What are the non-negotiable elements of any comprehensive life insurance policy? Buying a life insurance policy is simple, although several factors must be considered. From choosing the right coverage amount to the tenure and additional riders, there are several aspects that you should do your homework on. Here is a brief guide to make it easier for you:
Is Life Insurance Necessary?
A life insurance policyis a necessity in every portfolio. Life is uncertain, and this policy ensures the payment of a sum assured to the family/nominee of the policyholder upon their unforeseen and unfortunate death. This is the biggest reason behind opting for life insurance, i.e. the future financial security of your family in your absence.
You can pay your premiums either as a lump sum or in installments. Some plans, like endowment policies, come with lump sum maturity benefits for policyholders who survive the policy term. Some have annuity options, while others, like ULIPs, offer insurance coverage and investment options. Hence, the right life insurance policy can be the most important investment you can make while maximizing returns/investment opportunities if you wish. You can use a life insurance calculator to work out the payable amounts and returns before buying the policy.
The Right Life Cover for your Family
When choosing your comprehensive life insurance policy, having a suitable coverage amount for your family in case of your demise is crucial. You should calculate this amount carefully while accounting for future costs and goals. Some of them include the following:
- Higher education of children
- Weddings of children
- Inflation and its impact on monthly household expenditure
- Home renovations and repairs in the future
- Financial or other goals you want your family to accomplish in the future.
The sum assured you choose must be sufficient to cover any future monthly expenses of your family members while factoring inflation into the equation while also covering all of the above overheads and goals. If you choose a life insurance plan with maturity benefits, you should calculate your future needs after retirement. This applies to pension or annuity plans as well. In addition, your annual expenses may cover debt or loan repayment. In case of your unfortunate demise, these may burden your family severely. Hence, take these into account while planning your life insurance coverage.
The Right Policy Period
You should also give considerable attention to choosing a suitable policy tenure. It does not always make sense to blindly go for the longest-possible insurance policyor the cheapest one available. The term should not be excessively short since the policy may expire before you have completed your financial commitments. However, it should not be excessively long since you will not require it once you have met your financial obligations, while the premium would also be higher for higher tenures. A thumb rule for working out the best possible tenure is to work out the year when your net worth (liquid) will surpass your life insurance coverage. This is the age till which you should have the coverage.
The Right Type of Life Insurance for your Goals
What are your future financial and life goals? What are you planning to get out of your investment? You should also invest a little time into choosing the right life insurance for your objectives.
- Future Financial Security for your family with Guaranteed Sum Assured – Term Plans are the best options.
- Insurance Coverage and Investments in Various Funds – ULIPs are the best options in this scenario.
- Fixed Return upon Surviving the Policy Tenure – Endowment Plans are the best options for more conservative investors since the survival maturity benefits are guaranteed in the form of a lump sum corpus. You can then use this amount to fulfil one or more goals.
- Coverage for a lifetime – Whole life policies ensure coverage up to 100 years of age.
- Earning Income Post-Retirement – Annuity Plans are suitable options since they distribute the policy corpus into regular payouts/income after retirement.
Carefully choose your policy type depending upon your requirements.
The Right Riders to Enhance Your Policy
You can boost your insurance policywith several essential riders. Some of the options include the following:
- Accidental Death- This pays out an extra benefit over the sum assured in case of the policyholder’s demise due to an accident/mishap.
- Premium Waiver- This rider comes in handy when the policyholder cannot pay the insurance premiums due to unforeseen circumstances. The waiver means they will no longer have to make these payments without terminating/compromising on the coverage.
- Accidental Permanent Disability (Partial/Total)- This rider pays the sum assured in case of any partial/total permanent disability of the policyholder due to an accident.
- Family Income Benefit- This helps offer the family a regular monthly income/payout in pre-defined scenarios or circumstances. The minimum payout period is around 10 years, while the sum is equivalent to 1% of the sum assured.
- Critical Illness- This rider ensures a lump sum payout if the policyholder suffers from any critical ailment/illness. It is a one-time lump sum payment, irrespective of the treatment cost.
Wrapping Up
Choosing the right insurance policymeans selecting the right combination of these must-have factors, i.e. the tenure, coverage, riders, and policy type. A little homework and time investments always work well in this regard.
