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Feb 25, 2013, 07.44 PM IST | Source: Moneycontrol.com

Life insurance planning

YOU heard enough about why you should buy insurance. So you wake up one morning and decide to buy yours that day. And then, you realise, you have no clue where to begin. Well, how about here for a start.

Life insurance planning

Step 2 ' Understand the key concepts
Risk cover v/s investment returns
Insurance options range ' from low premium policies with that offer almost no returns, to high premium ones that offer returns depending on the fund option you choose.

We recommend you buy policies skewed towards investment returns only if you are in the high-tax bracket, prefer to invest in low-risk, fixed-income options and have exhausted all the other such investment options available.

Whole life v/s limited period
As you grow older, the number of dependants may decrease (since children would be independent). Also, your wealth may reach a level where it can support your dependents' financial needs in the event of your death.

You should therefore consider whether if you need to insure yourself for whole life or for a limited term. Obviously, the cost of insurance for the latter is lower.

We recommend you go for whole life only if you do not expect your wealth to ever reach a level where it can support the financial needs of your dependents.

ULIP vs traditional
Today ULIPs are more popular than any other option. But your life insurance agent may be the only one recommending you the ULIP. Before you sign the cheque decide which is best for you: ULIP or Traditional endowment .

Tax Planning
The premium paid for an insurance policy also qualifies for tax deduction under Section 80C of the Income Tax Act. But don't buy insurance only to save tax. Read why insurance + investment + tax = a bad combo!

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