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Tips for Selecting a Life Insurance Plan
How to Choose Life Insurance
Understanding the Basics
Life insurance is a critical aspect of your financial planning. It forms your family’s safety net when an unfortunate event occurs. Life insurance policies are designed to safeguard your loved ones by providing adequate financial coverage in case of your untimely demise.
There are numerous life insurance policies available in the market, each one with a unique set of benefits and features. Choosing the right life insurance policy requires thoughtful consideration and understanding of its various aspects.
The basis of choosing the appropriate life insurance should center around your current financial status, future financial obligations and responsibilities, and long-term life goals. Let’s delve into an imaginary scenario that helps in understanding this better.
Take a married individual with two children. Let’s call him John. John is the sole breadwinner of his family. His financial advisor recommended going for a term plan with a sum assured that can support the living expenses of his family and school fee expenditure of his kids even after his demise.
- John’s age is 35 years.
- He opts for a 30-year term plan expecting to retire by 65.
- The sum assured is estimated considering his annual income, inflation, and other factors.
- His focus is safeguarding his family’s financial needs rather than investment or savings.
- This life cover would ensure that his family can maintain their lifestyle even in his absence.
- Policy premium affordability also plays a crucial role in the decision making.
Evaluating Your Needs
Insurance requirements can differ according to personal circumstances. Before jumping to any insurance product, you should be clear about why you need the insurance policy.
A fresh graduate with no dependents might not feel the need for life insurance. Still, it might be a good idea to get insured early owing to lower premiums and extended coverages that may come handy in future unforeseen circumstances.
For someone in their mid-thirties with a spouse and kids to fend for, it is more about the family’s financial security rather than personal benefits or investment returns.
Consider Brenda, a single mother who wants to secure her kid’s future in case anything happens to her. Brenda would choose a policy focused specifically on child plan schemes.
- Brenda’s focus is on building a safety net for her child.
- She would go for an insurance policy where lump sum or regular income is provided for various stages of her child’s life.
- Such policies often come with waiver of premium benefit in case of parent’s untimely demise, assuring continued benefits without any new premium payments.
- This type of life insurance acts as a guaranteed provision for the child’s education and other necessary expenses.
- Another important feature she will look for is flexibility to withdraw partial funds in case of emergencies.
- Role based policy benefits depending on whether insured person is alive or not, during the tenure also plays a role here.
Comparing Different Policies
Once you have identified your insurance needs, the next step is comparing different policies available in the market. Use online comparison tools, speak to insurance advisors and do your own research.
Understand each policy’s features, benefits, coverage limitations, exclusions, claim process and company’s credibility. The cheapest policy may not necessarily offer the best features, so work out cost versus benefits.
Dr. Stanley, for example, needed an insurance policy with critical illness rider added because of his family’s medical history.
- Dr. Stanley opted for an insurance plan that offers lump sum payout on diagnosis of any of the listed critical illnesses.
- This amount can be used to pay for treatment expenses.
- At the same time, the base life cover continues unaffected post claim.
- The plan provides multiple claims for different critical diseases over the term.
- Subsequent premiums get waived off in case of diagnosed with permanent disability from bodily injuries caused by accident.
- Flexibility to increase health cover every year is also a bonus in this kind of policy.
Selecting Suitable Premium Payment Term
The premium payment tenure and its frequency are significant determiners while selecting an insurance policy. It should correlate with your income pattern.
For freelancers whose income varies each month, they might prefer a single premium or limited premium payment mode. In contrast, for those with fixed monthly salaries, regular premium payments would be more suitable.
Emma, a freelance web developer, went with the single premium payment mode considering her irregular income pattern and convenience.
- Emma chose to pay one large sum as premium at once.
- She was comfortable making the higher initial investment to get rid of the periodic payment worries.
- Her policy provided a ‘paid-up’ status after the premium payment, meaning it continues till its maturity with reduced benefits even if she defaults paying subsequent premiums due to financial crunch.
- Such policies generally come with a higher death benefit from the first day of coverage.
- This approach saved her from the burden of remembering premium due dates.
- She also saved on the premium amount when compared to regular premium payment mode as she paid all at once upfront.
Making Use of Riders/Added Benefits
Riders are an excellent add-on benefit that you can opt for along with your life insurance policy. They cater to specific needs by enhancing your policy’s coverage at a small added cost.
For those looking for complete financial protection, riders like accidental death cover, critical illness cover or disability cover can be very beneficial. However, it’s essential only to choose the riders which relate to your insurance need.
Consider Sue, who frequently travels for work and therefore opted for an accidental death rider.
- Sue chose a rider that provides additional sum assured in case of death due to an accident.
- This separate pay-out over and above the basic sum assured is helpful in offering extensive cover in high-risk situations.
- Some policies even include benefits like double the sum assured in case of accidental death or reimbursement of repatriation costs for death occurred in a foreign land.
- Such a rider provides relief to the family facing an unexpected financial crisis.
- It also covers permanent or temporary disability due to an accident, providing financial aid during necessary adjustments in lifestyle.
- The relatively low cost of adding this rider to her policy made it a worthwhile investment for her given her frequent travel regime.
Reading Policy Documents Carefully
Insurance jargon might seem overwhelming, but it’s crucial to read and understand your policy documents before signing them. These documents contain all intricate details about your coverage, exclusions, claim process, renewal process, terms and conditions.
