Claim Settlement Ratio of 99.23%~


Insurance Policies: Risks that could trip you

Has your life insurance consultant ever told you about how much life insurance you need to secure your family’s standard of living (SOL)? Were you worried when you heard that your neighbor had to settle for lesser return on his Unit Linked Insurance Plan (ULIP) for surrendering early? It is your responsibility to ask the consultant as many questions until you actually understand the pros and cons of investing in life insurance, otherwise the risks could trip you.

Investment plans also act as tax-planning tools, as many avenues help reduce tax liability. There are different types of investment plans, and by choosing the right one, you can invest according to your needs and grow your savings.Read Less

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Written ByPalak Bagadia
AboutPalak Bagadia
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Palak Bagadia, Associate – Digital Marketing at Bajaj Allianz Life, with experience spanning content and performance marketing, recruitment, employee engagement in the BFSI industry.
Reviewed ByRituraj Singh
AboutRituraj Singh
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Rituraj Singh,With over 6.5 years of experience in the insurance industry, Rituraj Singh, Manager- Product & Brand Marketing at Bajaj Allianz Life Insurance overlooks new product launches, compliance, and brand projects, leveraging artificial intelligence and technology to enhance outcomes.
Written on: 7th July 2024
Modified on: 7th July 2024
Reading Time: 15 Mins

Buying an Incorrect Plan

The very first risk is buying an incorrect plan. The primary objective of buying any life insurance policy has been as a risk mitigating tool to protect a person’s family and its standard of living, not merely as an investment for the sake of returns. While a pure term insurance plan provides a lump sum payout in the unfortunate death of the policyholder, it does not pay anything if the policyholder survives the policy term. On other hand, a person who wishes to get maturity benefits of the policy if the policyholder survives the policy term along with the comfort of protection of the family otherwise, can opt for a traditional or a market-linked endowment plan.

For instance, the new ULIPs (after September 2010) have become very low-cost as compared to those plans offered before this period. However, the lock-in period for new ULIPs has been raised from three years to five years. Therefore, one cannot withdraw money from unit-linked insurance plan before five years or use this investment vehicle for immediate liquidity, but for future fulfilling financial goals. Notwithstanding the benefits of new and low-cost ULIPs, one should remember that since these plans invest in the equity market, the returns will be in line with the volatility of the stock market. People with low risk appetite should stay away from investing in equity funds as they may panic due to short term volatility and exit at loss.

A policy holder should go through detailed checks and balances when buying an insurance plan. After deciding the type of plan to be bought, the decision on the premium paying ability of the policy holder will influence the quantum of premium and thereby, the insurance cover. It is advisable to agree on a premium that will not adversely affect the policy holder’s ability to pay, should there be adverse financial conditions in any particular period during the term of the policy. The policy holder should read and understand all policy terms and conditions thoroughly as well as reveal all pertinent information about medical and family history, before signing the dotted line.

Not cross-checking the credentials of insurance agent/consultant

Another risk could be that of not cross-checking the credentials of your insurance agents. Often, a few insurance agents insist on buying a new policy with the renewal premium amount for an existing policy looking at their short-term gains or uses other ways and means to misguide a policyholder or a prospective insurance buyer. Such practices have resulted in customers being skeptical towards all insurance agents and insurers. It is better to conduct due diligence about the insurance agents and the suggested plans from other sources, before buying a plan.

Buying insurance as a tool to save tax

The next risk arises from the fact that life insurance is still majorly considered as a tool to save tax in India. Though a life insurance policy, purchased in any particular year to avoid higher tax payment will provide a financial protection in an unfortunate event, the sum may not be adequate for your family to maintain the same standard of living. A general thumb rule of buying life insurance to provide adequate financial security to your family and protect your future financial goals is that you buy life insurance worth 8-10 times of your current annual income, not just the amount of the premium that covers the gap to meet the limit in Section 80C of the Income Tax Act.

Not considering the brand

One more important risk is that when you buy life insurance, you’re counting on the insurer to keep its commitment years or decades from now. Therefore, it is important to consider the brand and the companies backing this promise. It’s better to pay a slightly higher premium to a trustworthy insurance company and be sure of a payout in case of the unfortunate demise of the policy holder or after the policy term, instead of paying a lower premium to a new, untested industry player.

Once you are mindful of these risks, deciding to buy the right insurance will be a piece of cake.

Mr.Subrat Mohanty, Head of Marketing & Sales Quality IB

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#Survey conducted by brand equity – Nielsen in March 2020

~Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

**Past performance is not indicative of future performance.

The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.


*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions

Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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%%Above illustration is for Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V03) considering Male aged 25 years | Non-Smoker | Policy Term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 1,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 6,238. 2nd Year onwards premium is Rs. 6,659. Total Premium Paid is Rs. 1,99,349 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly installments (Lumpsum Payout Percentage : 45, Income Payout Percentage : 55) | Premium shown above is exclusive of Goods & Service Tax/any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only. This is inclusive of all the discounts mentioned above.

##Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

@Term Insurance plan bought online directly from Bajaj Allianz Life Insurance has no commissions involved.

^^The Return of Premium amount is total of all the premiums received, exclusive of extra premium, rider premium and GST & /any other applicable tax levied, subject to changes in tax laws
Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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