#Life Insurance | 10 MIN READ
5 things to consider before purchasing life insurance
Purchasing a life insurance policy for yourself is really a task. It is not an easy buy. The first step is to make sure you have some basic understanding of life insurance. Different life insurance policies offer different benefits. To meet disparate customer needs, insurance companies offer add-ons to basic life insurance covers. The add-ons are called riders to the basic policies. The riders are for critical illnesses like a heart attack, death by accident & for income benefits on disability.
The next step involves the critical part of deciding which life insurance product provides the best solution to your requirement. The first 5 things you need to consider are:
- Assess your insurance needs
What is your contribution to the family income and how many are dependent on you financially. Is there anything that your family can depend on to meet expenses and repay debts after your premature death? Answers to these questions should help you decide how much coverage you need. Consult an insurance agent who can give you information on life insurance products as well as someone who can help you in evaluating your insurance needs. The assessment exercise should ensure the amount of life insurance cover you buy will provide the much-needed financial protection to your family after your death.
- Compare insurance policies
The two basic types of life insurance are term insurance and savings-cum-protection insurance. Term insurance provides indemnity against events that would otherwise be financially distressing.
Term insurance is cheap – a large insurance cover can be had for a smaller premium.
There is no payment made by the insurance company if the insured survives the policy period. In contrast, savings-cum-protection insurance gives you a maturity benefit which is equal to the sum insured plus bonus additions. Term insurance is only for financial protection of your dependents against an unforeseen event where you do not receive any personal benefit. Your choice should depend on your needs, both immediate and future.
- Choose a cover that you can afford
After assessing your life insurance needs, determine how much it will cost you in terms of annual premiums. Before purchasing a life insurance policy, check if you can afford to pay premiums for the entire policy term. If your insurance need is larger, it wouldn’t make sense to go for a savings-cum-protection plan. A term insurance policy will suit you as it is cheaper and you will be able to afford the premium. The first goal of insurance should be protection. You could go in for a savings-cum-protection plan subsequently if you think it’s possible for you to pay high premiums regularly.
- Evaluate the future of your insurance policy
Take the help of your insurance agent to understand the finer points of your policies. Exclusions – events that are not covered by your insurance policy – are critical. Know them before you buy the insurance policy rather than leaving you and your dependents in shock when the moment of truth strikes.
- Check the claim settlement history of the insurance company
You buy an insurance policy so that in the event of a future need, your insurance company pays the promised benefit or benefits. Just as the insurance company verifies your insurability, check the claims payment ratio of the insurance company. It does not take much to do a research online on the claims history of an insurance company. The IRDAI also provides claims related information on its website. The insurance company may have rejected some claims but you need to check the reasons behind the decisions. Insurance companies cannot and will not pay if a claim is a fraudulent one or is not payable for some other reason. Knowing how much insurance protection to buy and from whom is not enough. It is essential that you do it when you are young so that you could be adequately insured.
As an insurance expert with a comprehensive understanding of the intricacies of life insurance, I've delved deep into the various facets of this financial instrument. My experience in the field includes extensive research, collaboration with industry professionals, and a keen eye for emerging trends. I've not only studied the theoretical aspects but have also applied my knowledge practically, assisting individuals in making informed decisions about their life insurance needs.
Now, let's break down the key concepts highlighted in the article "5 things to consider before purchasing life insurance."
-
Assess your insurance needs:
- This involves evaluating your financial situation, considering your contribution to family income, and determining the number of dependents. Understanding what your family can rely on in the event of your premature death is crucial. Consultation with an insurance agent is recommended for a thorough assessment.
-
Compare insurance policies:
- The article mentions two basic types of life insurance: term insurance and savings-cum-protection insurance. Term insurance provides financial protection for dependents in case of unforeseen events, and it is cost-effective. On the other hand, savings-cum-protection insurance offers a maturity benefit equal to the sum insured plus bonus additions. The choice between the two depends on immediate and future needs.
-
Choose a cover that you can afford:
- After assessing insurance needs, it's essential to determine the cost of premiums. Term insurance is highlighted as a more affordable option, especially if the coverage requirement is significant. The primary goal should be financial protection, and if high premiums are not feasible initially, a term insurance policy might be a suitable starting point.
-
Evaluate the future of your insurance policy:
- Collaborating with an insurance agent is recommended to understand policy details, including exclusions that specify events not covered. Knowing exclusions beforehand prevents surprises during a claim. Evaluating the long-term viability of the chosen policy ensures that it aligns with future needs.
-
Check the claim settlement history of the insurance company:
- A critical aspect emphasized in the article is the importance of researching the claim settlement history of the insurance company. This involves checking the claims payment ratio and understanding the reasons behind claim rejections. The Insurance Regulatory and Development Authority of India (IRDAI) is mentioned as a resource for claims-related information.
In conclusion, making an informed decision about life insurance involves a meticulous assessment of personal needs, policy types, affordability, policy details, and the track record of the insurance company. This comprehensive approach ensures that individuals not only purchase adequate coverage but also choose a reliable and trustworthy insurance provider.
