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Applying for life insurance policy? Here are 8 factors to consider..

Life insurance is a must have in everyone’s portfolio! Buying a life insurance policy is equally important along with right and timely investment for future goals, carefully handling income and expenses and making money work hard for you; When anyone starts working, one of the element of his/her ‘To-do’ list is, buying a life insurance policy.

Life insurance should never be for any profit of the insured, but its a delicate yet very important responsibility of the earning member of a family towards his/her family members who are financially dependent on him/her.

Why one should not look for gains from life insurance policy and what should be expected from a policy cover by the insured is explained in one of my previous blogs i.e.

But, often people end up buying policy ,without understanding and considering the very purpose of life insurance either in haste or by a friend or relative having ‘insurance agency’ . Here, they look for returns from their policy and end up buying a policy with lesser amount of insurance cover and shorter tenure.

Well, to avoid confusion and to get a right suitable life insurance policy for you, one should consider following factors while opting for it.

1.Which life insurance policy to consider?

Life insurance policy and its cover should be used to make dependents of the insured, financially independent and strong enough to lead independent life and to fulfill their major life goals while maintaining their standard of living, when insured dies.

To achieve this purpose, one must opt for ‘Term Insurance’! This is only kind of a policy which satisfies the core purpose of a life insurance. Here, insured gets a bigger amount of life insurance cover at comparatively lesser amount of premium. Insured can select a term or tenure for which , he/she wants insurance cover. If insured person survives during that selected term, then he/she never gets anything in return, but if insured dies during the term, then his/her dependents get the whole policy cover amount.

2.How much insurance cover one should opt for?

Everyone is different in terms of income, expenses, liabilities, goals, responsibilities etc. Therefore, everyone’s requirement for a life insurance cover should vary. ‘A Certified Financial Planner’ will be able to calculate the right amount of insurance cover for you if you opt for his/her services.

But, speaking in general, one can have insurance cover for the amount equivalent to 10-12 times of insured’s annual income.

3.Online or offline?

Nowadays, you can buy life insurance policy easily through online mode. This you can purchase directly from insurance provider. It reduces your cost of commissions if any, when buying from distributors.

4.Should you opt for life insurance just to save taxes?

This is a ‘tax saving season’! Many people rush to buy life insurance policies just to save taxes u/s 80C of Income Tax Act. If you too are thinking on the same line, then please pause and think…..

Your life insurance policy must be only for the amount of cover needed for you and family. To save taxes u/s 80C, you can look for other eligible investment instruments like Equity Linked savings scheme, Public provident fund, National Saving Scheme, Tax savings FDs etc. Please choose the one which best suits your goals, risk appetite and tenure.

5.One policy or many policies?

Often , people end up buying multiple policies . But, eventually, it becomes a task to manage and maintain the records of policy documents, paying premium on different dates for different policies.

So, please choose one right and suitable policy for you and your family’s future goals and needs.

6. For how much period , you should purchase a life insurance cover?

Life insurance must be used to fulfill insured’s dependent’s future goals, their monthly expenses and should be able to make them financially independent. Generally, earning member of the family, gets free from family responsibilities like children higher education, their marriage, buying a home etc by age 60-65.

So, one can opt for a cover till his/her age 60-65 because making dependents of the insured financially stable and independent is the main aim of the policy. If one wants to leave any wealth for children, then one should plan and invest accordingly though instruments like equity mutual fund.

7. Single Premium or Regular premium payments?

Many a times, insurance companies offer attractive provisions/discounts/bonus etc if you opt for ‘single premium’ while buying a policy. But, if , unfortunately, insured dies soon after buying a policy, then it doesn’t become ‘cost-effective’ and ‘Tax effective’. So, you can opt for ‘Regular Payment of premium amount’ so, every year, you can opt for tax benefits and your expenses will be curbed every year, in order to pay that much premium.

Earlier you get the policy, lesser amount of premium you need to pay.

8. Should you opt for any rider along with term cover?

Nowadays, term insurance policies are offered with riders like, premium repayment, critical illness etc. One should avoid them and buy pure term insurance cover.

Critical illness can get covered in health insurance policy if you select a right one.

Life insurance is not the one which should earn you handsome returns, but you must opt for it to fulfill your responsibility towards your dependents.

So, be an informed person, take right insurance policy for you!

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