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ROLE OF INSURANCE ADVISOR
A professional who provides specialized guidance and advice for investment in various insurance schemes is an insurance advisor or insurance consultant. The insurance advisor performs an important role in protecting the client from insurable Risks.
An insurance advisor performs a number of functions such as intermediation, sales and other services for various transactions, compliance management, consulting or advisory role, etc.
Broadly, the following are the steps taken in insurance planning:
CLASSIFYING THE INSURANCE NEED
Insurance needs diversify with people and situations. These can be assorted as follows:
Income replacement need
The need to cover risk to the life or earning ability of an asset, also includes the life of an individual, as an asset, generating income. Life insurance, insurance for the care and replacement of plant and machinery, annuities, are all examples of insurance products that serve this need.
Income protection need
The need to protect the available income from an unexpected charge. Health insurance and motor insurance are classic examples of insurance products that cover all the risks.
Asset protection needs
The need is to protect assets created. Insurance against theft or destruction of goods is an example of insurance product that covers the risk.
Estimate the insurance coverage
Life insurance is distinctive because of the subjectivity involved. What is the value of a human being? Insurers have their techniques for estimating human life value.
Estimating Human Life Value
The discounting rate shown in the table is only upto 2 decimals. The calculations are based on the formula given in the table, whose result goes into several more decimals.
An alternative approach goes based on the expenditure needs and liabilities of the insured, as illustrated in 4.7.Along with the value of insurance already taken, the value of investments and other assets that the person already owns is also to be subtracted, while calculating the new insurance requirement.
Estimating Insurance Need
The discounting rate shown in the table is only upto 2 decimals. The calculations are based on the formula given in the table, whose result goes into several more decimals.
Diagnosing the most suitable insurance product
Once decided on the coverage of insurance, the next decision is the choice of product.
Various types of insurance products are discussed in the next section.
Optimise the insurance premium
In the same insurance product and coverage, there are many choices that helps the insured to reduce the insurance premium. In detail the motor insurance, very common to ask for non-mandatory information relating to the insured that help in understanding the risk better. Insurance policy will be issued even though if the additional information is not shared, but the insured can reduce the premium by sharing the information.
The insured can agree that in the event of a claim, a certain amount will be borne by the insured. Therefore, the insured is sharing the risk with the insurer. This is compensated through a lower insurance premium. Higher the deductible that the insured is prepared for, lower the insurance premium. The advisor can help the insured optimise on the insurance premium through such measures.
Monitor the insurance coverage
Insurance is not a one-time exercise. The exposure and coverage should be monitored continuously. The policy coverage needs to be modified to alleviate additional risks. A business man may have availed of insurance on goods of value Rs.50lakh. On the account of growth in operations, the inventory levels may have increased. If the insurance coverage is not increased, it may become a case of under-insurance, which would expose the businessman to higher risk that may be inadvertent.
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