is one of the most important you should buy and yet, is often the most mis-sold product in India. Considering this, are you making the right choice, and moreover, are you buying for the right reasons?
Here are 4 questions to help you decide.
Question 1: Do you really need it?
Unlike other products or services you buy, you are not the beneficiary when you buy insurance. So who will get the money if you are not around anymore?
You needas long as someone is dependent on your income to take care of their expenses and would be affected financially if you were gone. No dependents? Then you don’t need .
Question 2: Are you buying life insurance or trying to save tax?
If you are like a lot of Indians, you probably have thought of better ways to save tax.as a tax saving option or an . While are eligible for tax deductions, thinking of because you want to save tax is wrong. There are much
is an expense and you should treat it as one. Don’t expect returns from it or buy it as an option. This means you should normally stick to a good term plan that meets your expectations.
Question 3: How much do you need? How long is the cover for?
cover is meant to act as a replacement for your take home income. Most experts believe, you should insure for at least 10-30 times your current annual take home earnings. This also means that you have to upgrade your policy at different stages in line with your income. This is where duration comes in. The longer the duration, the higher would be the cover.
Here’s a quick rule of thumb for figuring out how muchcoverage is required.
Find out how much money your dependents require to maintain their current lifestyle. Use this to figure out how much money they need toin a safe instrument like Bank FD or to get the same amount as interest after tax. Also consider money required for life goals like children’s education, marriage, medical contingencies etc.
The figure you arrive at is roughly thecover you need.
Keep in mind that living expenses increase every year. So make sure your insurance coverage is also increased to support the increased living expenses.
Question 4: How much can you afford to pay?
The next question is, how much do you have to pay aspremium (the amount you will pay the insurance company every year or quarter)?
doesn’t necessarily have to cost you a lot. Let’s first understand what affects how much you pay as premium.
The younger you are, the cheaper yourpremium will be.
Note: You normally don’t need insurance once you cross 50 as generally, you would have accumulated most of your savings by then (and also invested them).
Your medical history as well as your lifestyle habits
If you have no family history of serious illnesses such as heart disease then this will reduce yourpremium. Negative lifestyle habits, such as smoking, increase your premium payable.
The kind of life insurance plan and its duration
Term Insurance is simply aplan that is valid for a certain number of years for which you pay a nominal premium. In this plan you will not receive any pay out at the end of the time period decided. The pay-out will happen only in case something untoward happens to you. This is normally also the cheapest option.
Otherplans act as vehicles which insurance in different kinds of financial instruments. These offer returns which can vary. The in such plans are more as well.
Pro Tip: Always buy termonly. The returns offered by money back insurance policies are typically around 4-6%, a figure that’s way below inflation rates.
Any riders/ additions that come with the plan
Various riders, such as accidental death benefit, tend to increase the cost of the. Insurance against particular diseases also can cost you more.