Things to Keep in Mind Before Buying a Life Insurance Plan
Here are some useful suggestions that will help you understand your Life Insurance requirement and make the right decision regarding the life insurance plan for your family:
1. Know your current life stage
As you grow older, you will pass through various stages. Some of these life stages are getting your first job, your marriage, birth of your child, his or her teenage years, and your retirement. At these different life stages, you will have different goals and plans. Planning for these goals in advance will help you achieve them.
2. Plan for a specific financial goal
It is advisable to keep clear, specific and measured goals. For example, “I want to have a comfortable retirement “or, “I want to fund my child’s higher education
” are not specific and measured goals. An example of a specific and measured goal would be, “I want to send my child to an international business school in 10 years. This costs ₹ 18.5 lakh* today and would cost ₹ 36.39 lakh** 10 years from now. I need to plan for it.” You can arrive at your specific goals by using our goal calculators.
*Source: MBA fee for 2 year flagship course of IIM - Ahmedabad
**Assuming 7% rate of inflation
3. Calculate the amount of Life Cover that you need
The Life Cover that you need depends on your liabilities, number of dependents, your current & future income along with other factors like your assets and any existing Life Cover that you may have. Ideally, your Life Cover should be at least 10 times your yearly income. For example, if your annual income is ₹ 10 lakhs per year, then you should have a minimum Life Cover of ₹ 1 crore. To know the amount of Life Cover you need, use our Human Life Value Calculator
4. Choose the longest possible term
The longer you stay invested, the more your money can grow with the power of compounding. For example, if you invest ₹ 1 lakh every year for 5 years, you would have saved ₹ 5,63,298 @ 4% interest rate and ₹ 6,33,593 @ 8% interest rate. Whereas, staying invested for just another 5 years (total of 10 years), your savings would be ₹ 12,48,635 @ 4% interest rate and ₹ 15,64,549 @ 8% interest rate.
5. Verify all charges and benefits
Always take time to understand the charges attached to your life insurance plan. You should also check the tax benefits available under the insurance policy.
6. Understand the claim aspects
You can learn about a company’s claim settlement process by checking the quality and speed of the claim settlement process. You can also check the Claim Settlement Ratio of a company. This ratio is an indication of the claims settled by the company compared to the number of claims received by the company. It is advisable to select a company that has a higher Claim Settlement Ratio.
7. Stay informed about all servicing options offered
Check the service touch points that the insurance company offers. You should check if the company has a wide network of branches, the number of services offered on digital platforms, and other similar information. These details help you get convenient servicing at a later stage in your policy.