How To Buy a Life Insurance Policy in India

A Life Insurance policy helps you prepare for the unexpected. It allows you to generate returns and provide your loved ones with a financial cushion in your absence. Given the unforeseen impact of the COVID-19 pandemic, the need for a good Life Insurance policy has become even more crucial.Consider several factors before purchasing a Life Insurance policy involving pre-work, such as figuring out your personal needs, assessing your finances, knowing about the policies available, etc. This step-by-step guide will help you decide what to look at before buying a Life Insurance policy and how to buy one after figuring out your personal goals. Also Read: What is Life Insurance

First, evaluate your financial objectives or reasons for purchasing the Life Insurance policy. Aim to protect your family’s financial stability in case of your unexpected passing. You may desire a consistent income stream or consider Life Insurance as an investment to accumulate wealth and gain tax benefits.Let’s look at some such situations in which you may want to consider buying a Life Insurance policy:You are a newlywed: Newlywed couples often align their financial goals based on their current and expected income levels. If you are a newlywed, having a Life Insurance policy can protect your aspirations and help you maintain a certain lifestyle if you or your spouse passes away unexpectedly.You have a debt burden: If you have taken a loan or put your house on mortgage, having a Life Insurance plan protects your dependents by ensuring that your loan repayment does not fall on them in your absence.You have children: Having a Life Insurance policy is one way to ensure that your children have the best possible future. You can set your policy up so that your children get financial assistance in case of your untimely demise.You want to plan for retirement or build wealth: You can invest in Life Insurance plans that offer insurance coverage and investment opportunities. Retirement plans come with customisable features that protect your loved ones and give you a consistent income after retirement.

Having a broad understanding of the types of Life Insurance plans on offer is important. Although you can seek the advice of a broker about Life Insurance plans, it is always better to do your research as well. It helps spot and avoid any marketing gimmicks.Here are a few common types of Life Insurance plans:

Term Insurance

Term Insurance is a pure protection plan, providing coverage for a specific term or duration. It offers beneficiaries monetary compensation or death benefits if you pass away during the policy term. Because of a relatively lower premium payout, it is cheaper and more affordable than most other Life Insurance policies.

Whole Life Insurance

Whole Life Insurance plans give you coverage throughout your lifespan. Unlike Term Insurance, your family gets a death benefit irrespective of when you pass away. These policies also include a cash value or savings element, which implies that a part of your premium grows as savings, accumulating interest or investment returns over time. You can also avail of loans against this cash value. However, you can only do so if your policy has completed three years and you have paid all your premiums on time.

Endowment policies

Endowment policies also offer financial cover along with a savings component. Your beneficiaries get the death benefit and a bonus in case of your demise during the policy term. You also get a lump sum maturity benefit If you survive your policy term.

Money-back policies

Money-back policies give you periodic payments during your policy tenure. Under this plan, you receive a certain percentage of the sum assured regularly. Once the term ends, you receive the remaining amount in the corpus and interest benefits. In case of your untimely death during the policy tenure, your beneficiary receives the entire amount, regardless of the number of instalments paid. Because of its unique features, Money-back policies are typically more expensive.

Unit Linked Insurance Plans (ULIPs)

ULIPs combine the concepts of insurance and investment. ULIPs invest their premiums in various market-linked funds, such as equity, debt, balanced funds, etc. For instance, you can choose a ULIP that pools your investment in bonds if you are a safe investor or one that puts your funds in stocks if you have a higher risk tolerance. However, remember, this plan comes with a lock-in period, usually five years, implying you must refrain from withdrawing your funds during the lock-in period. Also Read: How to calculate Sum Assured and Premiums under Life Insurance policies?

As discussed above, the first step is to assess your financial goals. Once you have identified the goals, you can review the following aspects to finalise your purchase.

Age:

Although you can buy Life Insurance at any stage in life, there are ways in which you can save money while maximising the benefits. You can buy Life insurance plans as soon as you are financially capable of doing so. The younger you are while purchasing the cover, the better your chances are of getting a lower premium deal. You can buy a policy once you are 18 years of age.

