an event and its financial impact on you, before zeroing in on a policy. Of course, an element of intuitiveness, is contained in the estimation but it is preferable to a random choice.

For instance, a shopowner in Mumbai can consider an earthquake as an event, which will occur infrequently but may still opt to insure against it, as the financial damage in case of an earthquake, could be significant.

Also, if the event occurs infrequently, the premium charged by an insurance company is also low. If an event occurs very frequently (like earthquakes in Japan), the premium will be high. Of course in the case of life insurance, although death is a certainty, the financial impact of death will vary with age, and the number of dependents.

Will I be adequately insured?

Merely having a cover is not enough. Take care to ensure that the cover is adequate for you. Too small a cover is virtually pointless, considering that it will not serve yours or your family's purpose.

Too much insurance will mean wastage of precious money towards payment of premiums. There are certain techniques to help you estimate the right quantum of cover. We will discuss these later.

Can I afford it?

We should take care that insurance premiums do not eat into a huge chunk of our income. This is especially important in case of long-term contracts such as life insurance. This may mean working backwards, and calculating the size of the cover, based on the premium afforded by you.

Beware of agents who try to hard sell you high-priced insurance covers, as they may be detrimental to your long-term finances.

Two of the most common mistakes committed by customers in the case of life insurance are:

Income tax-led decisions:

While contributions towards life insurance premium of up to Rs 100,000 can be reduced from "gross total income" under section 80 C, there is no need to be guided solely by this consideration. Also, do not wake up to the need for insurance only in the final quarter of the year.

By doing so, you are only playing into the hands of agents who will exploit your urgent need to save tax and sell you policies that are not really suited to your needs. Let tax saving be incidental to choosing a cover, not the sole force behind it.

Bundling insurance and investments:

Unfortunately, globally, over the years insurance products has been sold more as an investment tool rather than a 'protection' vehicle. The nomenclatures change (endowment policies, money back policies, and unit-linked plans) but the underlying principle remains similar.

Agents often succeed in their efforts owing to the following factors:

• Providing rosy illustrations of future investment returns, conveniently side-stepping the basic question of whether the coverage amount contained therein is adequate or not.
• Stressing that an insurance-cum-investment policy compels the policy holder to be disciplined in their savings program and this aids in long-term wealth creation.

Several studies have proved that unbundling of the insurance and investment aspects lead to better overall results. Of course this will call for investing discipline on the part of the policyholder, but that is another story altogether.

I feel that apart from insurance agents, consumers too are responsible for the so-called mis-selling. Against this backdrop, we will look into specifics of different policies from the next article onwards.

Insurance Glossary

Accident forgiveness

In most states, customers who have not had an at-fault accident in the previous five years qualify for this program. Accident forgiveness means that GEICO won't add a surcharge to your premium after your next at-fault accident.

Actuary

A statistician who computes insurance risks and premiums. Actuaries keep GEICO profitable and financially stable by setting prices, assessing trends, and determining how much to hold in reserve to pay claims.

After-Market Parts

After-market parts (also called competitive auto repair parts) are made by a company other than the manufacturer of the auto. The after-market parts we authorize meet or exceed the quality of the manufacturer's parts but cost less. GEICO guarantees these parts for as long as you own the car.

American International Underwriters

GEICO offers overseas insurance from American International Underwriters through GEICO's International Insurance Underwriters agency.

Anti-theft device

A device that deters auto theft. Autos equipped with these devices may entitle you to a discount on your insurance premiums.

At-Fault

The party that is legally liable for the damages in an accident.

Auto Insurance

Auto Insurance provides protection from losses resulting from owning and operating an auto. The insurance covers losses to the insured's property and losses for which the insured is liable as a result of owning or operating an auto.

Auto Theft

The theft of an auto is a type of loss that is covered under comprehensive coverage.

Berkshire Hathaway

The parent company of GEICO. Other companies in the Berkshire Hathaway group are listed at the Berkshire-Hathaway website.

Bodily Injury Liability Coverage

Pays damages for bodily injury or death resulting from an accident for which you are at fault and provides you with a legal defense.

Cancellation

When an insurer or policyholder decides to stop coverage before the policy expires.

