When you set out to buy an insurance cover, you will have to deal with several variables: age, health, tenure, benefits you want at maturity, and so on.
To help identify the term insurance plan that is right for you, here is a 6-point guide to get you started:
1. Define the number of dependents you currently have, who will need the insurance money, should something happen to you. If you are young, with no personal liabilities, your term insurance cover may be able to support your parents, or your earning partner. If you have parents and a family to look after, your insurance cover must include these factors.
2. The insurance premium you are ready to pay must be arrived at after considering your current income and expenses. Make sure you are comfortable making the premium payments and these will not be a stress on your finances.
3. After you have calculated your income, the expenses of your family members, cost of education for your children etc., ensure that you account for inflation as well. A common calculation is your cover should be 10 times your current salary + regular expenses + a block amount of Rs. 30-40 lakhs that can take care of your children’s education / marriage etc.
4. Age is a key factor in determining the premium payable: the older you get, the higher your premium cover per year. Hence, buying insurance early will help you get a larger cover for lower premiums.
5. Be careful with tenure, especially if you are buying your insurance at a later stage in your life. Make sure that you will be able to comfortably pay the premium of your life insurance term policy after your growing expenses, and at the later stages of your career – in case you opt for long term insurance. Keep in mind that salaries tend to stagnate or grow very slowly post 45-year mark.
6. Avail of tax benefits available under Section 80C of the Income Tax Act, 1961, as a deduction of Rs 1,50,000 from taxable income.
Apart from these pointers, choose your policy and insurance provider with care:
1. Define for yourself the purpose of buying insurance: standard of living, education, retirement or managing wealth
2. Type of Product: pure term, traditional, unit-linked, or group protection plans etc.
3. Claim ratio and returns of the policy and the insurance provider: should be above 95% at least.
4. Ease of Policy renewal
5. Performance of funds – bonuses for traditional plans.
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