Topic 1: 12 Things You Must Know Before Buying Life Insurance

Life is so unpredictable that no one knows what will happen in the next second.

Life insurance is the best possible solution to make financially secure future for your family. You will not need to worry more about your family’s future and you can enjoy a stress-free life.

But before buying any life insurance policy, you must know some important facts related to life insurance. These facts will help you at different stages of your insurance policy.

12 things that you must know before buying life insurance.

1. How Much Coverage You Need
How much coverage will be sufficient to pay your family’s future bills? Many people find this as a the most difficult thing to decide. Different person suggest different methods to calculate the coverage. You should consider your future goals like own house, children education & marriage expenses, household expenses, medical insurance expenses , emergency fund along with current loans and EMIs. After calculating a figure subtract your current asset value. You come with a figure, but this is based on the current prices. May be due to the inflation, this amount would fall short. So, increment the figure with a inflation rate. That final amount should be your coverage.

2. Tell Everything On Application
Insurance companies do their work on the basis of seven insurance principles. The first principle is “Principle of Utmost Good Faith” that implies, the insurance contract must be signed by both parties (insurer and insured) in an absolute good faith. The person getting insured must willingly disclose to the insurer his complete true information regarding the subject matter of insurance. The insurer’s liability gets legally canceled if any facts, about the subject of insurance are either omitted, hidden or presented in a wrong manner by the insured. So it is advisable to disclose all the facts about your health and habits to the insurance company on application.

3. In Case, You Already Have Life Insurance From Employer
Most companies give their employees a certain amount of coverage for free in group life insurance. For most of the families, coverage amount is not sufficient. Even if your employer’s insurance did cover your family’s needs, you would be left with no coverage if you quit or get laid off. What will your family do, if any uncertainty happens with you during this period? To avoid such condition in life, It makes more sense to buy your own policy because it will be with you as long as you pay the premium amount.

4. Premium Must Be Affordable
You have to pay a certain amount of premium at regular intervals. The premium amount is directly depend upon the coverage. Higher the coverage amount, higher the premium you have to pay. Before buying life insurance policy, make sure that the premium amount must be affordable as per your present financial conditions. Even If the premium increases later, still you will be able to afford it.

5. Tenure of Life Insurance
Tenure of insurance policy play a very significant role during application time. Premium is also depend on the tenure of the policy. Longer the policy tenure, more the premium you have to pay. There is no one figure answer of this question, but you can choose any policy tenure on the following basis
  • Maximum tenure that a policy allows. Like maximum tenure can be 25 years till the age of 60 years.
  • The retirement age minus your current age can also considered as tenure of the policy.
  • Insurance policy till the age you would complete your all financial responsibilities towards your family.
6. Premium Frequency
The next deciding this is often you can afford to pay policy premium. You can either pay the entire premium amount in lump sum or you can pay it at regular intervals like, monthly, quarterly or annually. But the frequency of your premium should be based on practical assessment of your financial situation, which should be done keeping in mind what will be more convenient for you.

7. Claim Settlement
The major responsibility of your insurance company is to pay claim amounts and deliver maturity benefits without any delay. Just like insurer check your credit score before making a commitment, make sure that you also check the claim settlement ratio of the insurance companies & give preference to insurer having a higher ratio.

8. Policy Renewal Process
You can renew most term insurance policies for one or more terms even if your health has changed. Each time you renew the policy for a new term, premiums may be higher because of risk increase with age increase. Ask what the premiums will be if you continue to renew the policy. Also, ask if you will lose the right to renew the policy at a certain age. These are very important questions to know because at an older age may be other insurer would not provide insurance to you.

9. Review Your Policy Every Few Years
Review your life insurance policy after every 2-3 years. Ask some questions like How will inflation affect your future needs? Do you need more insurance when your family size increases or for your future plans? You can also consider the factors when some financial responsibilities are fulfilled like, your children complete your study and get married, you repaid your loans. At that time, you would not need the present life coverage. You can also discuss with your agent to make changes in your policy with the change in your income and needs.

10. Need of Life Insurance
The main purpose of life insurance is to provide financial security to dependent spouse, children or parents in case any uncertainty along with savings and making retirement secured depending on which policy you have taken. You must understand the basics of why a policy is to be taken.

11. Never Forget to Pay Premium
If you don’t make timely payments as per the insurance policy, the insurer may cancel your policy after a certain period. Your all past years premium goes down into the drain. Generally, insurer allowed to make late payment within a specified period, even in this case you have to pay the late payment charges which will increase your insurance cost.

12. Tax Benefit
The Indian government also encourages the life insurance through their inclusion in the deductions that can be availed under Sections 10(10D) and 80C of the Income Tax Act. An individual can claim the deduction for premium paid for life insurance up to a maximum of 10% of sum assured under sec 80 C. Even the claim amount in case of death of the policyholder is totally tax-free for the beneficiary under sec 10(10D). So, Sit with your agent and let him/her help you choosing what best fits your need while taking a life Insurance.
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