11 SMART TIPS TO BUY YOUR LIFE INSURANCE
Before you buy such a long term product, let's get some smart checks done.
Follow a rational approach to decide the cover, look at the features and your
requirements and select the Company, try and split the cover across two
companies, avoid tenor beyond your retirement age, buy through an adviser if he
adds value, fill in all information yourself, avoid combining insurance and
investment, prefer online for cost inefficiencies, opt for MWPA and avoid single
premium policies.
I recommend you to consider the following guidance before buying life insurance-
Decide the amount of the cover and your budget: You can use popular calculators
available on the Internet on various personal finance websites and arrive at a
value of the additional life insurance you need for yourself. Remember that
Insurance works on a principle of indemnity. This means that you should look at
Insurance to indemnify against the loss, and not to make a profit.
LIC or Private Sector Players: LIC has an excellent goodwill and a track record. This
also generally means a significantly higher premium you pay, for term plans, as an
example. The Private sector players on the other hand are far more price
competitive due to online model and other factors. Based on your budget,
preference and amount of cover, you can decide if you like to go for LIC or one of
the Top Private Sector players.
Split the cover: If the amount of cover is high, say Rs. 50 Lakhs or above, then you
should split the cover across two companies. This has two important advantages. If
your family makes a claim upon your death and if one company rejects the claim
and if the other one settles the claim then your family has a stronger case to
approach the regulator and ask for intervention. Another advantage is that you
can have flexibility to continue one policy after few years and surrender the other
one, if your insurance requirement has reduced.
Duration of the Policy: Your life insurance need is a function of your financial
liabilities. If you have surplus financial assets to take care of your financial liabilities,
then you don’t need to spend on life insurance cover. In most cases, with
increasing age, your financial assets increase and your financial liabilities
decrease, progressively. Once you retire, the economic dependence on you
reduces drastically. We normally advise to take cover with a duration that ends
near your retirement age.
Declarations: Remember that honesty is the best policy in life. We suggest you fill in
the application forms yourself and take adequate care to disclose all material
facts. Hiding information about your present medical status (e.g. Diabetes, High
BP) is not in the best of your interest. With medical advancement, insurance
companies have access to superior techniques that bring out the true picture of
your health.
Buy through an Adviser or Direct? Check with your adviser on the level of service
that he can provide and ask him to present you a comparison of product with his
recommendations. Your adviser may add value in case of premium loading,
medical tests, MWPA, Insurance Demat account opening and most importantly,
help your family to raise a proper claim when you are not around. You should
understand if going through an adviser would increase your total cost. Based on
this, the level of services being provided and value being added, you could
decide if you need an adviser to assist you.
Which Policy to buy? Study the comparison of leading insurance policy on various
websites on the Internet. Compare your requirements against the product features
and narrow down your search to 2-3 good policies. Consider visiting 2-3 websites
and review their recommendations. Review the benefit illustration table before you
finalize a policy. For a term plan, there is obviously no benefit if you survive the
policy maturity. However, we still recommend you to review the benefit illustration
table, as you will be able to identify any hidden costs.
Insurance and Investment: Normally, treating your insurance and investment
separately works out far better for you. When Insurance and Investments are
combined, you are likely to be going in for a complex product structure like ULIP
which could be expensive. In the best of your financial interests, taking an online
term plan and using rest of the surplus for goal based investments as per your risk
profile, is likely to be a far better option.
Buy in Online or Offline mode? Buy an online term plan from any of the top players.
Buying online is convenient, efficient and likely to save a lot of money for you.
MWPA: Getting a policy issued under Married Women’s Protection Act (MWPA) will
ensure that upon your death the insurance proceeds go to your family and
cannot be used to pay your liabilities, if any. This is helpful when you are a
businessman or a professional with a liability exposure.
Regular Premium or Single Premium: Regular premium is likely to give you a better
opportunity to absorb the tax benefits. In a single premium policy, your effective
cost of insurance may work out higher if you die in the early years, as you would
have paid in advance for all the years. You may have a better use of money for
other financial goals. With more and more innovative features coming in, it makes
sense to retain the flexibility with you. In case you do not have a regular income
source and would conservatively likely to ensure that insurance is in place, once
and for all, then single premium policy may be your preference.
