Life insurance is an attractive tool for not only getting life cover but also fulfilling your long-term goals while saving tax. Insurance companies in India offer a vast variety of life insurance plans with different features to suit the varied needs of people. Choosing the right plan is important and requires you to study the features of different life insurance policies and their role in helping you fulfil your goals. Considerations in choosing the right policy include identifying your goals, comparing different plans, and finalising the right amount and duration based on your current financial position and future expenses. Here we talk about the steps and the tools that can help you find the right life insurance cover.
- Identify and Quantify Your Goals– The first step in your quest of buying a life insurance policy is to identify the reason for which you wish to do so. Your motive for seeking an insurance cover could be to ensure the financial well-being of your family in your absence, or to fund a large expense in the future or save for your retirement. Whatever may be the objective, you need to identify and quantify it. This means that you need to put a monetary value on the goal that you wish to achieve. You will also need to consider the impact of inflation and future expenses to arrive at the sum that you will need after a certain period.
- Choose the Type of Policy- Once you are clear about your goals, you should study the features of life insurance plans and choose the one that suits your requirements. Pure term life insurance plans are highly suitable if you are looking for a financial backup plan for your family in your absence. However, if you are seeking maturity benefits and use the sum for buying a house or funding your child’s marriage or any other such goal, you should go for policies that offer both maturity and death benefits. Again, if you wish to have a life cover as well as create wealth through investment, ULIPs or Unit Linked Insurance Plans are the best options for you. You also have the option of buying plans that offer annuity or regular income during your retirement years.
- Amount of the Policy– Once you have decided the type of life insurance cover you want, you need to finalise its duration and amount. This is important, because, if you buy a policy for a lower than required amount, you will not be able to fund your goals and again face a financial crunch, thereby defeating the whole purpose of taking a policy. Experts recommend buying a life insurance policy of an amount ten times your current annual income. This will help you take care of inflation as well as any new expenses expected in the future.
- Duration of the Policy-Once you are clear about the benefits of life insurance you are looking for, you need to decide the duration of the policy. The factors to consider are – your age, current financial liabilities, and the timeline of the goals that you wish to achieve. You can even use a life insurance calculator to finalise the amount and duration of the policy based on the premiums that you can afford to pay off easily.
- Finalising the Premium Amount– An important feature of life insurance plans is that the earlier you start, the more benefits you get. This is because when you are young, the chances of you getting ill are less and the scope for savings is more. The financial responsibilities increase with age, making it difficult for you to buy policies with high premiums. Also, the earlier you buy a life insurance policy, the faster you achieve your goals. The premium for an insurance policy of a specific amount and duration is less for younger people. Another consideration for choosing the premium amount and frequency is to ensure that you can pay the same regularly and easily. So, choose an amount that you can afford to pay easily. Failure to pay your premiums for a long time can lead to the cancellation of your life insurance cover.
Getting the right insurance cover is not difficult if you are clear about your objectives. But you need to ensure that you provide correct information to the insurance company to avoid any kind of disputes at the time of settlement. Also, ensure that you pay your premiums on time and avoid their cancellation.