Three Factors To Consider Before Buying A Suitable Life Insurance Cover

A life insurance cover is the smartest way to protect your family in the event something unfortunate befalls on you. Should something happen to you (assuming you are the policyholder), the nominee will get the sum assured as mentioned in the policy.

That said, many buy life insurance policies for the additional benefits of tax rebates and also as a means to secure their financial freedom in their old age, which should ideally not be the case.

While the reasons for investing in life insurance are plenty, buying the right one could become a bit tricky. Here are a few factors you could keep in mind while choosing the one most suitable for your life insurance needs.

Don’t Buy Just To Save Tax

Many a time, people factor a life insurance policy only as a tax-saving tool. However, the core objective of a life insurance cover isn’t tax-saving, but protection. A life insurance plan is designed to provide the dependents of the policyholder financial assistance in case of his/her sudden demise. In fact, this plan includes financial protection against three important factors – death, disease, and disability.

“Post the pandemic, people have started realising the need for life insurance policies that act as a safety net in case of the untimely death of the sole breadwinner. To cater to this demand, several insurers have introduced innovative products. One such product is the term insurance for homemakers by Max Life insurance. Under this plan, housewives can purchase term insurance on their own without being linked to their spouse’s life insurance policy,” says Sajja Praveen Chowdary, business head-term life insurance, Policybazaar.com

Additionally, there is an array of plans available in the market today that offer coverage for whole life or up to 100 years. Until a few years ago, the only drawback of the term plans was that the policyholder did not get anything if he/she survived the term. However, the new-age plans offer a return of premium that is beneficial for the policyholder as it pays back all the premiums paid if the policyholder outlives the policy.

Consider Your Life Stage

Life insurance is one of the most important expenditures that you can make to stay financially secured in all stages of life. It supports your long-term goals and even helps to meet the future needs of your dependent family, especially in case of any unforeseen
events.

That’s why, in order to keep up with the changing financial needs, it becomes that much important to review the coverage as you age.

The ideal way to go about it is to buy a life insurance plan at an early age when you are physically healthy and the premiums are relatively low.

“Waiting to get life insurance in your mid-30s can sometimes prove to be a wrong decision –when you are starting a family and have other liabilities, too. This means that you will have to buy a plan with higher coverage that can cover possible expenses of your family, and you will also end up paying a higher premium. For example, if you are married and have two children and dependent parents, you should buy a cover of at least Rs 1 crore,” adds Chowdary.

Get Adequate Cover

There are several factors to consider while estimating the ideal life insurance cover. In case you have debts, it would be difficult for your family to pay the equated monthly instalments (EMIs) in your absence. Then there are other factors like your children’s higher education or wedding, for which you need to keep sufficient funds aside. Then there is inflation, which might make it difficult for your family to maintain their current lifestyle, in your absence.

Therefore, you need to take certain facts in consideration before choosing the right insurance cover.

You need to find the total of your family’s annual expenses multiplied by the number of years for which income replacement might be necessary. Then, you need to find out the total amount of your outstanding debts and the cost of repaying mortgages, if any. You also need to figure out the amount you need to set aside for future expenses, like your child’s education, wedding, etc. From these expenses, you could deduct the sum of your liquid assets like cash in hand or bank, and any other kind of investments to arrive at an adequate life insurance cover.