It is difficult to choose the right life insurance policy for yourself, when there are so many life insurance companies offering number of life insurance policies. This step-by-step guide will help you to choose the best life insurance policy.
There are many life insurance companies that offer different types of life insurance plans along with their variants.
And it is like finding a needle in a haystack. So many options to choose from.
But do not worry.
Because with this article focuses on how to choose the best life insurance policy out of the plethora of life insurance plans available in the market.
What is a Life Insurance Policy?
A life insurance policy is a contract between the insurance company and the policyholder. The insurer pays the policyholder a Sum Assured in case of death of the life assured or on the maturity of a policy on the promise of paying premiums as per the contract. The policyholder also has the liberty to choose from many riders. Riders are the optional paid features available in life insurance.
Benefits of a Life Insurance Policy
- Financial security to the family
- Income replacement in case life assured dies during the policy term
- Paying off debts
- For securing your life after retirement
- Leaving an inheritance
- To meet short-term and long-term financial goals
- Child’s Education
How to Choose Best Life Insurance Policy
Buying a Life Insurance policy will depend on individual’s situation and condition. The policy which is suitable for your friend may not be suitable to you and your family.
Below is the list of the factors which will help you to select the best life insurance policy available.
Basis On Which You Should Choose the Best Life Insurance Policy in India
1. How Much Life Insurance Coverage Do you Need?
How many financially dependents do you have?
Knowing the number of dependents and the extent of their financial dependency on you for their financial needs is key to start with. After all, the very purpose of life insurance is to provide financial security when you are no more.
To decide on the amount of life cover, you need to see number of people financially dependent on you.
You may also like to consider, the amount they may require to continue their lifestyle in your absence. Or if you have young ones to take care of, how much money they may need to cover their education fees and other needs in the future.
Moreover, don't forget to consider inflation while figuring out the coverage required.
2. Your Age
Buying an insurance policy based on your current age plays an important role in deciding the type of insurance policy you should opt for. The cost of some Life insurance policies depends on your age, the younger you are, the cheaper your life insurance policy is and vice-versa
It is suggested to buy early, when you are young and financially independent.
3. Retirement Planning
Are you looking for retirement planning?
If yes, retirement plans may be a good start to think as a source of cash flow post-retirement. Choosing the right retirement policy will help you to live a stress-free life after retirement.
4. Individual Needs
To buy the best life insurance policy one should determine the basic need for which this policy is bought. For a person who has a number of financially dependent people, buying a Life Insurance Policy is of high importance. If the financial condition of the family is likely to deteriorate in case of death of the breadwinner, life insurance policy for him/her will provide financial security to the family.
If you are a business owner or an entrepreneur, you may want to consider Keyman life insurance policy to secure your business from being collapsed. If you are unmarried and have dependent parents, you must reconsider your options.
The premiums charged for a life insurance policy varies based on the lifestyle of the life assured. If the life assured is a smoker, he will be charged more as compared to the non-smokers. Taking care of your own health will provide benefits while buying a life insurance policy.
It is advisable to compare life insurance policies online before you purchase. When you compare policies, you can check which life insurance plan is pocket-friendly even for smokers.
One can make use of a Life Insurance policy to balance out their financial condition.
Life Insurance Plans such as Traditional Endowment plans or Whole Life plans allow the policyholder to borrow a loan against the policy. And taking a loan against your policy is a good option rather mortgaging your home. Choose a plan, which gives you a higher loan. It is also advisable to check the interest rate before applying for the loan against your policy.
7. Risk Appetite
How much is your risk appetite?
Are you comfortable with high risk and good returns on investment?
Then you can opt for a unit linked life insurance plans. If you are not comfortable with a high risk product, you can opt for a traditional endowment plan.
8. Annual Income
To determine the amount of life cover to be bought will depend on your current income. Decide on an amount, which, if deducted from your income, will not have a huge financial impact on your day-to-day requirements. When buying a term plan, it is suggested to buy a term plan with a life cover of 15-20 times your annual income.
Riders are add-ons, which an insurance company provides to the policyholder by paying extra premiums. Riders enhance the life insurance policy coverage.
Most common life insurance riders:
- Accidental Death Benefit Rider.
- Accidental Total and Permanent Disability Benefit Rider
- Waiver of premium
- Surgical Care
- Hospital Cash.
- Critical Illness Rider
Some life insurance companies may offer all the types of riders, while some may not. Choose the right life insurance by knowing each type of rider, and knowing which type of rider you want (if any). Also check if any life insurance company offers it as an in-built feature of a plan.
10. Future Financial Goals
One can buy life insurance plan for the future to meet different life stage financial goals.
These goals could be:
- Meeting your short-term or long-term financial needs
- Planning for retirement
- Child's education, marriage, etc.
Tips to Choose the Best Life Insurance Policy
To come up with the best life insurance plan, it is crucial to understand your financial needs and also, the main objective of buying a life insurance policy.
Assess your financial needs - long-term and short-term goals.
Depending on the number of financial dependents you have, you need to figure out the life insurance coverage.
If you are buying a life insurance plan only to provide financial security to your family, it is advisable to opt for a term insurance plan for a high sum assured at a low cost.
To buy the right type of insurance, you must compare life insurance policies online.
Compare insurance plans in detail, check plan's inclusions and exclusions, and premiums charged by various insurance companies.
Opt for a life insurance rider, only if you need it.
Compare plans, some insurance companies do offer riders as an in-built feature of a plan. You can save money on that by comparing life insurance policies online.
Seek experts’ advice if you are confused, before you buy.
Choose how you will pay the premium: Regular(annually, monthly, quarterly), Limited Payment Term, or Single Payment. It is suggested to pay premium annually.
Choose the right way of payout: Lump sum, equal installment over a period, or a combination of both. Depending on your financial needs at various life stages and also, on the financial knowledge of the nominee, you can select the payout option as suitable.
How to Choose the Best Insurance Company
The insurance company will play a huge role while buying Life Insurance. To select the best life insurance company one should go through their claim settlement ratio. Your family must not face any problem when it comes to life insurance claims.
Factors to check:
- Claim settlement ratio
- The number of grievances solved in a year
- Post sales service will determine the credibility of the Insurance Company
- Online Reviews
- Previous Customer’s Testimonial
The above factors will help in choosing the best life insurance policy. Securing your loved ones financially with a life insurance policy is the best way to avoid all the hardships they will go through in your absence.