There is a reason why people get turned off by life insurance-related information. It can be pretty confusing, in no small part due to the various jargons used. Yet, buying life insurance is important—it ensures financial stability for your loved ones after your demise and is an important part of financial planning.
To make the process of buying sufficient cover easier for you, we’ve prepared a checklist you must keep handy when you go hunting for the perfect policy to purchase:
- Do you need life insurance cover?
Are there people in your life whom you care about and support financially? If you answered ‘yes’, then you definitely need life insurance. Even if you do not have any dependants, life insurance cover can help pay out loans as well as save money for your post-retirement life.
Related: [SN1] Do I need life insurance?
- How much life insurance would you need?
Imagine buying half a dozen bananas for your family of eight. Obviously, it is not enough. Two family members would either have to go without any or some members would have to share. While that may suffice for bananas, it most definitely does not for something as important as life insurance.
There is no single easy way to determine an optimum insurance cover, but one approach is as follows:
Annual gross income x 12 + debts/loans - assets/savings
To calculate exactly how much cover you need based on various factors, use our calculator[SN2] .
- What type of life insurance should you buy?
Different people have different insurance needs and what works for you might not work for someone else. Thankfully, there are different types of insurance [SN3] available to suit your individual needs:
- Term life insurance: Imagine that you need 12 bananas for your family every day. You make a temporary arrangement with the seller to provide these at Rs. 50 a dozen for the next one year. The following year, you either renew the deal at a higher rate of Rs. 60 per dozen or discontinue it. This is how term insurance works: You make payments to the insurer at a fixed rate for a specified term to get coverage. Should you die during this term, your family will receive the death benefit. If you survive the term, however, you would have to renew the policy at another fixed rate to get the coverage once again.
- Whole life insurance: This is more or less a lifetime permanent agreement. You pay a fixed amount of premiums to the insurance company for your entire life or until the maturity date. The premium is higher than in term life insurance because, in addition to the death benefit, the insurance company invests a part of the premium to build up your savings. It is akin to paying Rs. 70 for bananas, and receiving bananas along with an additional Rs. 10, because the seller invests on your behalf a part of the money he receives from you.
- Universal life insurance: This option combines a death benefit and a savings element with the flexibility to alter premium payments depending on your circumstances. In other words, you get the bananas plus an extra Rs. 10 as well as the option of paying the seller less money at times and forgoing the extra amount.
- How much would you pay as premium?
The premium amount will depend on various factors, such as coverage and type of policy as well as your medical condition, age, and profession. For example, being overweight, a smoker, or in a dangerous profession makes you a high-risk individual for the insurance company. This translates into higher premiums than what a young and fit 23-year-old college student might have to pay.
- Where can you buy insurance?
You can visit a local branch of your preferred insurance company or contact a certified insurance advisor who will gladly be at your doorstep to help you complete all formalities. You can also buy insurance online on the insurance company’s website. There are also third-party dealers like banks and financial institutions who could help you buy insurance.
If the lack of information ever stopped you from buying life insurance, it shouldn’t anymore. You now have all the pre-requisite information you need about life insurance. So go ahead and secure your life today!