Is it ok to take the cheapest option for Life Insurance?

--- tags: FAQs title: Is it ok to take the cheapest option for Life Insurance? description: With various restrictions in place by IRDA, there are not many advantages of paying a premium to large 'reputed' companies for their insurance cover. --- # Is it ok to take the cheapest option for Life Insurance? ## Introduction With various restrictions in place by IRDA, there are not many advantages of paying a premium to large 'reputed' companies for their insurance cover. Let us analyze various concerns you might be having 1. ## Insurnace companies will find a way for exclusions Do investigate under which all circumstances they could reject a claim. But unlike health insurance, life insurance is simple- either you are dead or not dead. Even suicide is covered after 1-3 year of policy depending on the policy (Just proving a point. Not that I am advocating it) Note: By adding the riders like accidental death which is hard to prove, we make it complicated. So better to treat life insurance in its original form and get a separate insurance for other needed covers. 2. ## Small companies will reject my claim no matter what This is not true. According to [Insurance Laws (Amendment) Act 2015 Section 45](https://www.irdai.gov.in/ADMINCMS/cms/frmGeneral_Layout.aspx?page=PageNo3476&flag=1) "No policy of life insurance shall be called in question on any ground whatsoever after the expiry of three years from the date of the policy, i.e., from the date of issuance of the policy or the date of commencement of risk or the date of revival of the policy or the date of the rider to the policy, whichever is later" This means, after 3 years, even if they find that some information is not correct in the form you submitted, they can't reject the claim. So, ensure that you provide correct information to the best of your knowledge when you take a life insurance. But no need to worry about claims getting rejected because you missed to cross a 't' in your form. 3. ## They will make us wait a long time to settle They cannot. As per the regulation [14 (2i) of the IRDAI Policy holder's Interest Regulations 2017](https://www.irdai.gov.in/ADMINCMS/cms/frmGeneral_Layout.aspx?page=PageNo3191&flag=1), companies need to settle the claims within 30days of receipt of the documents. If they require further investigation, they need to do it in 90 days. So there also the maximum one needs to wait is 90+30 days. Some companies provide features like giving interest on the assurance amount from the date of receipt of all the required documents. But is 30 days maximum interest worth all those extra premiums? Insurance broking companies like policybazar, coverfox etc. have representatives in major cities who will be able to do the documentation on our behalf in case of any claim. They will be able to guide us in getting the needed documentation thus decreasing the chances of delay. 4. ## What if the insurance company gets closed? Sections 35, 36 and 37 of the Insurance Act provide guidelines of amalgamations and transfers of insurance business. As per this, an insurance company just cannot exit the business. It can only merge with other companies and that too with certain conditions thus protecting our insurance cover. They are also required to keep the solvency ratio of 1.5 which means if the company gives 100Rupees cover, they need to keep aside 150 Rupees (see note), thus ensuring that the company will be able to provide the insurance money. Note: * Solvency ratios in insurers is (Net Income + depreciation)/Liabilities. So example is not 100% accurate, but an approximate. * You can check the history of [Aegon Life](https://en.wikipedia.org/wiki/Aegon_Life_Insurance_Company) & [IndiaFirst insurance](https://en.wikipedia.org/wiki/IndiaFirst_Life_Insurance_Company) on how the partners exited the business, merged with others etc. due to business and regulatory reasons. ## Conclusion These arguments are based on the rules as of today and is subject to change it future. But historically, the rules get stricter and not the other way around. So, it is safe to assume that there is no real advantage of going with the company with good names. What you may consider is the solvency ratio and the customer contact.