Sep 04, 2014,13.46 IST
Buying insurance? Keep these factors in mind
Life insurance is a critical aspect of financial planning. Its primary objective is financial security of your family members, should anything happen to you. You must carefully assess your family's financial needs before taking a policy. However, that is not all. There are some other important factors that impact life insurance. You must take them into consideration before buying a policy. Let us take a look at them:
Dependents: The amount of coverage you opt for when buying a life insurance policy is directly related to your dependents. Insurance coverage is a function of your age, number of dependents (spouse and kids), income and current and projected expenditure.
If you have a small child, you can choose a policy that lets you build a corpus for his/her education or even marriage.
The coverage amount must be such that your family's financial status does not undergo a drastic change in your absence.
Marital status: If you are married, it is very essential to buy a life insurance policy. Should anything untoward happen to you, the policy amount will take care of your spouse's future financial needs.
The coverage amount in this case depends on whether your spouse is an earning member or not. If your spouse is gainfully employed, the insurance amount can be lower, else you should choose a policy with higher coverage amount. Once you have a child, your insurance needs change and you must evaluate them accordingly.
Earning capacity: The objective of life insurance is to provide for your family's financial requirements in the event of your death. As a result, the policy you choose must have a coverage amount that matches your current and projected earnings put together. This will ensure that in case you are gone, your family will not suffer a monetary setback and they can go about fulfilling their needs, the same way they did when you were alive. As a result, your earning capacity is of utmost importance when it comes to deciding the life insurance amount.
Debt: Consider a scenario, wherein you have a certain amount of debt burden on you, say a home loan. As long as you are alive and employed, you will pare the debt on a regular basis. However, what happens if you suddenly pass away? What does your family do when faced with such a crisis?
In such circumstances, the insurance amount should be higher so that along with helping your family meet regular expenses, it provides for repayment of debt too.
Lifestyle – smoker/non-smoker: At the time of buying life insurance, companies do ask you if you are a smoker or a non-smoker. If you identify yourself as a smoker, then your premium amount will be higher. This is because insurance companies usually place smokers in a high-risk category.
Should you lie about your smoking while buying a policy, it can lead to unwarranted hassles. If the company learns of your smoking habit after your death, there is a good chance the claims process can be stalled. More importantly, lying is treated as fraud.
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