Life insurance has been an elusive subject for many. The long-standing perception has been that it is complex, substitutable, and inflexible. It was only recently that the masses have realised the need for insurance, as the Covid 19 pandemic has created an unprecedented financial burden on several families. At the core of it, life insurance caters to all your life goals through solutions aimed for protection, savings, investments, and health. It facilitates financial independence so that your future life goals can be achieved successfully. A prominent part of life insurance solutions is the element of mortality, which allows you to secure your loved ones from any financial disruption resulting from events like job loss, disability, and death.
I always recommend buying an insurance plan as soon as one has started their first job. Apart from the protection aspect, insurance also helps instil a habit of saving from an early age, which makes way for prudent financial practices in the longer term. There are various factors that contribute to the decision-making process. Insurance should be looked at holistically, as a part of the financial planning process. When determining the right product for yourself, first map out the life goals you are planning for and then look at the various products available at your disposal. Unless your life insurance solution is linked to a financial goal, you won’t be able to determine the right product for yourself.
How does one determine if they need insurance and adequate coverage?
Term insurance is the purest form of protection and anyone who has dependents must opt for it. Several factors go into consideration when buying term insurance including income, expenses, liabilities, inflation rate, etc. There are tools available online that can help you determine adequate coverage for you, depending on your unique requirements.
The general thumb rule is that the life cover must be at least 10 times of your current income and additionally account for liabilities so as to get adequate income replacement. As your liabilities increase, your cover should increase too.
Key factors to look at when choosing a life insurance company
While choosing the right life insurer is important, it is much more critical to identify the right product. First, shortlist the product you want to buy and then determine if the company offering it has robust fundamentals. It is crucial to look at indicators like claim settlement ratio, returns on funds managed by the company, IRR, charges applicable on the products, reversionary bonuses announced in the past, company performance, etc.
Precautions to ensure your dependents receive the intended benefits
A life insurance policy serves as a promise that gets fulfilled at a later date and in your absence. It is critical that you ensure that you completely disclose all relevant details to your insurer. Details about income and education, occupation, health (including pre-existing diseases), family history and habits such as smoking and drinking should be divulged upfront. If all the facts are disclosed truthfully when purchasing the policy, then chances are your dependents will experience a hassle-free claim.
Don’t blindly follow the recommendation of a friend or a relative. Let them guide you but ensure that the decision you make is based on your own research and understanding.
Different types of life insurance products to consider
Life insurance offers varied solutions aimed at fulfilling different life goals. Term insurance and critical illness solutions are among key protection products that offer you financial immunity from events like loss of life or diagnosis of serious ailments. There are also wealth accumulation products like endowment or market-linked policies which help people not only save their money, but also grow their wealth for longer term goals like child’s education. Income solutions offer a fool-proof method of creating an alternate or second source of income for people across age groups. Similarly pension and annuity products enable are an ideal method for retirement planning.
(By Anup Seth, Chief Retail Officer, Edelweiss Tokio Life Insurance Ltd)