Moneycontrol
May 11, 2015 10:14 AM IST | Source: Moneycontrol.com

Mapping life insurance needs to life stages is essential

As one advances in his life, the insurance needs do change. Hence the need must be reviewed and accordingly one should buy life insurance.

Mapping life insurance needs to life stages is essential

Sridevi Ganesh

For many individuals, buying adequate life insurance has always remained a tricky one.  For many years, Life Insurance has remained as a tool to reduce your tax liability.  This situation is slowly changing because of the development in the industry as a whole and the various social media platforms taking efforts to educate common man on the importance of term insurance products.  We still have a long way to go where an individual buys adequate insurance cover and do not treat this as a savings tool.

Whether you own a car or a two wheeler, you are forced to buy an insurance to cover uncertainties.  So you do not really worry whether you are making a return out of the premium paid.  But when it comes to life insurance many are still lured away by the fancy excel calculations shown by the bankers or the agents.  

How to take a better decision ?
If you just got employed, the first and foremost thing that you should do is to buy a term insurance.  Get in touch with an investment advisor and find out how much cover is needed.  You are normally allowed to buy a cover up to twenty times your annual income.  If your annual income is five lakhs, then you can buy cover up to a crore in general.  These days most of the insurance companies have online tools that can indicate how much cover you need to buy and the corresponding premium you are supposed to pay.  Term Insurance is cheaper and easy to buy when you are young as you would be medically fit in the early part of your life, in general.  Accidental death benefit, as a rider, is a good one to buy.  Do not go for any critical illness rider as most of the clauses given are confusing for a lay man to understand and I have seen critical illness claims getting rejected citing many reasons.  This still remains an area of concern and may be down the line we will get more transparency here.  

How to protect your liabilities ?
Once you are employed and income keeps moving up, you would definitely go for a house and car purchase though not in the same order.  When you go for a housing loan, the banker automatically includes a loan cover term insurance to protect himself.  Fortunately, you are also benefited out of this.  Having said that, do not allow your banker to dictate terms.  Housing loan is coupled with a single premium loan cover term insurance and you would be asked to pay the premium upfront.  This is not advisable.  Instead opt for an online term for a sum assured in proportion to the loan taken, with a regular premium payment.  This gives you flexibility and control over your overall life insurance cover.  Even if you foreclose your loan, you can map it to other needs like a child’s education that need protection. 

Step up your risk cover
There you are.  The next obvious step in your ladder is getting married and becoming parent.  Once you get married, your needs would change and increase in number.  If your spouse is not earning, then you have a financial dependent that needs to be taken care of.  Upon becoming a parent you earn further responsibility of educating your child.  This is a vital need in our social setup and at present you cannot shy away from this responsibility.  You need to step up your cover adequately by consulting your investment advisor.  The most important aspect is to continue paying these policies till you build substantial assets.  Then you would be in a position to review your risk cover need.  At that time, depending on your income and liabilities, you would have the luxury of discontinuing some part of the cover.  

How to choose a right product ?
These days, there are plenty of online insurance comparison tools available.  This gives you a fair idea of which product is better with rich features.  Once you freeze a list of products, then do a study on the company’s claim repudiation ratios.  Anything above 95% is a good number to rely on.  Buying online gives you advantages in terms of relatively less premium but if you feel you need the services of an agent, nothing wrong in paying slightly higher. The more details the company asks upfront, the better it is for you.  Do not hide any material facts about your financial and physical health.  Disclose all relevant information as otherwise, the chances of a claim getting rejected is high.  

Once in five years, get an idea of the premium prevailing in the Industry.  Sometimes, you may be paying more for a particular cover for which the premium rates would have gone down substantially.  Then you can buy a fresh policy and discontinue the old one.

Stepping up your risk cover as you go up in life, be it due to income rise or expansion in family, is an area that needs attention and review as and when change occurs.  Then you are in a better position to cover uncertainties in life.  Buy adequate term insurance, increase as and when required, achieve your financial goals and stay peaceful ! Though life is not a Twenty20 fixture, you need to step up at the right time to win !

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