Assess the amount of life insurance coverage needed.
The first step before scouting for life insurance plans is to assess the amount of life insurance coverage you and your family members will need in your presence and absence. For this, you will need to calculate the actual monthly and annual expenses of your family. Consider:
- Monthly day-to-day expenses (household groceries, utilities, bills)
- Any pending loans or investments (and the money that goes towards them)
- Any future goals and liabilities (such as a child’s higher education or marriage costs)
- A rainy-day fund (for unforeseen events such as illness, accident, early retirement)
Add the approximate costs of all these needs and multiply it by the inflation rate 10 to 20 years from now. Factoring in the inflation rate is essential as the price of goods and services goes up every year, but the value of money stays the same. Based on this sum value, you should select the life insurance coverage amount.
Understand the type of risk involved in the life insurance plan.
Life insurance plans fall into two broad categories. One kind is a non-linked plan whose benefits/returns are not associated with the equity and debt market performance. Such plans give guaranteed returns and benefits to the buyer and carry very low risk. The other kind is the market-linked insurance plan. In such plans, a portion of the premiums paid by the buyer goes towards making investments in the equity, debt or hybrid market products. The remaining part goes into guaranteeing the life insurance coverage to the policyholder. These plans and the returns accrued under them depend on the performance of the invested premiums and carry a mid-level to a high-level risk. Depending on your appetite for risk (profit and loss), you can choose a suitable life insurance plan.
Check the type of life insurance plan and extra riders offered with it.
Life insurance plans are of various types. There are:
- Term insurance plans that offer a base death benefit to your loved ones on your demise
- Unit-Linked Insurance Plans that give the dual advantage of a guaranteed death benefit and income growth
- Child education plans that give the death benefit and the option to save and grow your income at the same time for fulfilling your child’s life needs
- Retirement plans that give a guaranteed death benefit and the choice to receive monthly income payouts post-retirement
- Group insurance plans that give life and health insurance coverage to corporate employees
Selecting the type of life insurance plan should be second on your checklist as the wrong plan can give you only inadequate financial protection. Furthermore, life insurance plans offer extra riders (additional coverage) for an added layer of protection against unforeseen events. These include:
- A critical illness rider that gives a fixed lump-sum amount on the diagnosis of a critical illness
- A waiver of premium rider that waives off the payment of premiums on the diagnosis of a critical illness
- An accidental death benefit rider that pays a fixed lump-sum amount in case the insured dies due to an accident
- An accident disability rider that waives off the payment of future premiums or gives a fixed benefit amount in case the insured develops a permanent injury due to an accident
So, before you settle on a life insurance plan, be sure to see the riders offered and the premiums charged for them.
Check the insurer’s claim settlement ratio and record.
This is a step that can be easy to miss before buying a life insurance policy. The hallmark of a reliable and exceptional insurance company is not only its claim settlement ratio but also its claim history. The claim settlement ratio is the number of insurance claims settled by an insurer during a given financial year. While it is crucial to account for that, you should also see the insurer’s performance in the industry, the consistency of their claim settlement ratio, financial strength, persistency and their turnaround time for settling claims. Buying a life insurance plan without receiving assurance that you will get the benefits promised under it on time nullifies the entire purchase.
Read the life insurance plan in its entirety before buying it.
Life insurance plans cover several scenarios but not every single one of them. Each life insurance plan has a specific set of exclusions (events that they do not cover) that you can find mentioned in detail in the policy wordings or plan brochures. Moreover, irrespective of the life insurance coverage and benefits the insurance company claims to provide - always check the policy wordings to see whether there are any limitations on the benefits provided. Some of the general policy exclusions include:
- Death due to engaging in an adventure sports activity
- Death under the influence of alcohol/drugs/narcotics
- Death due to a terrorist attack/riot activity
- Death due to suicide within 12 months of purchasing the life insurance policy
- Death due to engaging in harmful activities/self-harm
To sum it up:
Before searching for a life insurance plan, it is essential to know what you are looking for and do the necessary research. *Also advised that consult ur financial advisor before investing if plan is suitable or not*Keeping these factors in mind will not only help you save your hard-earned money but also lead you to the right life insurance plan within no time. Another golden tip is to compare different life insurance plans before you zone in on one. It is only in comparison that you will discover the competitive insurance prices and diversity of features.
The aforesaid article presents the view of an independent writer who is an expert on financial and insurance matters. PNB MetLife India Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and PNB MetLife and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability or medical complications incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ health advisor before making any decision. Tax benefits are as per the Income Tax Act, 1961, & are subject to amendments made thereto from time to time. Please consult your tax consultant for more details
PNB MetLife India Insurance Company Limited
Registered office address: Unit No. 701, 702 & 703, 7th Floor, West Wing, Raheja Towers, 26/27 M G Road, Bangalore -560001, Karnataka
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