A life insurance policy is basically an agreement between you and an insurance company in which you are guaranteed financial protection in exchange for a certain fee called a premium. It is primarily designed to safeguard your loved ones - giving you the peace of mind that they will be taken care of - should the worst happen. Besides this, some life insurance plans also help you accrue long-term savings and achieve financial goals such as your child's education, weddings, saving up for retirement, etc.
Investing in a life insurance plan is a crucial and life-altering financial decision, which is why you need to make an informed decision about the plan you buy to make sure you get exactly what you need.
In this article, we’ll discuss what you need to do before investing in life insurance! ?
What is the Best Way to Invest in Life Insurance?
Here’s a step-by-step guide to investing in the right life insurance plan -
1️⃣ Determine Your Needs
The first step is to assess your personal needs and objectives. For that, you need to consider several factors, including your age, your income, your financial obligations, your dependent’s needs, etc. When you evaluate all this carefully and thoroughly, you can proceed to the next step - choosing the ideal policy that caters to your and your family’s goals.
2️⃣ Choose the Right Type of Policy
When it comes to life insurance, a one-size-fits-all approach does not work. To make sure you choose the right type of policy, it is important to evaluate all the available options and determine which one best fits your specific requirements. Every type of life insurance policy is designed to address different goals.
- If you have dependents who depend on your income for their needs and goals, you may consider buying a term life insurance policy. It offers them much-needed financial security in case of your unfortunate demise during the policy period. A term insurance policy is an ideal choice for those with financial dependents and responsibilities.
- If you wish to build up long-term savings for any financial goals such as a child's education or wedding expenses, buying a home, etc. an endowment policy can be an ideal solution. The plan combines life insurance and a savings component. By investing in it, you can achieve your financial objectives and secure your family's financial future.
- A retirement plan can be a wise investment if you wish to save for your golden years. By investing in it, you can comfortably cover your retirement needs as well as maintain your standard of living.
Besides these, there are several other life insurance policies. Every policy has its own unique features and benefits, so it's crucial to do your research before signing up.
3️⃣ Determine the Amount of Coverage You Need
The next step is to determine the appropriate cover amount. You should calculate the cover amount carefully since it is the amount your family will receive - should anything unfortunate happen. Some plans also offer this amount if you survive the policy term, for your own financial goals.
Most importantly, ensure that your policy's cover amount comfortably serves the purpose for which you are buying it. For instance, if you are buying an endowment plan to fund your son’s higher education, make sure the tuition fees, living expenses, and other associated costs fit comfortably into the cover amount.
4️⃣ Determine Your Budget
Depending on what type of policy you select, the life insurance premiums may vary considerably. A premium is an amount you pay to your insurer in order to keep your insurance policy active. As life insurance is a long-term commitment, you need to ensure that you are comfortable paying the stipulated premium over an extended period of time. So, determine your budget and choose a policy that you can afford without sacrificing your financial goals.
5️⃣ Decide the Policy Tenure
Generally, the tenure of a policy refers to how long it will cover you. It is important to consider a variety of factors when determining the ideal policy term for you, such as your age, your financial goals, etc.
For example, Ravi, 30, wants to buy a term insurance policy. He believes that he will have completed all his financial responsibilities and enter into retirement by the end of the next 30 years - when he is 60 years old. So, he should buy a term insurance policy with a policy duration of 30 years.
So, based on your financial situation and needs, determine how long you will need coverage and choose a policy accordingly.
6️⃣ Have A Look At The Policy’s Features
Ensure you carefully review your policy's specifications and features to make sure they meet your needs. For instance, life insurance policies allow you to add riders, i.e., add-ons that enhance your base coverage. Some life insurance riders are -
- Hospital care rider
- Critical illness rider
- Waiver of premium due to disability rider
- Waiver of premium due to critical illness rider
- Accidental death benefit rider
- Accidental disability rider
- Surgical care rider
Note: This is just an indicative list. The riders may vary, depending on the life insurance product and the insurance company you purchase it from.
For example, if you have opted for an accidental death benefit rider along with your base life insurance plan, it will offer an additional payout to your family if you pass away because of an accident - along with the plan’s cover amount.
Life insurance policies may offer you other features like increasing cover, decreasing cover, a loan facility, cash value, and so on. Before choosing a policy, ensure you decide what features will ensure your goals are met. This way, your policy can be tailored to suit your unique needs.
7️⃣ Conduct A Comparison
To ensure you get the most bang for your buck, you need to compare the life insurance policies offered by different insurance companies based on several factors such as premiums, riders, inclusions, exclusions, etc. Make sure you compare policies that offer the same coverage and features. By doing so, you'll find a policy that aligns with your needs and budget.
8️⃣ Research About The Insurance Company
Buying the right insurance policy is important, but so is choosing the right insurer. This will ensure that your and your family’s insurance journey is hassle-free right from purchase to claim settlement.
So, ensure you conduct in-depth research on the insurance company before investing in a plan. To check the insurer's credibility and reliability, you should -
- Check the insurer's claim settlement ratio (CSR). The higher the CSR, the better the claim-settling ability of the insurer.
- Read the reviews of past and present policyholders.
Choose an insurer with a track record of providing excellent customer service, so they can be relied upon in times of need. This way, you can be assured that your or your family's claims will be handled efficiently and that you will receive timely assistance.
9️⃣ Read the Policy Document Carefully
You need to be well aware of the terms and conditions of the policy since it has a lifelong impact on you and your family. Make sure you understand what is covered and what isn't - including lock-in periods and scenarios where claims could be considered invalid. Knowing your policy in and out will help you and your family members avoid any nasty surprises in the future.
We've come to the end. Investing in life insurance is a crucial financial decision. Hence, take the time to research and plan carefully before committing to a policy - to ensure that you and your loved ones get the financial backing whenever the need arises.