5 Things to Consider Before Buying a Life Insurance

Buying a Life Insurance policy is one of the most important financial decisions you might have to make. But most of us are unsure where to begin or how to find the policy that meets our needs. Finding the right Life Insurance policy involves weighing multiple factors like coverage amount, policy type and term, premium affordability, and company reputation, among other things. In this article, we provide you with insights on how to choose the right Life Insurance policy. Also Read: Know about these rights and duties while buying Life Insurance

1. Your need and available product options

You should not decide to buy Life Insurance in haste or under the influence of someone, pressure, or negligence.The first step is to take time out to understand your needs.Answering the following questions can help you assess whether you need a Life Insurance policy. And if you do, what should you focus on while buying one?

• What are my current and future financial commitments?Tip: Include your day-to-day expenses, from essential supplies to utility bills to bigger ones such as children’s education expenses, home or other loans, healthcare costs of parents, etc. It helps assess the impact of your absence on the family’s finances. Be wary of the difference between needs and wants.
• For what duration do I need financial coverage?Tip: Remember the tenure of all your loans, the education needs of your children, the age of your parents and health conditions, your retirement needs, etc.
• What are my long-term financial goals?Tip: Identify if you want to use the policy to secure your family’s basic needs, plan your retirement, create an inheritance or build wealth for your family.
• How much risk can I take?Tip: This is extremely important when choosing the right Life Insurance policy. For instance, if your purpose is investment more than financial security, and you have a greater risk appetite, you can opt for a policy that invests in market-linked schemes such as the Unit-Linked Insurance Policy (ULIP). Remember, Life Insurance can also save taxes, but buying just for tax savings is not wise.

Once you have answered these questions, research all available products.The below list can give you a broad idea about the type of product you can choose depending on your needs.

• Death benefit:If you only want to financially secure your family’s future in case of your untimely demise, Term Life Insurance would be an option. It provides a death benefit to your beneficiaries should you pass away during the policy term.
• Survival + death benefit:If you are looking for life coverage with savings, Endowment plans are suitable. You get a lump sum payout if you survive the policy term, and your family receives the death benefit if you don’t.
• Investment:If you seek more than life coverage and savings and are ready to take risks, you can opt for ULIPs. These plans combine life coverage along with investment in market-linked funds.
• Regular returns:If receiving periodic returns to meet planned expenses is your objective, money-back policies can prove beneficial. These plans provide both survival and death benefits at regular intervals.
• Retirement planning:If getting regular income after retirement is the motive, you can opt for Pension/Annuity plans. These plans offer periodic payments after a specific age or on policy maturity.

2. Coverage and premium:

Now that you know your current finances, future needs, and the type of policy best suits those requirements, this step becomes simpler.A coverage of roughly 10 to 15 times your annual income is ideal. So, if your yearly income is ₹ 5 Lakhs, the coverage should be at least ₹50 lakhs. Regarding the premium , remember that it should be affordable enough to pay regularly for a long time. If you miss premium payments, your policy lapses.

3. Policy term:

It depends on factors such as age, purpose for seeking coverage, financial goals, number of dependents, etc. Maximum benefits will accrue if you combine the best policy with the right tenure. For example, if you opt for a 25-year term plan at 30, you will likely survive the policy term. As term policies do not offer any survival benefits, you can lose all your premium payments. Also read: Types Of Insurance You Need In Your 20s, 30s And 40s

4. Add-ons or riders

Life Insurance policies offer add-ons or riders to cover certain conditions or situations that are not a part of the base policy. You can opt for these depending on your needs by paying a little extra.Some popular life insurance add-ons are:

• Critical illness rider:If the policyholder becomes critically ill, the rider ensures a lump sum payment of the death benefit.
• Premium waiver rider:The insurer waives the premium but continues the protection under the policy if the policyholder becomes critically ill, seriously injured, or disabled.
• Accidental disability rider:It guarantees a lumpsum benefit to the family if the policyholder becomes disabled due to an accident.

While add-ons multiply the benefits of Life Insurance, you should carefully choose the necessary ones. Also read: Buying Life Insurance: The Sooner the Better

5. The insurer

Once you shortlist a few policies, it's time to find a company that you can trust. Make an in-depth assessment of the insurer, including history, years of service, ratings, hospital network, brand reach, etc.

Claim settlement ratio:

It measures the claim settlement rate of the insurance company. The higher the claim settlement rate, the better it is for you.

Asset under management (AUM):

A higher AUM usually implies that the portfolio performs well. It gives you an idea of the company's market size.

Solvency ratio:

An insurance company should generate enough revenue to be able to settle all its financial liabilities if there is a need. A higher solvency ratio is an indication of the company's financial stability.

Services and features:

When buying a Life Insurance policy, you associate with the company for 10-15 years. You must check the responsiveness of your insurer by its query-resolving process and speed, attention given to each customer, patience, ease of online payments, personal touch, etc. Read about the company in the news, check its online platform and evaluate recent developments and announcements.

The process of buying a Life Insurance policy can be daunting. But you can look for options that make it simple.

• Opt for insurers offering simple online application processes so you can digitally upload all your documents without much physical effort. It also minimises the risk of losing important documents such as receipts or other policy-related papers.
• If you prefer a more personal touch, hire a reputable insurance agent to assist in your insurance journey.

• An ideal Life insurance plan should fit into your overall financial plan.
• Understand the policy well. It should cover your unique requirements.
• Assess your coverage needs and premium requirements.
• Check the riders and add the necessary ones to optimise your benefits.
• Always choose a trustworthy insurance company.
• Use technology to make the journey smoother and simpler.