Buying life insurance is no more a task. Now, with online plans, anyone can purchase a policy in the amount of time it takes to brew the morning tea. It provides financial protection to the insurer’s family when they need it the most.
It is critical for a person to get life insurance as soon as he/she starts earning, as it is far less expensive when you’re young and healthy.
In India, whole and term life insurance are the two basic types of policies. Additionally, there are endowment plans, unit-linked insurance plans (ULIPs) and money back policies that consumers can opt for.
1. Which plan should one choose?
Most basic and affordable, term plans provide pure risk cover with no profits component. The sum assured is paid to the beneficiaries if the policyholder passes away during the policy term. If he/she survives, there is no pay-out.
With whole life policy, the policyholder enjoys the life cover throughout his/her life. The consumer has to pay regular premiums until death, upon which the corpus is paid out to the family.
Endowment plans are term plans with a maturity benefit. The pay-outs include the sum assured, along with profits. However, endowment plans charge comparatively higher fees and premiums. The profits are an outcome of premiums being invested in asset markets: equities and debt.
ULIPs are a combination of investment and insurance. Its performance is linked to markets. The sum assured is offered on death or maturity. Money back policies give periodic payments. If the policy holder survives the term, he gets the balance sum assured. In case of death over the policy term, the beneficiary gets the full sum assured.
2. Which plan to choose?
Before selecting a plan, consider your personal financial requirements; be it a specific goal or simply a protective life cover. For most people with basic financial needs and no complicated financial assets to protect, whole life insurance may not be ideal. For younger investors, term plans are more suitable as premiums are quite low, making them very affordable. Endowment policies can be purchased additionally to help build a strong financial portfolio.
3. How much cover is needed?
A general rule for buying life insurance is to ensure the coverage is 15 times the gross annual income for those below 40, and 10 times for those above 40. Investors also need to consider how inflation, salary changes, debt and taxes will affect life insurance needs.
Financial tools and calculators can help you compute the ideal life cover. Or you can choose other more sophisticated tools such as human life value (HLV), need analysis, and income replacement methods.
Online life insurance policies are the most economical, accessible and convenient products that one can opt for.
4. Who to get it from?
Life insurance policies are often written to cover decades at a time, so it is important to make sure the company will be around for years to come. Check if the company demonstrates financial strength. And before deciding on an insurance provider, go online and check their product reviews, claim settlements and service options.
5. How to compute premiums and payment options?
Premiums vary from person to person and company to company; irrespective of health status or actual coverage needed. It is important to note that cheapest needn’t be the best policy.
Thanks to the pay cycle, it is generally easier to opt for monthly payments. But when it comes to life insurance, it may work better to always schedule payments annually. It will help circumvent unnecessary fees.
6. What are the situations in which a life insurance policy won’t pay out?
All insurance policies have certain exclusions and limitations. But before getting into the exclusions, it is important to clear one basic fact: cover starts from the day policy is approved and not from the day of payment.
Amongst the most common life insurance exclusions is the suicide clause. Under this provision, the insurance company will not make any payments, equal to the face amount of the insurance, if the one insured commits suicide within one year since the purchase of the policy.
Life insurance companies can also deny a claim in certain health-related deaths; sometimes due to missed payments or non-payment of premiums.
Online life insurance policies are the most economical and convenient life insurance products that one can opt for. Insurers like HDFC Life help you get affordable life cover to protect your loved ones. From ease of buying and document submission to scheduling medical appointments (if required) and policy servicing—everything is available at the click of button.