For a long time, in India, many people considered life insurance policy as a tax-saving instrument. However, IRDA (Insurance Regulatory and Development Authority) suggests that there has been a massive surge in awareness about the need for life insurance.
As people realise that unforeseen events like the COVID-19 can disrupt theirs and their family member’s life, they are more willing to buy a life insurance policy. If you are a first-time insurance buyer, you must know that many life insurance companies offer different types of policies. Finding the right policy among so many options can be challenging. But don’t worry, we have got you covered.
- Know about the different types of life insurance policies
The first step in choosing the right policy for your family is to know about the different plans available in the market and assessing the features against your requirements.
For example, if you want a policy with high coverage at a low premium. Term insurance would best suit your needs. In term insurance, the insurer pays the death benefit to the nominee if the policyholder passes away during the policy period.
If you are looking for a more comprehensive policy with savings and returns components, you can buy a ULIP (Unit Linked Insurance Plan). ULIP allows you to invest in the money market instruments and get valuable returns in the long run while providing life cover. You can choose the investments in different asset classes based on your goals and risk-taking capacity.
Choosing the right policy is the key to securing your future.
- Assess the coverage you need
One of the critical factors you must consider while buying a life insurance policy is the extent of coverage you need, i.e., the sum assured. You must choose the right sum assured based on the number of dependents you have and the degree of their financial dependency on your income.
The amount must be sizeable enough to help your family take care of their everyday expenses for a few years in your absence. If you have young children, they may need money for their education and other needs. Additionally, you cannot overlook the inflation factor. So, think about your family’s lifestyle, future expenses, etc. and choose the coverage amount accordingly.
Generally, the experts recommend following the rule of thumb, i.e., the life insurance sum assured must be 10-15 times your current annual income. Having higher coverage ensures that your family does not face any financial hassles in the future.
- Consider buying riders
Riders or add-ons extend the scope of your standard life insurance policy. They are voluntary coverage options that you can buy by paying an additional premium. Many experts recommend buying riders as they help cover specific risks that your standard life insurance policy may not cover.
For example, if your policy does not cover death due to critical illnesses, you can buy a critical illness rider. This will be useful for your family, especially if you have a cancer history in the family. The riders allow you to get additional compensation over and above the sum assured.
- Read the policy terms and conditions before you sign the papers
Once all the checks are in place and you purchase a policy, it is paramount that you carefully read the terms and conditions before sign the dotted lines. This will save you from facing legal issues in the future, especially when you or your family files a claim.
Final Word
Financial advisors worldwide suggest that a life insurance policy is a foundation for a strong financial plan. Life insurance provides tax benefits, safeguards your family’s financial future, and allows you to fulfil your long-term goals. With so many benefits, a life insurance policy is a must-have.