Claim

A demand to recover for damages as a result of a loss.

Claims Adjuster

The person responsible for investigating and settling a claim.

CLUE^® Report

Comprehensive Loss Underwriting Exchange (CLUE) reports provide claims history information.

Collision Coverage

Pays for damage to your car when it hits or is hit by another car or object, or if the car overturns.

Competitive Auto Repair Parts

Competitive auto repair parts, or after-market parts, are generic parts made by a company other than the manufacturer of the auto. These parts meet or exceed the quality of the manufacturer's but cost less. GEICO guarantees these parts for as long as you own the car. If we authorize these parts, we show this on the estimate you receive.

Comprehensive Physical Damage Coverage

Pays for damage to your car from theft, vandalism, flood, fire or other covered perils.

Condo insurance

A type of homeowners insurance that meets the special needs of condominium owners.

Coverage

The scope of the protection provided in your insurance contract as well as any of several risks covered by a policy.

Customized Vehicle

An auto that has been altered or has additional equipment and accessories that were not factory-installed.

Cycle-Gard

The motorcycle insurance policy developed by GEICO Indemnity Company to meet the special needs of bike owners.

Damage

Loss or harm due to an injury to a person or property.

Damages

Money that one party becomes legally obligated to pay to another party because of a loss or harm to their person or property.

Declarations

The part of your policy that includes your name and address; the property that is being insured, its location and description; the policy period; the amount of insurance coverage and the applicable premiums.

Deductible

The portion of a claim you pay out-of-pocket before the insurance company pays. Choosing a higher deductible will lower your insurance premiums.

Defensive driver discount

Certain drivers (usually over age 50) who have voluntary taken a defensive driving course may qualify for this discount on their auto insurance premiums.

Direct Check

Direct Check is GEICO's electronic payment method that lets you to pay your premium online with an electronic check.

Direct Pay

Direct Pay is GEICO's electronic payment method that lets you pay your premiums with automatic deductions from your checking account.

Discount

A reduction in your premium if you or your car meet certain conditions that reduce the insurer's losses or expenses. For example, auto insurance discounts are given for cars with auto theft devices and for drivers and passengers who use seatbelts.

Driver training discount

A discount for people who have taken an approved driver training course. This discount is not available in all states or for all individuals.

eBill

An electronic version of your bill that you can review online. Everyone who has registered to use GEICO's Policyholder Service Center can choose to receive eBills.

Emergency Road Service Coverage

Protection for problems that are not typically handled by your auto insurance such as:

being locked out of your car,

having a dead battery re-charged,

inflating a flat tire, or

filling an empty gas tank.

Endorsement

Any change made to the policy.

ePolicy

GEICO's electronic system that allows you to review your policy documents online.

Estimate

The initial assessment of the cost to repair your damaged property.

Exclusion

Restriction in your insurance policy that denies coverage for certain perils, persons, property, or locations.

Expiration Date

This date, found on your declarations page, indicates when your policy coverage runs out. Your renewal policy will start on this date.

Financed Car

An auto purchase financed by a loan. The lender retains a lien on the auto until it has been paid off.

Forms

Two types of forms are important in insurance: 1. preprinted contracts that form your insurance policy, 2. questionnaires or coverage selection forms that a policyholder is required to fill out.

GEICO^®

Government Employees Insurance Company and its affiliates GEICO General Insurance Company, GEICO Indemnity Company and GEICO Casualty Company market collectively under the trademarks GEICO and GEICO Direct.

GEICO Direct^®

A brand name that includes all of the GEICO companies.

GEICO Overseas

A program provided by International Insurance Underwriters, Inc. that provides automobile and property insurance outside the United States.

Good student discount

May be awarded to full-time students who maintain a grade average of "B" or better.

Hazard

Anything that increases the chance of an accident occurring.

Homeowners Insurance

Insurance that protects the homeowners from losses to the insured's personal property and any damages for which the homeowner is liable.

Inspection

In some instances, GEICO policyholders will be asked to have their auto inspected. This inspection is not a safety inspection but is intended to reduce insurance fraud by verifying the condition of the auto and making sure that the auto exists.