Coverage and premiums:

You have to decide how much financial coverage you or your beneficiaries need. A higher coverage means higher premiums.A Life Insurance policy may be useless if the coverage is so low that your family cannot meet their needs. Similarly, it should not be so high that you face challenges paying the premiums.An ideal coverage amount is ten times your annual income. Remember your current assets, loans, and future expenses, such as children’s education, etc., to assess the coverage needs.

Policy tenure:

Estimating your life expectancy rate is crucial to deciding your policy tenure and subsequent payments. You can estimate your life expectancy rate by determining your health condition and lifestyle. It allows you to determine the period you want to buy the policy.Insurance companies need details such as your job profile, eating habits, smoking and drinking habits, gender and genetics while processing the policy.

Add-ons:

Most policies offer riders or add-ons, such as accidental death cover, critical illness cover, etc., that you can use to customise your plan.

Other customisations:

Make a list of customisations you want in your policy, such as flexibility regarding premium payments, coverage adjustments, or other policy modifications.

• A large part of determining your optimal coverage involves getting a rough estimate of all your major expenses, including the costs related to your future goals, acquiring assets, education, etc.
• After figuring out your major expenses, ascertain how much financial assistance your family would require in your absence.
• Calculate how much it will cost daily to maintain a certain standard of living.
• Set aside money for unplanned expenses or emergencies.
• Add all the numbers to reach a ballpark figure for your coverage requirement.

You must also evaluate your ideal insurer once you identify your needs based on the above assessment. The following are the factors to consider:

Reputation of the insurer:

Some insurers lure you with lucrative deals. Choosing a reputed insurer keeps you safe from mis-selling. You should also check customer service reviews of the insurer shared by other policyholders.

Financial stability:

It helps to know if the insurer has sound financials. If you are unsure how to do that, ask an insurance agent to provide details that indicate the company’s financial health.

Claim settlement ratio:

This tells you the percentage of claims settled by the insurer. A higher ratio means the insurer is prompt in settling claims. Also Read: How to avail loans against Life Insurance policies?

Once you have done your pre-work, the next step is to look for a suitable Life Insurance plan to match your needs.

Hunt for good quotes

You can start by searching for such plans online and comparing quotes. Consider it to be like any other shopping you would do. Conduct an in-depth assessment, shortlist the insurers and then ask them for quotes to compare policies fairly. Some insurers might give you discounted rates than others.

Look for buying options

Most Life Insurance providers now allow you to buy plans online, saving time and effort. However, if you prefer a personal touch or human intervention, calling an insurance provider or visiting their office is the way to go.

Submit required documents

Once you choose your insurance plan and the mode of application, submit the required documents. You may have to undergo a medical exam to assess your overall health conditions, which could affect your policy’s terms and conditions.

Read the policy document

It is the most crucial step. Review the policy document and ensure the terms and conditions meet your requirements. Check inclusions and exclusions carefully. If you are unhappy with the terms of the policy after purchase, you can cancel it within 15 days. This period within which you can cancel a newly purchased policy is called the free look period.Remember, your policy only gets activated after payment of the first premium. Also Read: Should you cancel your Life Insurance policy?

• Before purchasing a Life Insurance policy, evaluating the policy’s purpose and financial goals is essential, considering your income and assets. It also helps you ascertain how much premium you can afford.
• Next, try to understand the types of Life Insurance policies available, what they do and do not cover, and which ones meet your purpose.
• Keeping the types that suit your needs, assess your requirements regarding coverage, policy tenure, add-ons, etc.
• Evaluate various insurance providers and zero down on a few that are reputable, have a good claim settlement history, and offer the kind of product you seek.
• Clarify any doubts by speaking with insurance companies or their agents. Compare quotes from different companies.
• Finalise the policy you want and provide all the necessary documents.
• Remember to read the policy document immediately after you receive it. You have a 15-day grace period during which you can cancel the policy if you have any concerns.
• Finally, be regular with your premium payments to avoid your policy from lapsing.