10 tips to help you find the best life insurance plan for yourself
Why do you need life insurance?
“In this world full of uncertainties, one needs to be certain about the protection of their loved ones. This can be done by securing themselves with, the armour of life insurance.”- An unknown author perfectly summarises the significance of life insurance in these few words. A life insurance policy is a legal contract between you and a life insurance provider. In exchange for regular premiums paid by you, the insurer remits a sum of money to your loved ones in case of your demise or to you after a definite period known as maturity. However, apart from acting as a financial safety net for your loved ones in your absence, life insurance has some other benefits as well. It can act as a savings instrument, provide financial freedom to you in your old age, and helps in reducing your tax liability. The reasons for investing in life insurance are plenty, however, purchasing one of the best plans for yourself can be a little tricky.
Here is a guide to help you select the right policy that suits all your needs.
How can you choose the best life insurance plan?
1. Assess your life insurance goals
Goals may vary from person to person, you must plan for your life insurance goals with the help of a suitable life insurance policy. If safeguarding your family’s financial security is your primary goal, you can buy a term insurance plan that offers high coverage at affordable rates. If you are looking to save for your child's education or thinking of buying a dream house for yourself, you can consider investing in a unit-linked insurance plan. You can also buy a retirement plan which will ensure regular income for your everyday expenses post-retirement.
2. Calculate the optimal insurance cover that you need
Many financial advisers suggest that your life insurance cover should be at least ten to fifteen times of your annual income. However, there are several elements that you should consider while estimating the ideal life insurance amount. If you have debts, then meeting the Equated Monthly Instalments or EMIs might be challenging for your family in your absence. In addition to this, you need to arrange funds for your children’s higher education or marriage. As a result of inflation, your family might also face difficulties in maintaining their current lifestyle in the absence of the principal breadwinner. Thus, you need to find the total of the following:
- Your family’s annual expenses multiplied by the number of years for which income replacement might be necessary
- The total amount of your outstanding debts and the cost of repaying mortgages, if any
- The amount you need to set aside for future expenses like your child’s education, wedding, etc.
You can deduct the sum of your liquid assets like cash in hand or bank and any other kind of investments from the expenses mentioned above to arrive at an adequate life insurance cover.
3. Determine the amount you have to pay as the premium and find the policy offering the best deal
You can use online premium calculators to ascertain how much premium you have to pay for the life insurance amount that you require. Compare different plans to find a policy that offers the highest coverage at rates that fit your budget. You should also asses your premium paying term based on your earnings for the upcoming years.
4. Select the correct policy term
The term of the policy should ideally be the number of years your family will be financially dependent on you. The general thumb rule for deducing the ideal policy term is to subtract your current age from the age at which you expect your income to stop or wish to accomplish a certain life goal.
5. Opt for a reputable life insurance provider
Life insurance companies with a claim settlement ratio (CSR) of over 95% for consecutive years are generally considered reliable. The CSR is the percentage of claims that the company has settled in a financial year compared to the number of claims placed. You can visit the Insurance Regulatory and Development Authority or IRDAI’s website to view the updated CSR of different insurance providers in India. It is also advisable to read customer reviews and understand whether your life insurer’s claim service is fast and hassle-free.
6. Do not conceal facts from your life insurance provider
If you consume tobacco or alcohol, or work in a hazardous industry, inform your life insurer about these details. You must also declare any existing illnesses or family history of critical ailments. These factors influence your risk profile. Providing accurate information is vital to prevent claim rejection in the future.
7. Read the final policy document carefully
Understand all the terms and conditions clearly, before you make the final commitment. Find out relevant details such as the lock-in period and the circumstances in which the claim will not be valid.
8. Buy life insurance at an early age
Life insurance premiums are lower when you are younger. Thus, you can save on the cost of your premium if you buy your life insurance policy as soon as you start earning. You can begin with lower coverage and add more riders as your income increases.
9. Choose a comprehensive plan
Medical contingencies might affect your income adversely. Hence, it’s necessary to choose a comprehensive plan, with appropriate riders for yourself:
- Critical illness rider provides full claim payout if you are diagnosed with any serious medical condition like kidney malfunction, cancer, or cardiac diseases. This amount can be useful in meeting treatment costs and protect you against the loss of income due to such illnesses
- Accidental death benefit rider provides your loved ones an additional amount in case of your sudden demise due to an accident. This safeguards your family’s future from the threat of impairing the regular flow of income to maintain their current lifestyle
- Permanent disability rider functions as a waiver for all your future premiums if you are permanently disabled due to an accident. Your life cover continues throughout the remaining policy tenure
- Terminal illness rider can give you access to funds for dealing with terminal ailments like cancer by providing full payout before death
You should always look for an insurance provider that offers such benefits without charging you any hidden fees.
10. Evaluate your life insurance needs regularly
It is essential to assess your life insurance needs from time to time as your financial goals might change with age and life events like marriage or childbirth. You can review your life insurance needs periodically and adjust your cover accordingly. This will also take care of inflation.
Life insurance is an essential financial tool. Keeping these tips in mind and researching thoroughly can help you make an informed decision to find the best life insurance policy with sufficient coverage.