If something is unclear to you, feel free to ask your insurer or advisor for an explanation. It’s better to ask at the outset than encounter unpleasant surprises later.
Nathan, a renowned lawyer, reveals how crucial reading fine prints became for his chosen policy.
- Nathan came across a clause regarding the ‘non-disclosure of smoking habit’ in his policy.
- He discovered that if he hid the fact he was a smoker, it could render the policy null and void.
- He also noticed exclusions related to death due to adventure sports, which affected him as an amateur skydiver.
- The presence of a suicide clause highlighted the exclusion period under such circumstances.
- He found details about premium grace period beneficial when he may pay late sometimes.
- An awareness of these crucial elements helped him remain alert about keeping his policy active and functional.
Opting For A Reputable Insurance Provider
Choosing an insurance company with a strong reputation and high claim settlement ratio is wise. Look at customer reviews, ratings by approved rating agencies, company’s financial stability, and years in business.
An established insurer will have streamlined processes, quality products, sound customer service, and most importantly, a proven record of fair and timely claim settlements.
Michael, a businessman, shares how he selected his life insurance provider based on reputation.
- Michael checked the claim settlement ratio of different insurers online.
- He shortlisted insurers who were consistently high performers over the last five years.
- He referred to user reviews on various forums to gauge customer satisfaction levels concerning policy servicing, claim handling, and communication.
- He opted for a company that was financially stable as per rating agency report.
- A aside from general scrutiny, he also checked the insurer’s digital capabilities like mobile app performance and online customer portal efficiency.
- He finally chose a company that had a combination of high settlement ratio, positive reviews and strong financial structure.
Measuring the Value of the Plan
The end value of your policy depends on the amount of coverage you get for the price you pay. It’s not always about going with the cheapest plan but more about what benefits the plan provides relative to its cost.
Adding up premiums over the policy term and comparing it with sum assured gives an idea about basic net return. Adding riders or opting for savings oriented plans changes this equation a lot. It’s essential to assess these in line with your risk appetite
Alex decided to view his chosen insurance policy as an investment.
- Alex saw his insurance plan doubling up as an investment opportunity.
- He opted for a unit-linked insurance plan combining protection and savings.
- He got life cover along with investment in various market instruments.
- The plan offered fund switching option allowing risk management.
- His final corpus would depend on market performance; but offered potential higher returns compared to traditional insurance policies.
- Given his younger age and relatively high risk-taking capacity, such a plan suited him.
Seeking Professional Advice
If finding the right insurance policy feels overwhelming, don’t hesitate to seek professional help. A qualified financial advisor can provide personalized advice based on your specific needs, financial situation, and future goals.
Make sure to disclose all relevant information to your advisor for accurate suggestions. Always remember, your peace of mind is what matters the most.
Samantha sought help from a financial advisor when she couldn’t decide which plan to go for.
- Samantha shared her financial details with her advisor.
- She discussed her present commitments, financial dependents and their timelines.
- The advisor helped her understand risk associated with each type of life insurance.
- By assessing her risk appetite and future cash flow projections, the advisor suggested suitable plans.
- They even discussed potential financial scenarios and policy impact during such situations.
- With professional guidance, Samantha was able to select a life insurance policy that best suited her family’s needs.
Summary
Baseline Information | Consideration In Detail | Your Takeaway | |
---|---|---|---|
Understanding the Basics | Assessing your current financial status, future responsibilities, and long-term goals. | Evaluate your age, retirement plans, sum assured, etc. based on your income, inflation, etc. | Define what you want out of your life insurance. |
Evaluating Your Needs | Identifying why you need the insurance policy based on your personal circumstances. | If you have a child, opt for insurance policy that provides guaranteed provisions for your child’s future expenses. | Choose a policy that suits your specific needs. |
Comparing Different Policies | Looking at multiple policies and comparing their benefits to find the best one for you. | If your family has a history of critical illnesses, make sure your policy covers these conditions. | Select a policy that has all the features and benefits that suit your requirements. |
Selecting Suitable Premium Payment Term | Choosing a payment tenure that matches your income pattern. | If you have irregular income, consider single premium or limited premium payment mode. | Pick a premium payment term that you can comfortably manage. |
Making Use of Riders/Added Benefits | Opting for riders that enhance your policy’s coverage at a small added cost. | If you frequently travel or involved in adventurous activities, opt for an accidental death rider. | Customize your policy with riders that enhance your financial protection. |
Reading Policy Documents Carefully | Understanding the ins and outs of your policy before signing it. | Clear any doubts about clauses regarding non-disclosure or exclusions. | Read and understand every element of your policy document carefully. |
Opting For A Reputable Insurance Provider | Edging towards an insurer with a high claim settlement ratio and strong reputation. | Check online for insurer’s claim settlement ratio, financial stability, ratings, customer reviews, etc. | Find a reputable insurance provider that meets all your requirements. |
Measuring the Value of the Plan | Determining whether the outcome of the plan justifies its cost. | If you are young and willing to take risks, consider a unit-linked insurance plan. | Choose a plan that provides maximum benefits relative to its cost. |
Seeking Professional Advice | Considering professional advisors for personalized advice based on your specific needs and circumstances. | Talk to an advisor to understand risks associated with each type of life insurance and decide which one suits you best. | Seek advice to avoid confusion while making a decision about life insurance. |