A life insurance policy is a binding legal agreement between the policyholder (you) and the insurance company that guarantees payment of a predetermined amount in exchange for monthly or one-time premium payments. The insured money is paid in full upon policy maturity or to the nominee in the event of a calamity brought on by unavoidable events such a death or accident.
Research into the purchasing behavior of Indian consumers regarding life insurance indicates that many individuals invest in such policies primarily to avail tax benefits. Even those intending to secure financial safety often overlook a fundamental rule: acquiring sufficient life coverage. To ensure that your life insurance policy serves its intended purpose of financial protection, it’s crucial to avoid these errors. Focus on some key factors is essential to gain a comprehensive understanding of your life insurance requirements:
Factors To Consider While Buying A Life Insurance
Keep in mind the following five factors when you are looking to buy life insurance for you and your family.
1. Your Life Coverage Needs
For effective financial protection for your family and dependents, determining their necessary financial cushion is essential.
This calculation encompasses current household expenses and future goals, including:
- Family’s financial aspirations
- Current household necessities – monthly expenditures, education expenses
- Future household needs – home maintenance, significant repairs or enhancements
- Family’s financial requirements – health coverage, spouse’s life insurance
- Projected future lifestyle and household expenditures
Your life coverage should adequately address these demands. This means your life insurance policy should be sufficient for your family’s present needs while accommodating future growth.
In other words, your policy should allow easy expansion of coverage. Leading life insurance plans now enable you to augment coverage at significant life stages or via fixed-rate automatic increments. Aditya Birla Sun Life Insurance plan, for instance, permits coverage later on if required.
2. Substituting Family Income in Your Absence
Determining the optimal coverage amount is only the initial step. Four more steps remain to ensure you’re well-informed when selecting the right life coverage. Once you’ve calculated your ideal life coverage, the next step is evaluating your family’s income necessity in your absence. Maintaining a regular monthly income is pivotal for smooth household management. Thus, it’s crucial to establish a reliable alternative income source for your family upon your demise.
3. Period of Revival
A life insurance policy that has expired is no longer in effect. When premium payments are late and the grace period had passed, an insurance policy will expire. However, after the grace period, insurance firms offer the option to revive the lapsed policy by depositing the unpaid premium plus a set amount as interest on the same. The time of the revival is now. Policyholders should be informed of any modifications made to the regulations governing the current two-year period.
4. Additional Riders Available With The Insurance Plan
Additional features enhance your financial protection umbrella, safeguarding your family against diverse risks. Some of these features encompass:
Accidental disability cover: Provides financial assistance in case of accident-induced physical disabilities
Critical Illness Cover: Offers financial assistance for treating life-threatening illnesses
Premium Waiver Option: Allows continued life coverage without extra premiums after permanent disability
Child Support Benefit: Supplements base life coverage with extra financial support for your child
Apart from these, options such as limited premium payment terms and premium return may prove advantageous.
5. Life Insurance Company’s Credentials and Claims History
Before purchasing a life insurance policy, it’s essential to verify the credibility of your chosen life insurance provider.
- Claims Settlement Ratio – This signifies the percentage of claims settled by an insurer out of every 100 filed claims. This is why top insurers offer ‘claim guarantee conditions’ for their life insurance policies. Claim guarantees ensure quicker settlement if policy conditions are met. For instance, Aditya Birla Sun Life Insurance Company, with a very high claim settlement ratio, pledges to settle claims within a day if the policy satisfies the claim guarantee terms.
- Assets Under Management (AUM) – This indicates the present market value of funds managed by the financial institution. A higher AUM implies a robust and well-performing portfolio.
- Solvency Ratio – This ratio gauges a company’s financial stability and its capacity to meet long-term debts. A higher solvency ratio indicates readiness to cover claims. Aditya Birla Sun Life Insurance holds a solvency ratio of more than 175%, surpassing the mandatory 150%, showcasing strong financial health.
In order to select a life insurance policy aligned with your financial protection objectives, it’s vital to weigh these considerations carefully. Additionally, evaluating the quality of customer service, scrutinising reviews, and assessing the company’s corporate governance practices provide valuable insights into the overall performance of the insurance provider. By factoring in these aspects, you can make an informed decision that not only addresses your immediate needs but also ensures a secure and well-rounded coverage for your future financial security.