Life rarely goes as planned. Any change for the worse not only affects you but influences the lives of your loved ones as well. When life surprises you, the safety net of life insurance policies can be useful to safeguard yourself and your family against unpleasant eventualities.
Why do you need an insurance plan?
Each person’s requirements can be diverse. Nevertheless, the chief purpose of a life insurance plan should always be to provide financial security to your dependents in your absence.
Apart from the financial cover to your loved ones, you canalso utilize the insurance product as an investment tool with a high return and save tax. It is advisable that you ask yourself the following questions before buying a product:
- Do I want to use my insurance plan for tax savings?
- Do I need a huge return on my investment?
- How much cover do I need to secure the financial freedom of my family in my absence?
After you zero in on the final goal, it will be easier for you to select the right insurance product.
What are the types of Life Insurance Plans available in India?
There are five different types of life insurance schemes that you can consider. Do note that the benefit of tax savings under Section 80C of the Income Tax Act (ITA) of India can differ for each plan.
- Term Plan: These affordable plans offer a high sum assured but no maturity benefits. The plan helps in tax savings under the ITAand ensures your family’s financial security. Online term plans are easy to purchase. You can simply submit the form, relevant documents, and make necessary payments online.
- Traditional Plan: These term insurance combine investment with life cover and offer tax savings as well. Premiums are usually higher,but you get a death cover during the tenure of the policy. You also get a guaranteed amount after the maturity along with bonuses, if any.
- Money Back Plan: These plans offer triple benefits of a death cover, maturity amount, as well as some money/bonus during the tenure of the policy. The premium for these plans is the highest.
- Whole Life Plan: These plans cover you through your life.The nominee receives the maturity amount, irrespective of the age of the insured person at the time of death. The premium of these plans is higher than a term plan.
- ULIP: Offering a mix of investment with insurance, there is no sum assured in a Unit Linked Insurance Plan. The premiums you pay are invested in mutual funds and depending upon the performance of such funds, the maturity amount is determined.
Factors to consider in finalizing your selection
You must check the following things before picking the right insurance product for yourself:
- The financial strength of the insurance provider: IRDAI publishes the solvency ratios of all life insurance companies annually. Unless a company is financially sound, it may fall short if a calamity strikes. Always settle for a reputed and reliable company for buying your insurance product.
- The premium: Compare the premium rates of several insurance providers to find the one that suits your budget. Ideally, the yearly premium for your life insurance should be lower than 10-15% of your total annual income.
- Consider the riders on offer: Along with the death cover, look for riders like accidental benefits, critical illness coverage, etc. Riders can protectyou against many unforeseen misfortunes.
- The flexibility of the plan:The sum assured and premium usually remains constant throughout the policy period. However, your needs can vary at different stages of your life. Look for an insurance provider that offers the opportunity to add on to your coverage.
The abundance of life insurance products available in the Indian market can leave you perplexed. Agents sometimes misguide people with their benefits in mind rather than looking at your requirements and suggesting products accordingly. It is best to educate yourself about the various products on hand before making a decision about selecting the right product for you.