Many People buy life insurance mainly for tax savings, neglecting the primary safety rule—ensuring adequate coverage. To make your life insurance truly financially protective, avoid common mistakes. Focus on five key factors to understand and optimize your life insurance policy for effective financial security.
Check 9 Factors to Consider Before Choosing Life Insurance.
Required Cover:
- Choose an adequate cover amount to fulfill basic needs and major expenses for your dependents.
- Avoid being under or over-insured to ensure the policy serves its purpose effectively.
Inflation Factor:
- Inflation factor when determining the sum assured needed.
- A fixed amount may lose its value over time due to inflation, impacting the coverage's effectiveness.
Policy Duration:
- Opt for a term that covers you until your intended retirement age.
- Avoid short tenures to ensure coverage when needed most and flexibility for tenure adjustments.
Online/Offline Plan:
- Compare online and offline term plans.
- Online plans are often more economical, and convenient, and may not require medical tests within certain age limits.
Features of the Plan:
- Ensure flexibility in choosing tenure, sum assured, and premium payment frequency.
- Look for additional benefits related to death benefit within the policy.
Claim Settlement Ratio:
- Evaluate the claim settlement process, terms, and conditions.
- A higher claim settlement ratio indicates a more reliable insurance provider.
Compare Plans:
- Compare multiple plans based on price, features, benefits, and claim history.
- Choose a plan that aligns with your preferences and needs.
Matching Goals:
- Align the chosen plan with your financial goals.
- Goals may include providing financial security, covering loans, and safeguarding future needs like education and marriage.
Premium Affordability:
- Determine your comfort level with the annual premium commitment.
- Avoid commitments that may become financially burdensome in the long term.
Conclusion:
- Adequate cover amount is crucial for effective protection.
- Consider inflation to ensure the coverage retains its value.
- Optimal policy duration safeguards against unforeseen events.
- Online plans offer cost-effectiveness and instant accessibility.
- Choose plans with flexibility in tenure, sum assured, and premium payment.
- A higher claim settlement ratio indicates trustworthiness.
- Thoroughly compare plans to make an informed choice.
- Ensure the plan aligns with your financial goals.
- Commit to a premium amount comfortable for the long term.
Check these Things to Keep in Mind Before Buying a Life Insurance Plan
Buy for the Right Reason:
- Insurance is for specific goals and financial security, not just tax savings
Amount of Life Cover:
- Aim for at least 10 times your annual income for optimal coverage.
Policy Tenure:
- Optimal tenure is 'Retirement Age minus Current Age.
Additional Coverage & Benefits:
- Critical illness, accidental death, waiver of premium, and disability riders are valuable add-ons.
Credentials of the Insurance Company:
- Check Claims Settlement Ratio (Max Life paid 99.51% of individual death claims).
- Assess Assets Under Management (Max Life's strong portfolio).
- Consider the Solvency Ratio (Max Life's ratio is 207%, indicating financial stability).
- Evaluate customer service, reviews, and corporate governance practices for a comprehensive overview.