Before you buy such a long term product, let's get some smart checks done.
Follow a rational approach to decide the cover, look at the features and your
requirements and select the Company, try and split the cover across two
companies, avoid tenor beyond your retirement age, buy through an adviser if he
adds value, fill in all information yourself, avoid combining insurance and
investment, prefer online for cost inefficiencies, opt for MWPA and avoid single
premium policies.
I recommend you to consider the following guidance before buying life insurance-
Decide the amount of the cover and your budget: You can use popular calculators
available on the Internet on various personal finance websites and arrive at a
value of the additional life insurance you need for yourself. Remember that
Insurance works on a principle of indemnity. This means that you should look at
Insurance to indemnify against the loss, and not to make a profit.
LIC or Private Sector Players: LIC has an excellent goodwill and a track record. This
also generally means a significantly higher premium you pay, for term plans, as an
example. The Private sector players on the other hand are far more price
competitive due to online model and other factors. Based on your budget,
preference and amount of cover, you can decide if you like to go for LIC or one of
the Top Private Sector players.
Split the cover: If the amount of cover is high, say Rs. 50 Lakhs or above, then you
should split the cover across two companies. This has two important advantages. If
your family makes a claim upon your death and if one company rejects the claim
and if the other one settles the claim then your family has a stronger case to
approach the regulator and ask for intervention. Another advantage is that you
can have flexibility to continue one policy after few years and surrender the other
one, if your insurance requirement has reduced.
Duration of the Policy: Your life insurance need is a function of your financial
liabilities. If you have surplus financial assets to take care of your financial liabilities,
then you don’t need to spend on life insurance cover. In most cases, with
increasing age, your financial assets increase and your financial liabilities
decrease, progressively. Once you retire, the economic dependence on you
reduces drastically. We normally advise to take cover with a duration that ends
near your retirement age.
Declarations: Remember that honesty is the best policy in life. We suggest you fill in
the application forms yourself and take adequate care to disclose all material
facts. Hiding information about your present medical status (e.g. Diabetes, High
BP) is not in the best of your interest. With medical advancement, insurance
companies have access to superior techniques that bring out the true picture of
your health.
Buy through an Adviser or Direct? Check with your adviser on the level of service
that he can provide and ask him to present you a comparison of product with his
recommendations. Your adviser may add value in case of premium loading,
medical tests, MWPA, Insurance Demat account opening and most importantly,
help your family to raise a proper claim when you are not around. You should
understand if going through an adviser would increase your total cost. Based on
this, the level of services being provided and value being added, you could
decide if you need an adviser to assist you.
Which Policy to buy? Study the comparison of leading insurance policy on various
websites on the Internet. Compare your requirements against the product features
and narrow down your search to 2-3 good policies. Consider visiting 2-3 websites
and review their recommendations. Review the benefit illustration table before you
finalize a policy. For a term plan, there is obviously no benefit if you survive the
policy maturity. However, we still recommend you to review the benefit illustration
table, as you will be able to identify any hidden costs.
Insurance and Investment: Normally, treating your insurance and investment
separately works out far better for you. When Insurance and Investments are
combined, you are likely to be going in for a complex product structure like ULIP
which could be expensive. In the best of your financial interests, taking an online
term plan and using rest of the surplus for goal based investments as per your risk
profile, is likely to be a far better option.
Buy in Online or Offline mode? Buy an online term plan from any of the top players.
Buying online is convenient, efficient and likely to save a lot of money for you.
MWPA: Getting a policy issued under Married Women’s Protection Act (MWPA) will
ensure that upon your death the insurance proceeds go to your family and
cannot be used to pay your liabilities, if any. This is helpful when you are a
businessman or a professional with a liability exposure.
Regular Premium or Single Premium: Regular premium is likely to give you a better
opportunity to absorb the tax benefits. In a single premium policy, your effective
cost of insurance may work out higher if you die in the early years, as you would
have paid in advance for all the years. You may have a better use of money for
other financial goals. With more and more innovative features coming in, it makes
sense to retain the flexibility with you. In case you do not have a regular income
source and would conservatively likely to ensure that insurance is in place, once
and for all, then single premium policy may be your preference.
Happy Investing
Source:Gettingyourich.com
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