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How do I choose and decide on the right insurance plan?

Chaitali Mehendale Chaitali Mehendale 19 August 2019

Choosing a life insurance policy can be tricky for many individuals, as there are several insurance companies offering different types of insurance policies.

How to choose the right life insurance policy

The choices of different life insurance plans can seem confusing. They might be difficult to understand at first glance. Life insurance needs depend on your current and future life situations. Especially, the people who depend on you. When your income is significant to support your family, you should consider life insurance as a way to ensure that your financial obligations are covered in the event of your demise.

Which type of life insurance should you buy?

Various types of life insurance plans are available including term life, whole life, money-back plans and ULIPs. It is crucial to choose the right type of insurance plan that meets your insurance objective.

Whole life plans offer both a cash value and death benefit. They are much costlier than other types of life insurance plans. A lump sum amount is paid after a specified term or on death, whichever is earlier.

Term insurance provides coverage for a limited period of time. If the life insured dies during the specified term when the policy is active, a death benefit would be paid to the nominee. There is no maturity benefit available under these plans.

Unlike traditional whole insurance policies where the maturity benefits are paid at the end of the policy term, money-back plans provide periodic payments.

ULIPs (Unit-Linked Insurance Plans) provide life insurance with an investment option to invest in the capital markets. The policy value varies according to the value of underlying assets at the same time.

How much insurance coverage you need?

It's difficult to apply any standard rule because the right amount of life insurance depends on multiple factors such as your income and age, number of dependents you have, your lifestyle and amount of debt. However, it is prudent to have an insurance policy that is worth ten to twenty times your annual salary.

How long do you need to be insured for?

The secret of buying a life insurance policy with the right insurance term is to know how long you need to be insured for. Estimate when your children will no longer need your financial support.

It is important to understand that life insurance is not an alternative for a retirement plan. You need a life insurance so that your family will have enough means to survive in your absence.

When to buy life insurance?

Those who are in good health and have a family history of good health can get insurance at the cheapest rates. If you have a health condition, are a smoker, or have a risky occupation, you may end up paying nearly 50% more than the preferred premium rates. Hence, it is advisable to buy a life insurance policy while you are still in good health.

Compare insurance plans

There are many life insurance providers in the market, offering a variety of insurance plan. You need to make sure that you select the most suitable insurance plan. You can compare insurance plans online from various insurance companies across relevant parameters to choose the best plan based on your needs.

Need and benefits of buying life insurance

Life is full of uncertainties and misfortune comes unannounced. Certain events can have repealed impact on our life and leave our loved ones deprived. To reduce the financial burden on your loved ones in your absence, buying a suitable life insurance plan is highly recommended.

Life insurance is a vital form of investment that will help your family to meet their financial needs even when you are not around. At the time of insurance claim, the sum assured is given to the nominee. Moreover, some life insurance plans also offer investment benefits on policy maturity. In this way, you can enjoy the two-fold benefits of life insurance.

For a small amount of premium, insurers offer significant coverage. For instance, a term insurance policy offers extensive coverage, which is more than the premiums paid. A life insurance plan not only offers income replacement, but also acts as an investment option that offers significant returns on the amount paid during the term of the policy. Many life insurance policies offer considerable returns at the time of maturity. This helps you to meet the dual needs of protecting your loved ones and achieving investment goal. Life is precious, and it is crucial to get as much cover as possible. Instead of thinking about the cost of insurance, think about insurance as an investment for your and your family's future. Below are some of the benefits of buying life insurance:

Pay off debts: Do you have any loans in your name, like home loan or car loan? In case of your unfortunate demise, it is your family that will have to pay off this loan. A life insurance plan can ensure that your family members pay off such debt. The life insurance policy covers you with an amount that the insurance company pays to your nominee. This amount ensures that the future of your dependents is secure, even in your absence. A life insurance plan will ensure that your children go to college, pay for their wedding and buy a home if you die unexpectedly.

Peace of mind: A term insurance is an inexpensive and smart way to give you and your family peace of mind. You will no longer have to worry about the financial future of your dependents. You can rest easy knowing they will be able to continue their current lifestyle if something happens to you.

Supplement your retirement: Whole life insurance policies accumulate cash value over the term of the policy. These insurance plans can be used to supplement your retirement plan if your other investments fall short. However, these plans come with comparatively high premium rates as compared to other types of life insurance plans. Tax benefits: Life insurance plans can also be used as a tax-saving instrument. Whatever amount you pay for your life insurance premium – be it term insurance or endowment plan, can lower your taxable income. The policyholder is eligible to avail tax benefits under different sections of the Income Tax Act, 1961. The premiums paid towards life insurance policies qualify for tax benefits under Section 80C, 80CCC of the Income Tax Act.

Chaitali Mehendale
Written by Chaitali Mehendale
Chaitali Mehendale is an avid reader, blogger and traveller. When she is not busy writing stupendous content, she prefers to explore new places and meet new people!