x
Snehil GambhirContributor
Aashika JainEditor
A life insurance policy is designed to offer protection against the risk of death from an accident, old age, a serious health condition, or a life-threatening ailment. It provides coverage or protection on your life, for a specified term or a defined time period, as long as premiums are paid timely.
When the insured person dies, a claim is paid to the beneficiary depending on the terms of the life insurance policy. It is critical to buy a life insurance protection cover that is suited to your needs to ensure you are protecting your loved ones financially after your death.
The answer in all but a handful of cases would be a resounding “yes”. You don’t want to leave your loved ones with liabilities such as a home mortgage payment, which they may find difficult to pay off in your absence. Similarly, you would want to provide for the quality of life your loved ones enjoy today.
If your concern is to ensure your children have access to quality education in your absence, it is critical to opt for insurance. This is perhaps the single most important decision that will determine the future of your loved ones.
There is never a bad time to buy life insurance. While one must not take this decision in haste, waiting for an event such as a new job or a financial milestone to buy life insurance cover is not prudent. There is also no right age to buy life insurance.
As a general rule of thumb, the younger you are when you purchase life insurance coverage, the better it works for you. This is because insurance premiums are priced by age and the older you are higher is the premium. Thus, there is a cost attached to waiting. Worldwide premium rates at age 30 compared to age 40 can be typically 1.5 times to 1.9 times higher. In most cases, buying insurance at a later stage in life typically involves extensive medical screening and coverage may be denied.
The most popular types of life insurance include:
There are two approaches to arrive at an appropriate cover amount:
First, calculate your future needs. This includes your yearly expenses multiplied by 15 to 20 to understand the total amount needed to support your family in your absence. This amount would cover other current liabilities like home loans etc., cost of future life events such as your child’s college education, or wedding expenses, etc. From this, deduct the money already saved–fixed deposits, provident fund, etc. you need.
It is evident that someone who is 35-years-old today will need a different cover than a 50-year-old. Another rule of thumb to arrive at an appropriate sum assured is approximately calculating 20-22 times of what you make in your early years or approximately 15 times if you purchase a life cover in your mid-30s and beyond.
It is important that you do not rush through this step. Leverage online resources—websites, price comparison sites or aggregators, etc., or even reach out to insurance companies for best quotes.
It is imperative that the number you arrive at resonates with your needs and balances your ability to pay. Remember, the amount of insurance cover reflects your income, expenses, savings, and your life stage. Hence, it is important to inculcate your insurance coverage needs at the key stages of your life.
You should always aim to buy a life insurance cover directly instead of through an agent considering there is no downside given the typical simplicity of the product, the regulatory norms around claims payouts, and the fact that product pricing is cheapest when bought directly from the insurer or through an aggregator.
Never forget to compare products and prices. No one but you will look out for your interests. Utilize the insurer or aggregator resources to understand the product and options such as the policy term, payment term, flat cover, or increasing and decreasing cover as well as useful riders. When buying your first life insurance plan, it’s best to keep it simple.
While pricing is important, it should never be the only determinant. As an informed consumer, you must compare prices but compare insurers on other parameters too. Remember, no two life insurers are alike. Consider the following:
Life is uncertain but your planning and self-awareness can secure your family’s financial wellbeing. Take time to understand your needs, thoroughly research your choices and make an informed decision. At the end of the day, it is important to give yourself and your family financial independence and peace of mind.
