Key factors to consider before buying Life Insurance
There are many instances in your life when you may not be sure if the decision taken by you is right or wrong. Luckily, buying a life insurance policy needn’t be one of them! For this, however, you require to do some research on which product would suit you the best. Being a decision that will affect you for a very long time to come, this makes sense too.
Now, I know many of you are going to have the immediate push back of ‘How am I supposed to understand all the intricacies involved?’ Relax! You do not. To make your life easy, here are a few factors you can consider while choosing a plan.
1. Do you need a life insurance at all?
It’s a common misconception that a life insurance policy is a must in everyone’s portfolio. It may not necessarily be so. If you are single or do not have any dependents living on your income, you may not require life insurance.
2. What type of cover do you require and for how long?
There are various types of covers available to an individual today. From the simplest Term plan to a more complex ULIP, we have it all. To know more on types of life insurance click here. Depending on your needs, you thus need to choose an appropriate policy.
Determining how long you need insurance protection will also enable you to take a better decision on which type of policy should you go for. So, do you need insurance only for a specific term or you need it for the whole life?
3. How much cover do you require?
The broad rule of thumb is to buy a life cover of about 8 to 10 times your annual income. But to know exactly how much insurance do you require you need to know what the purpose of your life insurance is. Purpose? Am I kidding? Isn’t it to pay someone when you die?
Well of course it is! But you need to know what all exactly the insurance is supposed to pay for. For example:
• Pay off Any loans/debts you have currently taken (personal and business)
• Expenses you may incur on any pre-existing medical condition
• Your child’s school and university education
• Individuals dependant on your income for survival
• Any other liabilities you may have
• Your funeral costs
The basic thing to remember is that your life insurance should be enough to cover for all possible expenses your family may have, so that they do not feel the financial burden after your death.
4. How much can you afford?
Knowing how much insurance you need is just one side of the coin. You also need to consider your ability to pay those premiums. Thus, though you may like to go for whole life cover or some added investment cover, you may have to buy a term plan in order to be adequately insured.
5. What are the cheapest quotes available?
Every life insurance company has different rates for these policies. In fact these rates may vary greatly even for same type of policy cover. So, do your research and look for the cheapest quote available in the type of policy you have chosen. But do not make this the sole factor you consider. You do not want to be under-insured in the end too!
6. Which company should you buy from?
Do your homework before buying from any company. Ask friends/relatives who have bought policies from the same company. Ask them what they like and don’t like about their provider. Find out how efficient is its service and customer care. What is the company’s claim settlement ratio? The higher it is the better for you. After all, you sure don’t want to buy insurance from a company that cannot pay your claim!
7. Finally understand your Policy
Once you have finalized a product, considering the above points make sure you understand the policy completely. In fact, be prepared with a list of questions you need to ask your insurance agent, so that you are not a victim of mis-selling.
Here are a few questions you need to have answers to:
i. What will the policy include and exclude?
ii. What factors may increase/decrease the cost or premiums?
iii. When can you or the company cancel the policy and is there a penalty?
iv. Can you change the beneficiary?
v. Is the policy convertible renewable?
vi. Rating of the insurer if any
The bottom line…
Identify the purpose of the life insurance, do your homework, shop around and do what’s best for your situation. I hope these few steps will help you in making a good decision. And despite all this, if you do have second thoughts, you also have the option to refund the policy within 15 days of buying it.