4 Things to Check Before You Purchase a Life Insurance Policy
Posted: Aug 20, 2021
According to data presented from the Handbook on Indian Insurance Statistics, 2016-17, India has 328 million insurance policyholders. This indicates that a sizable portion of the Indian population is unaware of the advantages of a life insurance policy. Most people purchase insurance policies as a measure to save income tax. Inadequate knowledge combined with a basic understanding of life insurance products undermines the purpose of purchasing the policy.
A life insurance policy is designed to protect your current and future financial goals. The financial tool provides the policyholder with a variety of benefits, including tax savings and life insurance. However, before purchasing a life insurance plan, it is critical to understand the financial product and choose the one that best suits your needs.Things to Keep in Mind Before Buying Life Insurance Policy
Before owning a policy, it is crucial to understand the necessary criteria, which are discussed below.
- Life Cover Amount
The primary goal of the policy is to provide the policyholder and his dependents with adequate coverage to live a dignified life. There are different ways to calculate the approximate amount such as:
- Look into the ambitions and family’s future financial goals
- Present monthly expenses
- Lifestyle and household expenses
- Financial needs including health/education
Your life insurance policy must cover all the expenses as well as the impact of inflation over time. As a rule, 10 times the policyholder's annual income is considered enough. The basic idea is to select a life cover that will protect your family's financial interests if you are unable to provide for them.
- Policy Tenure
The 'policy tenure' refers to the length of time that the policy provides life insurance coverage. When it comes to purchasing a plan, tenure is very important. As a rule of thumb, one should always choose a policy term based on their retirement age.
- Additional Benefits and Riders
In addition to the base cover, certain plans provide additional benefits enlarging a formidable protection umbrella. Some of these riders are provided for a nominal premium. A policyholder can avail the riders for different purposes including:
- Accidental disability cover
- Critical illness cover
- Certain options for premium waiver
- Child support benefits
- Reviews of the Policy
It is important to check the credentials of the insurer before buying the policy. Also compare different policies offered by different companies before buying one. Some of the things to look out for:
- Claims settlement ratio
- Assets under management
- Solvency ratio
It is essential to review the policy at least once a year. This is necessary to ensure adequate financial security for the futures of your loved ones. It also aims to safeguard policyholder’s earning potential in the event of an unfavourable incident.
In addition to the factors discussed above, other factors such as premium frequency and policy exclusion list are important to consider when purchasing an insurance policy. Today, any applicant can review the finer points and purchase a life insurance policy online in India from the comfort of his own home.
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