Things to Consider before buying Life Insurance
You are not the one who has never got a call for buying a life insurance policy. The sales person may tell you various reasons for buying insurance like investment, tax planning or sometime protection. However, instead of being convinced by these sales pitches it is more important to know the right reason for buying insurance.
Who needs to be Insured?
Ideally, every individual needs some kind of insurance cover. Even if you are a single person with no dependants, it is wise to have at least a personal accident and a health insurance cover that can cover your hospital bills which may come at unprecedented times in your life. Having a health insurance cover will ensure that you do not need to depend financially on others in such situations, while also ensuring that you don’t burn a hole in your pocket paying off huge hospital bills.
On the other hand, if you have people financially dependent on you, there is a definite need to choose a life insurance cover that gives a decent sum assured in case of your unfortunate death. The sum assured should be an amount equivalent to that if invested, provides a regular income for the dependents to lead a comfortable life in the absence of your income.
What should be the premium amount?
Your premium amount is proportionally related to the sum assured by the insurance policy. The sum assured needs to be decided considering the coverage you need for yourself.. Too little cover could mean that your family could remain financially unstable in the event of your untimely death, while too much cover could also mean that you have to shell out a huge amount as premium, taking a toll on your current comfortable lifestyle. Don’t let your premium decide the amount of insurance you buy instead analyze the need for insurance cover based on your current expanses, future goals and your current networth and choose the suitable plan at most affordable premium.
Term Insurance
A term insurance plan is the one in which the insurance cover is limited to a specified term and there is no maturity benefit available at the end of policy term. Once the term of the cover expires, all benefits under the policy come to an end.
Term insurance is the best type of insurance as it gives a high insurance cover at a low premium. The premium for term insurance would just be a fraction of the amount that you have to pay as premium in case of an endowment insurance plan or ULIP. While choosing a term plan, it is ideal to choose a plan that offers the flexibility of fixing the tenure. Insurance companies offer a number of term plans where the term can be possible even up to 35 years. Since the key objective of life insurance is to protect the future income in case of untimely death of the life assured hence your retirement age can decide term of your policy. While it is advisable to consider the claim settlement ratio of the insurer before finalizing the policy for you, it is also important to disclose all material facts related to your health, occupation and lifestyle while filling the proposal form. Any non-disclosure or material fact or misleading information in your proposal form may lead to repudiation of claim in case of an eventuality with your life.
Buying Term and Investing the Difference
As discussed earlier, the premium for term insurance can be significantly lower when compared to that paid for other types of life insurance policies. A proposer could think about opting for a term insurance cover over the with-investment plan and consider investing the balance amount in suitable products to get higher returns. Choice of schemes to invest the balance amount can be mainly determine by your risk appetite and objective of investment but considering your long investment horizon it is better to allocate the amount between equity and debt.
Though you should buy life insurance policy on your life only when somebody is financially dependent on you yet considering that there is a possibility that you may not be eligible for life term insurance policies or you may be offered a policy at revised rate after you cross the age of 40, especially if you have not been keeping well. So if you are looking to opt for a term insurance policy, it is advisable that you opt for it when you are young.
Insurance is possibly the best option to protect yourself and your dependents from financial loss under unforeseen circumstances. Hence, it is advisable that you get insured by choosing the insurance plan that is suitable for you and your family after giving careful thought about the different term plans available and your financial situation.
