Purchasing a life insurance policy is a significant financial decision that requires careful consideration. Beyond its basic concept, there are several vital aspects to things keep in Mind before Buying a life insurance policy. This guide aims to provide valuable insights about insurance and policy, equipping you with the knowledge needed to make an informed choice that meets your financial goals.
With so many options available in the market, it is natural to be confused before buying a policy. The insurance market has a ton of policies to offer with various benefits and offers. This results in confusion or dependence on insurance agents more inclined to sell a policy that gives them the maximum benefits instead of you.
However, with the right knowledge and willingness to ask the right questions, insurance agents and be your best friends who would help you buy the best policies. So let’s dive into everything you must know before buying a policy.
Understanding Life Insurance Policy
First things first, let’s understand the life insurance policy and its importance. At its core, a life insurance policy or any financial plan is a contract in which an individual or entity pays regular premiums to an insurance company in exchange for financial protection against specific risks or events. Many plans are available in the market catering to the different needs of all individuals.
Having a financial plan in today’s world should be a top-most priority for everyone. It not only gives you financial security but also your family and dependents. You can have different plans to protect various aspects of life, but irrespective of whatever plan you’re going for, there are a few Things to Keep in Mind before Buying a life insurance policy.
Top 12 Things to Keep in Mind Before Buying a Life Insurance Policy
Let’s look at what are the Important Things to Keep in Mind Before Buying a life insurance policy in detail below.
1. Understand Your Financial Needs and Your Current Life Stage
Before diving deep into insurance policies, understand your financial needs and goals. Consider your age, marital status, number of dependents, outstanding debts, and long-term financial objectives. Each life stage demands you to have a different goal and priority. This evaluation will guide you in selecting a policy that fits your current goal and requirements.
2. Know About the Different Policies Available
There are a number of policies available in the market. Learn about the different types of policies and which policy caters to what needs, after which you can decide which policy you need. Life insurance comes in many forms, each with distinct features. Term life insurance provides coverage for a specified period, offering a cost-effective solution for temporary needs.
On the other hand, whole life insurance provides lifelong coverage and includes an investment component. Universal life insurance combines flexible premiums with an investment section, and variable life insurance allows policyholders to invest in a range of sub-accounts.
3. Plan for a Set Goal
Having a clear plan helps in achieving. When you have a clear picture of what you want to achieve financially, achieving it is easy. A policy will help you reach that goal on a set timeline.
For example, Having a goal of saving for your children’s education might only be successful if you are clear on the details. But when you plan with a detailed goal, like saving Rs. 50,000 in the next ten years for your children’s education and then setting out to save and invest in policies, the chances of success increase.
4. Know the Coverage that you Want and What the Plan is Offering
Before buying a policy, assessing the coverage the plan offers is crucial. Insurance coverage is defined as the risk or liability that insurance covers for an individual or an entity. The coverage you’ll need depends on different factors, such as the number of dependents, liabilities, and current and future income. You can also weigh in your assets and existing plans in this decision.
Life coverage should be at least ten times your annual income. For a health insurance plan, you must ask whether the plan is a daily hospitalization or critical illness plan. The coverage will vary as per the plan and the insurance provider.
For example, you’ll get a cover of 15 critical illnesses under HDFC Ergo’s Critical Illness Platinum, whereas Apollo Munich’s Optima Vital will cover 37 critical illnesses. The biggest mistake you can make before buying a policy is to assume that all of them are identical. Hence, it is essential to know the comprehensive details of the coverage before purchasing a policy.
5. Taking the Insurance Agent’s Help
The insurance providers give an insurance analysis calculator that helps find out your insurance needs. By just putting in some personal details, one can find out about the best insurance as per their needs. The calculator will give the closest insurance relevant to your needs by analyzing your data through the personal and financial details you’ve fed.
One thing to note here is while the calculator provides the closest result, it will not tailor-make the insurance policy as per your needs. Here is when the insurance agents come to help. You can ask him relevant questions like Important Things to Keep in Mind Before Buying a Life Insurance Policy, and he will suggest an insurance that best suits your needs, goals, and financial condition.
6. Gather Information About Insurance Options
Though the agent will provide you with the best insurance that will suit your needs, it is essential to do some research on your own. It would be best to be thorough while asking questions about the policy you want to buy. The detailed tax structure, premium terms, etc., are Important Things to Keep in Mind Before Buying a life insurance policy. Hence it would be best if you got a clear understanding of them.
You can read about the pros and cons from the policy provider’s website or brochure. Getting all the information possible before Buying a Policy is an essential thing.
7. Understanding Premium Structures
Premiums are the payments policyholders make to maintain their coverage. Understand whether your premium remains fixed over the policy term or increases with time. Also, inquire about premium payment frequency options, which can vary from annual to monthly payments.
8. Look for the Longest Term
Choosing the most extended term is one of the Important Things to Keep in Mind Before Buying a life insurance policy. The longer you invest, the more money you can make. Therefore, starting investing in the early stages of your life is suggested. An example of the importance of time in investing is given below:
If you invest ₹ 1 lakh every year for the next five years, you will save ₹ 5,63,298/- @ 4% interest rate and ₹ 6,33,593/- @ 8% interest rate.
On the other hand, if you stay invested for just another five years (a total of 10 years), your savings would be ₹ 12,48,635/- @ 4% interest rate and ₹ 15,64,549/- @ 8% interest rate. The difference is substantial.
9. Importance of Riders and Add-ons
Riders are additional features that can be added to a base insurance policy to tailor coverage to specific needs. Critical illness, accidental death, and disability riders are common examples. Assess whether these riders align with your risk profile and financial goals.
10. Verifying all Charges and Benefits, Reading the Fine Lines
Carefully read and understand the policy document. This document outlines the terms, conditions, and limitations of the coverage. Pay attention to exclusions, waiting periods, and any potential changes to the policy over time. This will also contain all the details about tax. Hence, reading along the fine lines is one of the most Important Things to Keep in Mind Before Buying a life insurance policy.
11. Know Everything About the Claim Aspects
You can have an understanding of the company’s claim settlement process by assessing their past claim settlement ratios. The ratio reflects how many successful claims the company has been able to complete so far. Selecting a company that has the highest claim settlement ratio is advisable.
12. Research the Company and Read all the Reviews
One of the most Important Things to Keep in Mind Before Buying a life insurance policy is to check for reviews and ratings of your insurance provider. Thankfully, in this age of social media, it is easy to find out the reality of every product and company through the thousands of reviews posted online by actual users. By reading reviews from real-time users, you’ll get the best idea of the functioning of your insurance provider.
Research and ratings also teach you about the company’s financial structure. You can do this by checking their annual financial reports. Looking at this portfolio gives you a fair idea of how well the company can cater to your needs and interests.
Another thing to check is the agent’s insurance license authorizing him to sell insurance. IRDA should approve the insurance license of the agent. One must verify their license before sharing personal and financial details and documents.
Purchasing a life insurance policy is crucial to securing your family’s financial well-being in the face of unforeseen events. You’re taking proactive steps toward comprehensive financial protection by understanding insurance fundamentals, assessing your needs, and comparing policies.
With the knowledge gained from this guide, you can confidently navigate through the insurance world and make decisions that align with your financial objectives.