Buying a life insurance plan is not an easy task. One must have basic knowledge before buying a life insurance plan or before investing your money because it provides financial security to your family and loved ones. There are several types of policies available in the market depending on funds, plans, situation, etc.
It is very important to choose the best life insurance policy after looking at all the aspects, so here we are with 5 things to consider before buying Life insurance. You will get all the basic ideas to shop for the best life insurance plan for your loved ones.
Calculate your Insurance Need
you must know how much insurance do you need? if your insurance agent is a really very good marketing guy then he will definitely convince you to have at least 10 crores of life insurance plans.
Do you really need that much of an insurance plan?
to know how much of a life insurance plan do I need, you need to calculate the premium with these simple steps.
Step 1: take your annual income
Step 2: multiply it by 5
that much must be the life insurance plan one much go within my case consider that my annual income is 1 crore and multiplying it by 5 it would by 5 crores so I must have at least of 5 crores of cover.
Second thing, if you wanna go into complicated stuff then there is one more way called a human life value. in human life value, you calculate your current income and use CAGR through which you will be able to calculate your future earnings.
once you have all idea about your future earnings then you would again discount it to the current date and that would be the value of your life insurance cover.
Not the rider which you are thinking. rider means somethings which is like an add-on. you might get the question of what is an add-on? let us learn through an example.
when you visit mc Donald’s and say I want extra cheese or sausage or whatever. in this case, extra cheese is added-on in the same way you can also have an add-on to your insurance policy.
for example, you may say that I want a pandemic cover, death due to fatal accident, etc. so these could be multiple things that you can add to your life insurance policy and these add-ons are nothings but Riders.
Here are some of the common life insurance riders:
• Accidental Death rider
• Guaranteed Insurability Rider
• Waiver of Premium Rider
• Death Benefit Rider
• Child Term Rider
• Family Income Benefit Rider
• Long Term Care Rider
The second thing you much consider before buying a life insurance policy is to check out how much is your Total Premium Payout.
Premium Payout means how much premium you have to pay to get life insurance coverage. it could be a possibility your insurance requirement is 5 crore and for that insurance premium amount is very high even if your annual income is very good, you might have existing financial obligations.
you might have a home loan, vehicle loan, some medical outflow that is why it could be a possibility despite not having that much income to payout your insurance premium, so what could be a possibility?
Term plan: term plan is similar to a non-life plan in which you pay an insurance premium and if you don’t die in the specified period then there is no need for that money but if a person dies in that period then he will get the money back.
The insurance cover can be very high and the policy amount can be very low so the premium amount can be very low. you might think how much low.
let us understand with an example, many of the insurance companies now have a ratio like for every 1 crore of some insured you have to shell out only 6 to 8 thousand rupees it’s as low as this but its term plan.
if you go ahead with a saving investment policy which could be whole life or endowment your premium amount can be even 10 times that term plan.
What is Covered in my Life Insurance Policy?
The third very important point is what things are covered in my policies or which are not covered. I am sure none of you have actually read out this part in your insurance policy for a simple reason everyone gives an excuse that it’s too long! too lengthy! which is not a good thing.
in current policies, 99% of insurance policies do cover the Coronavirus because it is not very special as such.
what about the people who want to start insurance policy from today? it might be possible that considering the probability of a person getting infected by the coronavirus can be a little higher but the premiums might shoot out. if your health is not in a good condition right now then the premium amount can be higher or if any person is already infected with my coronavirus and wanted a life cover right now then his application may get rejected.
you might think what must be the ideal tenure of my life insurance policy? there could be two possibilities
1) retirement age
insurance based on retirement age: if I intend to retire at the age of 60. my life insurance cover should be only till the age of 60 or you might say what is the logic for that.
simply right now consider a person who is the only income source of the family means his family is totally dependent on his or if his dies then there would be a problem for his family. so the person must cover for life until he retires. if he intends to work till 60 then he must be covered till the tenure of 60.
Insurance-based Goal: if I want to insure for my Childs higher education his current age is 7 years and consider his higher education is going to start at the age of 18. I need to ensure that this policy matures within 11 years so I should be ready whenever my child opts for higher education then I can use those policies which are matured to pay for his education.
Claim Settlement Ratio
let us understand one very important point that is the claim settlement ratio. if I want to explain to claim settlement ratio with the help of a table that would be the best option.
It’s a claim settlement ratio table for the year 2018-2019. you might have questioned what does it really mean?
In the vest first column, you can see the life insurance companies, the column next to it is total claims received, on the right is claims paid. what does it mean? how many people submitted the life insurance claim. this is from the angel of an insurance company. the insurance company receives a claim and then subsequently after looking at all the details what the company does is pay the claim.
if I talk about the detailed version of that you can see the number of policies for TATA AIA which were claimed by the various insured people like you and me for 2700 so the no. of claims they received from 2700 and out of that they pay a claim for 2665. it means that no. of policies which were settled were 99.07%
if I talk about Bajaj alliance life 12667 no. of policies were received by the company out of which the claim was paid for 12130 so claim paid ratio was only 95.01%.
in simple words suppose 100 people ask for an insurance claim TATA has honored 99 out of 100 were as Bajaj Alliance Life 95 were honored. the reason is not given in the data there could be multiple reasons but this is the data that speaks up how much is the Claim settlement ratio of years 2018-2019.
I hope you have understood all the points which I have discussed things to consider before buying a life insurance policy