Choosing the right life insurance policy is like buying a car. Just as there are different types of cars for specific needs like commuting, road trips, off-roading, and so on - there are also many types of life insurance policies, each tailored to meet specific financial needs.
When buying a car, you consider factors such as fuel efficiency, safety features, and performance. Similarly, you need to carefully consider factors such as coverage amount, policy term, premiums, etc., when choosing life insurance.
One of the most important decisions is choosing the right ‘type’ of life insurance. With so many varied options to choose from, it can be confusing to figure out which one is right for you
So, let's see how to choose the best life insurance policy - in this article!
What is Life Insurance?
A life insurance policy is an agreement between you and the insurance company. In exchange for regular premiums from you, the insurer agrees to cover your financial risks. If you pass away during the policy tenure, the insurer promises to pay a predetermined sum of money to your nominee. This is called the ‘sum assured’.
While the primary purpose of life insurance is to provide a financial safety net for your loved ones, it also helps with your long-term financial goals such as funding your child's education, covering their wedding expenses, saving for retirement, etc.
Now let’s find out how you can choose the best life insurance policy.
How to Choose the Best Life Insurance Policy?
These are some of the things you need to keep in mind to make the right decision -
1️⃣ Determine Your Needs
When it comes to selecting the right life insurance policy, the first step is to assess your own needs and requirements. This includes factors such as your age, income, financial responsibilities, and your dependents’ needs. With thorough analysis, you can find the right policy that will protect your loved ones in your absence.
2️⃣ Choose the Right Type of Policy
Once you have assessed your needs, the next step is to select the right type of policy.
- If you have dependents who rely on your income, you may want to buy a term life insurance policy to support them financially in your absence.
- If you are looking to save for long-term financial goals like your child’s education or wedding expenses, an endowment policy can be an ideal option. It offers both a life cover and a savings component.
- If you are planning to save for your retirement life, a retirement policy can be a wise choice. This ensures a steady stream of income post-retirement to maintain your standard of living and take care of any expenses.
There are various other life insurance policies as well. You can choose the right type of policy that aligns with your specific needs and financial goals.
3️⃣ Determine the Amount of Coverage You Need
The next step is to determine the appropriate cover amount. You need to calculate the cover amount carefully, as it is the amount your family will receive if you pass away. It is also the amount you will receive, under certain plans, for your financial goals - if you survive the policy term. The cover amount should comfortably suffice both your and your family’s needs.
To determine the right coverage, you can use various life insurance calculators online. All you have to do is provide details like your age, income, occupation, etc. Alternatively, you can connect with a financial advisor who can help you assess your needs and determine an appropriate cover amount.
4️⃣ Decide the Policy Tenure
The ‘policy tenure’ refers to the period during which the policy will provide coverage. To determine your ideal policy term, it is essential to consider various factors such as your age, financial goals, and the duration until which your family will depend on your income. A general rule of thumb is to subtract your current age from the age you expect to achieve your specific financial goals, retire, or stop earning.
Vaibhav is 35 years old. He is married and has a 5-year-old child. He expects to retire by the age of 60. His financial obligations include financial support for his spouse and funding his child's education. So, he chooses to buy a term life insurance policy with a sum assured of Rs. 75 lakhs for a policy term of 25 years.
5️⃣ Check the Policy Features
You should thoroughly review policy features and specifications. Look for features like riders, which provide an additional payout for accidental death/disability and critical illness. Also, check whether the policy includes a waiver of premium due to accidental disability or critical illness rider. Under these riders, you’ll be eligible to stop paying premiums if you are disabled or critically ill. Furthermore, you need to check whether the policy allows you to customise the premium payment term, premium payment frequency, claim payouts, etc.
6️⃣ Compare Premiums
After you have narrowed down your options, the next step is to compare premium quotes from various insurance providers. Most importantly, ensure you compare policies with the same coverage and features. This will help you find your ideal policy that meets your budget as well as your expectations. For this purpose, you can either use an online comparison tool or consult an advisor.
7️⃣ Research the Insurance Company
Before purchasing a life insurance policy, you should thoroughly research the insurance provider. You can do this by checking the insurer's claim settlement ratio (CSR), reviews by past and present policyholders, etc. You should also make sure that the insurer offers quality services and is dependable in times of need. This will increase the probability of your or your family’s claim getting settled without any hassles and will ensure that you receive support whenever you need it.
8️⃣ Read the Final Policy Document Carefully
Before making the final decision, you should ensure that you have a clear understanding of all terms and conditions of the policy. Read the policy wording carefully and understand the inclusions and exclusions. Assess all the details, including the lock-in periods and scenarios wherein claims may be deemed invalid.
Once you have taken care of all the necessary checks, you are good to go ahead and purchase the right policy that fits your and your family’s needs!
Buying a life insurance policy is an essential financial decision that requires careful consideration. To choose the best insurance policy for you and your loved ones, it is crucial to evaluate your specific requirements and seek guidance from professionals. By undertaking these steps, you can make an informed decision and select a policy that meets your needs effectively. You should remember that a life insurance policy is not just an expense, it is an investment for your future.