Insurance

Insurance is a system in which groups of people who have similar chances of suffering a loss transfer their risk of loss to an insurer who pools the risk of many people together. In exchange for payment of premium, the insurer promises to reimburse the person for their covered losses.

Insurance Fraud

A variety of crimes that range from staging accidents, inflating medical bills, to falsifying an application for insurance.

Insurance ID Card

A card issued by your insurer containing basic information about your insurance policy. Some states require you to keep an ID card in your vehicle.

Insurance Score

Used in the underwriting process in some states. An individual's insurance score is based, in part, on a person's credit history.

Insured

A person or organization covered by an insurance policy.

Insurer

An organization that provides insurance.

International Insurance Underwriters, Inc.

A GEICO-owned subsidiary that provides insurance through American International Underwriters.

Leased car

An auto rented under a long-term contract (lease). The leasing company retains ownership of the auto and must be shown on your insurance policy.

Liability

Any legally enforceable obligation or responsibility for the injury or damage suffered by another person.

Limits of Liability

The amount specified in your policy up to which the insurance company will protect you.

Maps and More

A companion product available to GEICO policyholders that provides travel club services such as: Trip Routing Services, Discounts on Hotel and Car Rentals, No-Fee Traveler's Checks, and more.

Mechanical Breakdown Insurance

Covers repairs to all mechanical parts of the car, protecting you from expensive repair bills.

Medical Payments

Pays medical expenses (and in some cases lost wages) of the driver and passengers in your car.

Motor Vehicle Report (MVR)

A report from the agency that issues your driver's license, listing accidents and violations that appear on your driving record. This report is used to verify information provided by insurance applicants and policyholders.

Motorcycle Insurance

GEICO's Cycle-Gard insurance provides protection from losses resulting from owning and operating motorcycles.

Motorcycle Safety Foundation (MSF)

A national, nonprofit organization. Some applicants who complete MSF courses qualify for discounts on GEICO's Cycle-Gard motorcycle insurance.

Multi-car discount

Available to policyholders who insure more than one vehicle at the same location.

No-Fault

An insurance system where your own insurance pays for your injuries regardless of who caused the accident.

Non-renewal

When an insurer decides not to renew a policy at the end of its policy period.

Original Equipment Manufacturer Parts

Auto parts obtained from the original manufacturer of the car or the supplier of the original part.

Overseas Insurance

Auto and Property Insurance for those living abroad is available from American International Underwriters through GEICO's subsidiary, International Insurance Underwriters.

Payment Plans

Your auto insurance premium can be paid using one of our installment payment plans; you make several smaller payments but incur a service fee.

Peril

A danger or hazard that can cause a loss, for example, a car collision with an object, or a fire.

Personal Injury Protection

Pays medical expenses (and in some cases lost wages) of the driver and passengers in your car.

Personal Property

Property that is not land or connected to land (real estate), such as furniture or jewelry.

Policy

A contract between you and the insurance company.

Policy Change

Any change made to your insurance policy during the period that the policy is in force.

Policyholder

The person who took out the insurance policy and is named in the policy declarations.

Policyholder Service Center

Refers to geico.com's online system for managing your car insurance policy online, also known as mypolicy.geico.com

Premium

The price of the insurance policy that the insured pays in exchange for insurance coverage.

Property Damage Liability Coverage

Pays when you are legally liable for damage to the property of others caused by your auto. This coverage pays for property damage up to the dollar amount you selected plus the cost of any legal expenses.

Quote

A statement of the premium that will be charged for insurance coverages based on specific information provided by the person requesting the quote including drivers, vehicles, and driving record.

Rate

Often used as a synonym for premium but actually refers to the base rating units that are used to determine the final premium.

Rating Plan

The rules that determine the cost of your insurance premium. These rules modify the base rates by applying discounts and surcharges based on your personal characteristics, for example, using your seat belt, insuring more than one car.

Renewal Date

The date that your insurance policy expires and the date that your renewed policy will begin.

Renters insurance

Insurance that provides protection from losses that arise out of the rental of a home. Protection covers losses to the insured's property, not to losses that occur as a result of owning a home.

