Life insurance is a promise you make for your loved ones to ensure financial independence in case you can’t take care of them. It is a financial decision which needs to be taken prudently. Life insurance policies are a long term contract which run for a tenure like 20, 25,30 years or whole life as well.
It is important to keep these 5 crucial things in mind before making a final decision.
Just buying a life insurance policy for the sake of it does not benefit either you or your family. The most imperative thing is to choose the right amount of life cover, or technically we call it ‘Sum Assured’.
The ideal sum assured is something that you need to assess, based on appropriate calculations of your family’s financial dependence on you. Every individual will have different financial setup, so if your friend has taken a sum assured of 10 lakh or your agent is proposing to take a sum assured of 15 lakh does not mean it is the right life cover amount for you as well.
Your current and future financial obligation towards your family forms the basis of choosing the right sum assured. It all depends on your financial income, lifestyle expenses, regular household expenses, loans (if any), debts and future financial goals as the child’s education, marriage, etc.
The thumb rule is to buy a life cover which is 10 times of your annual income.
Life insurance plans come in all forms and types. Life insurance plans like Term Plans can provide you with pure life protection plans, which pays your nominee/s the life cover amount or sum assured as lump sum amount. Such products offer you higher coverage at the lowest cost.
On the other side, there are life insurance plans which offer a fair amalgamation of Insurance plus Investment. Such plans fall under the category of Endowment Products which offer both Death and Maturity Benefit (whichever occurs first).
The premium component of endowment plans like child plans, money back plans, whole life plans include the cost for mortality and investment both which makes it comparatively higher as compared to term plans.
ULIP’s or Unit Linked Insurance Plans also fall under the category of Endowment Products with a difference of being more transparent (regarding its associated costs, benefits, returns) and market driven products.
The idea is to understand why you want to take life insurance. If it is purely for protection, then Term plans are best suited, but if the objective is both protection and savings, then you may opt for other options. You need to understand that insurance for something like final expense insurance for terminal cancer vs. insurance for an average lifestyle will vary greatly, as the first objective of insurance companies is to make money, unfortunately.
Life insurance is a long-term contract, so it is vital to spend some time in doing a background verification check about the insurance company (or insurer) from which you are planning to buy a life insurance policy.
The foremost important aspect is to check on its ‘claim settlement ratio’, which defines the number of claims paid over the total claims received by the insurance company. In case the insurer has a low claim settlement ratio, it is a concern. If after you, your family members are deprived of the death claim amount due to the incompetency of the insurer to pay claims on genuine grounds, the investment done by you towards buying a life insurance policy will go in vain.
Other important aspects to be inquired about the insurer are:
• Ensure the company or the intermediary should be IRDAI (Insurance Regulatory & Development Authority of India) Approved & Licensed entity
• Good and Efficient Customer Services
• Check Expert Reviews about the product and the company you intend to get associated with.
The Proposal Form is the basis of your insurance policy issuance. Important information is asked by the insurance company in the proposal form like:
• Smoking & Drinking Details
• Family History
• Personal Medical History
• Other Insurance Policies, etc.
On the basis of the details provided by you, the insurer decides to grant you life insurance policy and your premium amount. It is very important to provide the complete and correct information in the form. Any non-disclosure or misrepresentation of facts may lead to serious consequences at the time of claim.
Also, ensure you fill the proposal form yourself instead of your agent filling it on your behalf. Agents at times represent wrong information in the proposal form which you may not be aware of, to fulfil their own targets or goals. Be aware of such things to enjoy the benefits in the later stage of your life insurance policy.
In this internet era, buying insurance is just like buying other tangible products online. Various online comparison portals offer cost-free, unbiased and expert comparison of various life insurance products from the leading insurers. Buying online, requires the least documentation, hassle free process and allows quick policy issuance. Compare and make a decisive buying decision.