Five life insurance buying tips

Deepak Yohannan
MyInsuranceClub.com

Over the last 50 years, Life Insurance Corporation (LIC) of India has been communicating the concept of life insurance, its need and benefits to the masses of this country. A decade ago, many private players joined the bandwagon and increased the penetration of life insurance in India. But a vast majority of the so-called “insured” population still remains clueless about the right insurance policy for themselves and their family.

Life insurance in India continues to be synonymous with Savings than as a Tool to hedge risk. Many people have purchased life insurance in the form of a savings plan (money back) or an investment product (unit-linked policy) which also offers tax benefits. But it is important to understand the primary benefit of a life insurance policy at the time of buying. Some of the tips that will help individuals make the right choice while buying a life insurance policy are listed below -

1. Seek a risk cover first

Life insurance policies can fall into two categories-

• Protection policies – pays lump sum benefit in the event of death or a specified event (Term Insurance)
• Investment policies – objective is to grow capital (Endowment, Money Back, Whole Life, Unit-linked)

Although there is nothing wrong in buy investment life insurance policies, an individual should be wise enough to first buy protection policies and secure his/her dependents. Term insurance, loan cover insurance, etc are protection policies where the premiums paid by the policyholder are not returned on maturity but an agreed sum is paid to the family in case of death of the policyholder during the term.

2. Start early

In a life insurance contract, the insurance company takes over the risk on the life of the policyholder in return for a fee. This fee (known as premium) is calculated on the basis of many factors such as age, gender, profession, health, etc. The lower the age, lower is the risk associated with the person and hence the insurer will charge lesser premium. Premium amount once decided usually remains the same throughout the policy period. Therefore, it is advisable to start a life insurance policy as early as possible.

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3. Two is better than One

Even though the cost of buying one policy is lesser than taking two separate policies, it is recommended that you split your purchase.

4. Do your homework

Every life insurance company will have several tools and calculators to work out the best policy, coverage amount and tenure for you. But it is very important that you carry out some basic research on what you want, why you want it, how much premium you can afford, how long you need the policy to continue, etc.

5. Meet at least 2 people from different companies

Whether you meet a direct company representative or some broker, ensure that you meet at least two salesmen before making the purchase. Do not handover the premium cheque in the first meeting. Spend a day or two to analyse the recommendations of the sales advisors. At the same time, do not drag the buying process for months and complicate it.

Insurance is an important part of financial planning and buying the right product can be tricky. But with little homework and research, you can buy the right life insurance policy and cover yourself and your family.

The author is CEO of MyInsuranceClub.com and can be reach at deepak@myinsuranceclub.com