Replacement Parts

Several types of parts may be used when your vehicle is repaired: new parts, both original equipment manufacturer and after-market; [link to definition] and recycled parts. New or after-market parts will be used if we can't find like-kind and quality recycled parts. A 5-year-old car, for instance, would be repaired with parts at least as good as the parts that had been in the car. We guarantee the after-market parts used for these repairs for as long as you own the car.

Rider

In motorcycle insurance, a rider is someone who will operate the insured motorcycle.

Risk

The chance of suffering a loss.

Self-Insured Retention

In umbrella insurance, self-insured retention is similar to a deductible in other types of insurance. The self-insured retention is the amount of damages for which the policyholder is responsible before the umbrella coverage begins to cover a loss.

Special Investigation Units

GEICO helps fight fraud through its special investigation unit, staffed with experts in fraud detection and investigation.

Subrogation

If your car is damaged because of another driver's negligence and you ask GEICO to settle the claim for damage to your car, we will seek payment recovery (including your deductible) from the other party. This process of payment recovery is called subrogation.

Sunny Day Riding Program

Cycle-Gard's Sunny Day Riding Program gives riders who don't normally use their cycle in the winter a credit on their premiums, but it covers the rider and cycle year round.

Towing and Labor Coverage

Provides insurance if your auto needs to be towed or requires roadside assistance.

Umbrella Insurance

Provides high limits of additional liability coverage above the limits of your homeowners and auto policy. In addition, it provides coverage that may be excluded by other liability policies.

Underwriting

The process an insurer goes through to determine whether or not it will provide coverage for an applicant.

Uninsured Motorist Coverage

Pays for your injuries and, in some circumstances, certain property damage caused by an uninsured or a hit-and-run driver. In some cases it also includes coverage for underinsured motorists-an at-fault driver with insufficient insurance to pay your claim.

Vehicle Identification Number (VIN)

A 17-digit number assigned to each vehicle manufactured in the United States after 1980. This number is used for identification purposes and is visible on the dashboard when viewed from the outside of the vehicle.

Top 7 Mistakes in Buying Life Insurance

When most money conscious consumers start to think about buying life insurance these days, they instantly think "term insurance."

This type of life insurance; provides a coverage for a specific amount of period, usually 10, 20 or 30 years, is usually cheaper than "whole-life" or permanent insurance. The main reason: Term insurance only pays out if you die, while permanent insurance can be included as an investment or savings account component. Term insurance is also fairly simple to buy and is easy to shop for on the Web.

Although it is still crucial that you understand just what you are buying when you shop for term life insurance. Even an inexpensive policy, if not designed to meet your particular financial needs, still can be money down the drain.

The following mistakes are the seven most common that insurance agents say consumers make when buying term life insurance online or offline.

1. Choosing term insurance solely because it is cheap.
Shopping for life insurance only by looking at its price tag is "like buying a Volkswagen Bug because it is on sale when you really need a vehicle that can haul a boat," says Michael Gerkman of Gerkman Insurance in Portland, OR. Typically the premium price (your monthly or annual cost) is certainly a factor, ensuring that your term life insurance matches your financial goals is more important, he says.

2. Not understanding that term insurance is temporary.
That's why it is called "term" insurance -- because you buy it for a set period of time, say, 30 years. Examples of temporary needs, for which term is a great product, include insuring yourself while a business buy-sell agreement is completed for, say, a five-year period; insuring yourself and your spouse until your children can care for themselves (20 years, starting at their birth); or insuring yourself until your mortgage is paid off (15 or 30 years) so your spouse is not burdened with house payments if you die prematurely.

"Term insurance has become the more popular product, but there are still situations in which whole-life insurance policies are more appropriate," advises J. Derieck Hodges, C.I.C., Ch.F.C., of Albrecht-Hodges Inc., in Cape Girardeau, Mo. "If, for instance, you have a disabled child, you may need to insure yourself and your spouse throughout your entire life, so there will be money available for the child's care after you die."

In that example, a 30-year level-term insurance policy you bought when you were 30 would expire when you are only 60. At that point, you still would want to carry insurance, says Hodges, but your age and health conditions might make it impossible or very expensive to do so. In that case, permanent insurance might have been a better choice, he says.

