Life Insurance is important for all, no matter whether you are married or not. Most people buy Life insurance policy to save tax or investment purposes, if you have bought the policy for the same reason, then I am sorry to say, but your policy is worthless to you. Today we will be discussing why should we have Life Insurance policy and what are the things we should keep in our mind before buying any Life insurance policy?

Things to consider before
buying life insurance
Objective: Our first objective is life risk
cover. In the event of your death, your family has to pay financial liabilities
you have, such as your debts. Not only debts, since you are the earning person
in your family then they will be required to fulfill other financial
liabilities too i.e. children's education, marriage, etc. Therefore if you have
insurance coverage, your liabilities will not be a burden for your family
members.
Early Age: Individuals must buy life
insurance as early as. If you insured your life early, your premium will be
lower. Your insurer charges you less as you are young and healthy. As you
become older premium will be high considering you are becoming unfit year by
year.
Sum assured amount: Life
insurance objective is to safeguard your family from your financial liabilities
in the event of your death. So while buying Life insurance we should choose sum
assured according to our liabilities. In financial planning it is considered to
have a sum assured of 20 times your annual income, say if you have 3 lakh
annual income then sum assured must be 60 lakh rupees.
Claim settlement ratio: Before
choosing any company you can check their claim settlement ratio. This ratio
tells the percentage of claims the insurer has paid out during a financial
year.
Do not expect returns: In
India, people see insurance policies like investment instruments. They buy life
insurance, not for risk cover but investment planning, and therefore they buy
traditional life insurance policy whose premium is high but risk cover or sum
assured is insufficient.
Avoid agents: Agents
help us out in getting information about plans and to process applications. For
this service insurance companies pay commission to them and therefore buying
insurance through agents becomes costly. Earlier online facility was not
available but now it is possible. The online application process is easy now
and all information is available on the website, still, you have doubt then you
can call companies toll free numbers. Therefore you should buy a term insurance
plan online which is cheaper due to no involvement of agents.
Buy online pure term plan: Online
term plan provides you high sum assured in a very less premium. You may compare
life insurance plans in online portals like policybazar.com. However, it
doesn’t give you returns like traditional life insurance policies.
Traditional Plan v/s Online Term Plan
In India, the practice of buying a traditional Life insurance
plan is quite common because it provides life risk cover as well as investment.
People blindly buy these traditional plans without analyzing that these plans
are costly due to guaranteed but low returns and therefore these plans are
insufficient to provide them sufficient risk cover and returns to meet their
financial goals. Instead of this people should buy online Term plans whose
premium is much lower and with the remaining amount they should invest in
various genuine investment instruments to achieve their financial goals.
Let’s understand with this example
Assume your age is 30 years and the monthly salary is approx
50,000 rupees. You have below mentioned financial goals.
· Buying House
· Children Education
· Children Marriage
· Taking care of your retired parents
Then you will be required life insurance of sum assured 1 crore.
Now we see both scenario
|
Traditional Plan |
Online Term Plan |
Remarks |
Premium for 1 crore
sum assured |
1.20 lakh/ year
approx |
Max 15,000/ year
approx |
You saved Rs. 1.05
lakh/year approx |
Total premium paid
till age 60 |
Rs. 36,00,000/- |
Rs. 4,50,000/- |
You saved Rs. 31,50,000/-
approx |
Maturity value after 30
years |
Rs.36,00,000 (Guaranteed) Rs.57,00,000 (4% rate - non guaranteed) Rs. 99,00,000 (8% - non guaranteed) *approx values | Nil |
It means you will get between Rs. 36-99 lakh, depending upon profit |
Returns from
Remaining amt of 1.05 lakh/year by investing in various investment
instruments available in market |
No remaining amt to invest |
Rs.1,90,00,000
approx |
Taking expected rate
of return 10% (we may get more
than 10% by good investment planning) |
We can see in the above illustration by choosing a pure term
plan and investing remaining funds in other investment instruments like PPF,
Mutual Funds, Stocks, etc we can get sufficient risk cover as well as much
higher returns as compared to traditional life insurance plans.
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I hope this article will be helpful. If you have any doubt or queries feel free to write us.
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