Life insurance is an important part of our financial planning. It not only helps us build a provision for emergencies but also allows us to safeguard the financial future and mental peace of our dependents, even when we are not a part of their life. Today, more individuals are embracing the importance of insurance and adding it to their financial planning agenda. This has prompted the insurance industry to develop multiple insurance products to make them accessible to customers belonging to different walks of life. However, this increased product range has overwhelmed many as they find the process of seeking suitable plans confusing. In case you are planning to buy a policy but do not know how to begin, you need to ask yourself a few crucial questions that are beyond the basics like what is life insurance.
Questions to Ask Before Purchasing Insurance
The first thing that you should ask is how much insurance coverage would you need. We cannot attach a monetary value to a human. However, what we can estimate is the monetary value we bring to our family and dependents. Based on this information we can estimate the approximate amount of money that could help us build a cover for our dependents and allow them to meet their financial obligations and liabilities without seeking other’s assistance. Notably, the financial estimate of your life value is called Human Life Value or HLV. The process involves two steps –
- Add expenses such as lifestyle expenses, household expenses, and current liabilities
- Factor in future liabilities and outstanding loans. This is the amount your dependents have to shoulder in your absence
- After you add your life expenses and your future obligations you can obtain your human life value, which will help find your suitable sum assured
What are the Things You Should Remember?
Firstly, you must remember that there is no one-size-fits-all approach to a life insurance plan. Your suitable life insurance plan would be different from your relative or friend’s plan. This is because insurance providers factor in your personal goals and liabilities to help you tailor a policy offering that suits your case and needs.
Next, starting your policy early in age would help you obtain high coverage at a reasonable premium. This is because premiums begin to increase with the increase in age.
Term plans are the most affordable type of life insurance plan where you can access a high cover at a lower premium amount. However, there is no survival or maturity benefit, which means if you outlive the plan you will not receive anything. There could be some exceptions if your choice of term plan has a provision for repaying the premium component post-maturity. It is important that you clarify this with your insurer before purchasing a term plan.
Riders or add-ons can help you increase your policy coverage. There are several types of riders available today such as critical illness riders, accidental death riders, premium waivers, and more. Based on your needs to customize your plan you can add one or more premiums to your base plan. However, adding riders to your existing plans will increase your premium but will still cost you less than getting a new standalone policy. You may use an online premium calculator to understand how adding riders impacts your coverage and premium and decide accordingly.
How to Pick the Right Life Insurance?
Firstly, you need to identify your financial standing, that is, if you would be able to pay for insurance premiums and your current standard of lifestyle. Then you need to determine your expenses and future liabilities to understand the financial support your family could need in the future to sustain their lifestyle. In case you have other predefined goals such as planning your child’s education needs, retirement goals, or marriage, you must include them in your analysis to obtain a better estimate of your required cover.
After understanding these basics follow these steps to pick a suitable plan for your needs –
Step 1: Consult with an insurance advisor
You may visit the nearest insurance branch to speak with the professionals to discuss your insurance needs. This will help you navigate the processes and explore suitable policies. In case your family has an insurance agent, you may consult with them to understand which policies can be best for your needs. Their experience will help you pick a suitable plan. You may use an online calculator to understand your insurance needs and plan accordingly.
Step 2: Compute coverage needs
To arrive at a suitable cover or sum assured assess your sources of income, including investments like earnings from 24k gold price appreciation, number of dependents, ongoing and future liabilities, debts, and daily expenses. The insurance agent or advisor can help make a more accurate estimation based on the information you share. Subsequently, they will tell you which plan among term insurance, endowment plans, money back, or ULIP would be the best option.
Step 3: Compare insurance plans
Today you have more than one option in each life insurance category to explore. To ensure you get the best plan, begin by comparing the policy features. Pay special attention to the terms and conditions and exclusion list. Then swiftly check the insurer’s claim settlement ratio and process. Once all these are covered, you will be well-positioned to select insurance. Your insurance can help you with the insights and gaps. You need to be mindful of the same and compare them to understand their scope.
When seeking an insurance plan always make it a point to start with the basics. This approach will help you gain clarity about the scope and help you understand what to expect from the insurance plan. Next, you should gain information about the insurer and their record of handling claims and settling consumer disputes. This will help assure you and your family can access timely help in the face of an emergency or doubts. In other words, seeking information on both insurance and its provider is important.
