What Should You Do Before Buying Insurance?

Jun 11, 2018 | 1 year ago | Read Time: 2 minutes | By iKnowledge Team

Insurance companies ratchet up their ad blitz typically from January to March. This is so because most people think of saving tax at this time of the year. But, a last-minute dash to buy an insurance plan has never helped anybody.

Sure, you may be able to save tax, but that’s just a quick fix. You may come to rue your decision later, in case there’s a family emergency. Only then will you realise the importance of reading the fine print of the policy. So, avoid making such impulsive buys and keep the following factors in mind before you opt for a life plan:

Know the nature of the insurance

Term insurance is a risk cover, not like any RD, FD or Mutual fund that will increase your money in the long run. However, the insurance landscape has changed with the advent of the new-look unit-linked insurance plans (ULIPs). These plans can help build your wealth, provide life cover and also the chance to save tax.

There are other benefits as well. You have the choice to invest in different funds where each fund has different sets of risks and returns. So, if you want to take slights risks and expect to get high returns, investing in an equity-oriented fund can be ideal. Equity-oriented funds are slightly risky but they have the potential to provide high returns.

For those who don’t want to take enough risk, they have the option of investing in debt-oriented funds. The plan also offers you the flexibility to move money between different funds. There is always an option to switch funds.

Decide on the coverage amount

Choose the coverage amount as per your family’s financial needs. This amount will be given to your family if you pass away. So, think about how many people are dependent on you. Think about your family’s existing lifestyle. Think about the loans your family may have to repay in your absence. Consider all these options before deciding on the coverage amount. Remember, a small amount can leave the surviving members of your family in the lurch.

Take help of a human life value calculator if you are not sure what the coverage amount should be. The calculator will solve the dilemma for you.

Riders can help quell the storm

 A basic insurance policy may not cover all family emergencies. God forbid, you are afflicted with a life-threatening illness, your life insurance may not be of much use. This is why you need to opt for life insurance that comes with a rider for critical illness. Why do you only want to pay a premium for a plan that can protect your family? You need to think about your finances if you fall sick as well. This is where riders can be your knight in shining armor.

The last word

Purchase an insurance when you need it and not when you are forced to. Also, an insurance cover should be bought to protect your family. Tax benefits should not the topmost priority.

Advt. no.: IA/May 2018/4027

 


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