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A life insurance plan is an essential financial product. It helps you protect your loved ones financially, in case something untoward happens to you during the period of policy coverage. In case such a situation comes to pass, the insurance provider will pay your nominee the sum assured under the policy. This money can help your family tide through the tough times without any major financial difficulty.
But aside from this fundamental benefit, life insurance can also offer you a host of other advantages, depending on the kind of policy you choose. This is why it is vital to select the ideal life insurance plan for your portfolio.
To do this, here are 7 key things you need to consider before you buy a life insurance plan.
1. The amount of coverage
This is the first thing you need to get right. Your cover should be large enough to protect your family adequately, but not so large that you cannot afford it. Ideally, experts recommend purchasing a life cover that is at least 10 to 15 times your annual income. However, if you want a more accurate estimate, you can use an online life insurance coverage calculator.
Having sufficient coverage can help your family meet their everyday needs even in your absence, without any financial trouble. In addition to that, it can also help them meet their life goals as planned.
2. The type of policy
There are different types of life insurance policies, each with its own unique advantages. You need to identify your needs and goals, and choose the policy type that best meets your requirements. Here is a brief overview of the type of policy that aligns with the common financial goals you may have.
Type of life insurance
When to choose this type of life insurance
Term life insurance
If you want a sizable life cover at affordable rates, even if it means no maturity benefits
Endowment life insurance
If you want the benefits of savings and life insurance under one plan
Unit Linked Insurance Plan
If you want the benefits of investments and life insurance under one plan
Whole life insurance
If you want to enjoy coverage till the age of 99
Child insurance plan
If you want a life insurance plan that is aligned with the major milestones in your child’s life, like education and marriage
If you want a life insurance plan that offers retirement benefits too
3. The tenure of coverage
Once you have chosen the type of plan and the amount of coverage, you need to decide on the tenure of coverage. Every life insurance plan (except whole life insurance) offers coverage for a specific tenure. Only deaths during this period are covered. So, it makes sense to have a life insurance plan that comes with a longer tenure, rather than a shorter one.
Ideally, you need to opt for a life cover that is valid till you retire, at the very least. This is because during your active working years, your family will be dependent on your income to meet their needs. And in case something happens to you during this period, your life insurance plan acts as a safety net for them.
4. The premium payment mode
Depending on the policy you choose, you may be eligible to pay a single, lump sum premium upfront, or regular premium on a periodic basis. In the second case, you can choose to pay your premium on a monthly, quarterly, semi annual or annual basis. You need to consider this aspect and choose the premium payment mode that is most convenient for you.
In some plans, you can also choose to pay the premium for a limited period, which is shorter than the policy tenure. So, that’s another aspect to take into account.
5. The terms and conditions of the policy
There are other terms and conditions of a life insurance policy that you need to consider. For instance, check the grace period offered in case of delayed premium payments. Find out if there is a waiting period involved. And take a look at the other terms governing the policy, like the nomination, the option to avail a loan, the surrender charges and the surrender value.
6. The life insurance provider
You also need to select the right life insurance provider. To identify a good life insurance provider, you can look at the following parameters and make a decision.
What it tells you
What to look for
The claim settlement ratio
This is the percentage of the total claims received during the year that the life insurance provider has settled.
The higher this ratio, the better, since it means the insurer promptly pays out genuine claims.
The solvency ratio
This ratio indicates how solvent the insurance provider is. In other words, it reflects the strength of the insurer’s cash flow.
Again, the higher this ratio is, the better, because it indicates that the insurer is solvent enough to settle claims promptly.
The reviews of existing customers
This will give you valuable insights into how convenient the user experience is.
Look for any recurring complaints and check for how efficient the after sales service is.
7. The add-on riders
This is another key thing to consider before you buy a life insurance plan. You can typically purchase add-on riders at the time of buying your life insurance policy. There are different riders that come with a policy, based on the type and the insurance provider. Here are some common riders you can choose from.
You need to pay a nominal additional premium for these riders, and you can enjoy additional coverage and benefits, over and above what your base plan offers.
Considering and evaluating these 7 things can help you figure out which life insurance plan is the best one for you and your family. Make sure that you factor in all these aspects, because overlooking even one of them can lead to a less-than-optimal decision. In case you have any trouble figuring out any aspect, like the policy tenure or which riders to choose, you can always seek the help of a financial advisor to guide you through your dilemma.
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