3. Buying from a less-than-stable insurance company.
"There are so many good insurance companies out there with reasonable rates that I can't think of a single reason to buy from a company that doesn't have at least an A rating," says Hodges. The industry's top-rated companies carry even higher ratings, such as A++. Ratings for insurance companies are usually listed along with their online quotes, or can be found online at A.M.Best.

You can also check a company's financial standing through Standard & Poor's and Moody's ratings. "An insurance company should be very quick and willing to share their ratings with you, as well as information about who owns them," says Sam Bennett, C.I.C., a partner in the Columbia, Mo., Harrison Agency Inc. "If they aren't, walk away."

4. Buying insurance coverage based on a set formula.
You may have heard that a good rule of thumb is to buy life insurance coverage equal to 10 times your annual salary or 10 times your beneficiary's annual financial need. The idea is that if your surviving beneficiary invests the life insurance proceeds in the stock market (getting an average 10 percent annual return), they'll have a steady income stream and never need to tap the investment principal.

While this formula isn't a bad place to start, Hodges is a bit leery of "cookie cutter" financial analysis. "A good agent can quickly do a solid needs-assessment for you, looking at your expected timeline and your financial needs to come up with a reasonable amount of insurance," he says. "Everyone's needs are a little different, and you don't want to buy too much or too little insurance."

5. Insuring a young child.
The goal of life insurance is to insure someone who has dependents who would suffer or have financial needs that wouldn't be met if that person died. Most children do not have anyone depending on their income. As a result, insurance on a child is not a good idea.

Some parents think they should have insurance to cover burial costs if a child dies prematurely. However, most agents suggest you instead invest in a good stock mutual fund. That way, you can use the investment proceeds for positive needs such as college funding, rather than just for death costs.

6. Buying insurance from a pushy agent.
Life is too short; you might as well do business with people you like and trust. "If an agent starts pushing products at you without first asking detailed questions about your financial picture, that's a huge red flag," warns Gerkman. "Would you let your doctor give you a prescription before even asking you how you are feeling?"

As always, the best way to find a good insurance professional is through referrals from friends or co-workers who are satisfied with their agents. Arrange face-to-face meetings with two or three agents and pick a professional who listens well, explains products thoroughly, doesn't appear to be "pushing" a particular product or company and with whom you have a good rapport. Remember: This may be the person who helps your family with your claim if you die.

You can also shop for term-life insurance polices online.

7. Failing to regularly review your policy.
You got a divorce, but your former spouse is still your life insurance beneficiary? The horror! Did you buy term insurance to cover you while you pay off your mortgage? If you refinanced during the latest rate drop and restarted the clock on your loan, you might also need to update your insurance term. Life definitely has a way of throwing changes your way. Just make sure your life insurance changes along with you.

Tips for Filing an Insurance Claim

First, review the National Flood Insurance Program (NFIP) Flood Insurance Claims Handbook. It provides additional help with the process of filing a claim.

If possible, photograph the outside of the premises, showing the any damage or flooding. Also, photograph the inside of the premises, showing the damaged property and the height of the water if your property was flooded.

Call your insurance agent to report your claim. If you have seperate flood insurance, also call your flood insurance agent to report your claim. Your flood insurance agent will prepare a Notice of Loss form and an adjuster will be assigned to assist you.

Separate the damaged from the undamaged property and put it in the best possible order for the insurance adjuster's examination. If reasonably possible, protect the property from further damage.

When the adjuster visits your property, let him or her know if you need an advance or partial payment of loss. Again, good records can assist your insurance companies and the NFIP in giving you an advance payment. Use your inventory to work with the adjuster in presenting your claim.

Damaged property which presents a health hazard or which may hamper local clean-up operations should be disposed of. Be sure to adequately describe and photograph discarded items so that, when the adjuster examines your losses and your records, these article are included in the documentation.

Good records speed up settlement of your claim. Compile a room-by-room inventory of damaged goods, and include manufacturer's names, dates and places of purchases, and prices. Try to locate receipts or proofs of purchase, especially for major appliances, and note manufacturers' names, serial numbers, prices, and dates of purchase.