You are no stranger to calls from agents selling different types of life insurance plans. There is no denying the importance of life coverage; however, it is quite common for several people to feel misled when they invest in a life insurance plan.
To ensure that you do not fall into this situation, it is recommended that you understand a few basics. Start with determining your requirement, understanding the type of plan needed, and then decide on the most appropriate policy to suit your needs.
The purpose of life insurance
The most important purpose of a life insurance policy is to provide financial security to your family in your absence. The insurance need depends on your life stage. Therefore, if you do not have dependents or your income does not contribute significantly to the total earnings of your family, you may not need life coverage.
However, if you are the sole earning member and have outstanding debt obligations, it is important to procure adequate coverage. This ensures that your loved ones are not left in financial difficulties in case of any untoward incident.
How much coverage is needed?
There is no standard formula to calculate the amount of life insurance coverage. Some of the factors that you need to consider to determine the sum assured include your total earnings, number of dependents, outstanding loans, and current lifestyle.
A general assumption is that you must avail of at least five to 10 times your annual income as life insurance coverage. However, it is recommended you consult an experienced financial advisor to determine the coverage you need to ensure the financial stability of your family in case of an untoward incident.
Types of life policies
There are several types of life insurance policies such as whole life, money back plans, term plan, and Unit-linked insurance plans (ULIPs) you include riders like critical illness. Each of these policies has unique features and pros and cons. Traditional plans like whole life and money back policies have higher premiums, as these provide maturity, as well as, death benefits. Term plans are pure risk covers and provide higher coverage at an affordable premium. ULIPs combine insurance and investment to provide life cover along with returns.
It is recommended that you consider your personal requirements to decide on how to choose a life insurance policy.
Life insurance costs
Every life insurance plan has certain costs such as mortality fees and administrative charges. Additionally, insurance companies may pay commissions to their agents, which further increase the costs.
Mortality fees are levied by the insurers to provide life cover during the policy duration and a portion of the total premium is used towards these. Additionally, insurance plans like ULIPs combine insurance coverage and investment returns. Such policies have investment fees in addition to the mortality fees and administrative charges.
The premium on your insurance policy depends on several other factors. These include the sum assured, your age, existing medical conditions if any, and many more. Additionally, if you include riders like critical illness or accidental death benefits, the premium further increases.
One way to reduce the cost of your life insurance plan is to buy online. The commissions and administrative costs decrease when you buy an online policy. These cost savings are passed to you through lower premiums.
To choose the best insurance policy, it is recommended you take time to understand all about life insurance and different inclusions and exclusions, and all terms and conditions. Using the Internet for doing a detailed analysis and comparison will be beneficial.
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