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8 Things to Consider Before You Buy Life Insurance

Life insurance is an important financial tool that can provide peace of mind and financial protection for you and your loved ones. But what are some things to consider? Let us know more about them here.

  • May 25, 2023
  • 4,390 Views

For many people, life insurance is a tax-saving tool that we hurriedly purchase towards the end of the financial year. Insurance, an absolute must in any financial portfolio, is the security net we all need to secure the financial future of our loved ones.

    Key takeaways

  • It is important to remember that when you purchase a life insurance policy, you are entering into a long-term agreement with your insurance provider. With this in mind, it is a good idea to ensure you have picked the right kind of insurance for your needs.
  • Understand the kind of coverage you will need before you even start looking for life insurance plans.
  • Essential that you check an insurance provider’s claim settlement ratio before purchasing a policy.
  • The policy term is the duration of the policy, and it is essential to choose a term that aligns with your needs.
  • It is important to consider which riders may be necessary for your individual circumstances.

What is Term Life Insurance?

Term life insurance plan is a type of life insurance policy that provides coverage for a specific period of time. It is a popular choice for people who want to ensure that their loved ones will be financially protected in the event of their unexpected death. Term life insurance plans are more affordable than permanent life insurance policies, making them a practical choice for those on a budget or who want to allocate more resources to other financial goals.

Benefits of Term Life Insurance

Term life insurance is more affordable and straightforward, making it an attractive option for many people. What are some other great benefits of term insurance? Let us find out more about them here.

1. Affordable Premiums

One of the primary benefits of term life insurance is that it is affordable. Because the coverage is temporary and only lasts for a specific period, the premiums are generally lower compared to other types of life insurance. This makes term life insurance plans an excellent option for people who need coverage but are on a tight budget.

2. Flexibility

Term life insurance plans are flexible and can be tailored to meet individual needs. You can choose the length of the term, the coverage amount, and the beneficiaries. Additionally, some term life insurance plans offer the option to convert to a permanent life insurance policy, providing greater flexibility and long-term security.

3. Peace of Mind

The primary purpose of life insurance is to provide peace of mind that your loved ones will be taken care of if something were to happen to you. Term life insurance plan provides a sense of security and peace of mind that your family will be financially protected during the term of the policy.

4. Easy to Understand

Unlike other types of life insurance policies, term life insurance is straightforward and easy to understand. The coverage is for a specific period, and the premiums are fixed throughout the term of the policy. This simplicity makes it easy for people to purchase and understand, making it a popular choice among consumers.

5. Death Benefit

The death benefit is the amount of money paid to the beneficiaries if the policyholder passes away during the term of the policy. The death benefit from a term life insurance plan can be used to pay for final expenses and outstanding debts or to provide financial support for your family. The death benefit can provide peace of mind that your loved ones will be taken care of financially if you were to pass away unexpectedly.

Things to Consider Before Choosing the Best Term Insurance

Term insurance is a crucial financial product that provides a safety net for your loved ones in the event of your unexpected demise. It is a type of life insurance policy that pays out a death benefit to your beneficiaries if you pass away during the term of the policy. To help you make this important decision, let us take a look at some factors worth considering before signing on the dotted line.

1. The Amount of Coverage You Need

It is important to understand the kind of coverage you will need before you even start looking for life insurance plans. As a general rule, it is a good idea to look for a life cover that is 10 times that of your annual income. The reason people do this is because the life cover you choose could help your family financially if something were to happen to you.

It’s also a good idea to note down a few of your financial goals and pick an insurance policy that will help you meet these goals – they could be as diverse as planning for your own retirement or paying for your child’s education.

2. Claim Settlement Ratio

Most people will overlook this, but it is absolutely essential that you check an insurance provider’s claim settlement ratio before purchasing a policy. This ratio will tell you how many settlements are actually made by the company as compared to how many claims requests they receive. You will want to pick a company that has a high settlement ratio – this way, you can rest easy knowing that your nominee won’t have to run around trying to get the money they are owed.

3. A Background Check

While having insurance is an absolute necessity, do not rush into making a decision. The insurance provider you choose will likely be a part of your life for at least the next decade, so you need to make sure you have done all your research before you have decided who you would like to partner with.

4. Fund Performance

If you have purchased a Unit Linked Insurance Plan or ULIP, you need to check the company’s fund performance. Almost every company will have these details available on their website, so you can compare the ULIPs before selecting the best one for your financial needs.

5. Policy Term

The policy term is the duration of the policy, and it is essential to choose a term that aligns with your needs. If you have young children, you may want to consider a longer-term policy that offers coverage until your children are financially independent. On the other hand, if you have a short-term financial goal, such as paying off a mortgage, a shorter policy term may be more appropriate.

6. Premiums

Premiums are the payments you make to the insurance company for your coverage. It is important to choose a premium that is affordable and fits within your budget. Generally, the younger you are when you purchase the policy, the lower your premiums will be. Additionally, some policies offer level premiums, which means your premium payments remain the same throughout the policy term.

7. Riders

Riders are optional add-ons to your policy that offer additional benefits. For example, a critical illness rider can provide coverage if you are diagnosed with a critical illness such as cancer or heart disease. It is important to consider which riders may be necessary for your individual circumstances.

8. Terms and Conditions

Once you have picked a provider and a product, you will need to do a little research and read all the policy documents carefully. To be able to reap the benefits of your insurance policy, you need first to understand all the terms and conditions that come with it.

Why Should You Buy Term Life Insurance?

Life insurance is one of the most important investments that one can make. It provides financial protection to the loved ones in case of an unfortunate event. Among the different types of life insurance, a term life insurance plan is a popular choice.

1. Financial Protection for Your Loved Ones

The primary reason for buying a term life insurance plan is to provide financial protection for your loved ones in case of an unexpected death. If you are the primary breadwinner in your family, your family may face financial difficulties after your death. Term life insurance can help your family pay for expenses such as mortgages, debts, and day-to-day expenses.

2.Affordable Premiums

Term life insurance is generally more affordable than other types of life insurance. Since it provides coverage for a fixed period, the premiums are lower than permanent life insurance policies. Additionally, if you are young and healthy, you can get a term life insurance plan at a very reasonable cost.

3. Flexibility

Term life insurance policies offer more flexibility than other types of life insurance. You can choose the length of coverage that fits your needs, from 10 to 30 years. This allows you to align the coverage period with your financial obligations, such as mortgages, college tuition, or other expenses. You can also choose the amount of coverage you need to ensure that your loved ones have enough funds to cover their expenses.

4. No Medical Exam Required

Some term life insurance plans do not require a medical exam, making it easier for individuals who may have health issues to obtain coverage. While these policies may have higher premiums, they are still more affordable than other types of life insurance policies that require a medical exam.

5. Peace of Mind

Having a term life insurance plan can give you peace of mind knowing that your loved ones will be financially secure in case of an unfortunate event. It can provide a sense of relief knowing that your family will be able to continue their daily lives and achieve their goals even if you are not there to support them.

Final Thoughts

In today’s digital age, you can do all your research and even purchase your policy right from the comfort of your home. In fact, when you purchase an online life insurance policy, you may get better deals on premiums and add-ons.

Remember, life insurance is not just an effective tax-saving tool; it is possibly the most important financial decision you will ever make, so choose wisely.

FAQs


1

What are the different types of life insurance policies available, and which one is best suited for my needs?

Life insurance policies come in many different types, such as term life, whole life, universal life, and variable life. Each type has its own features, benefits, and drawbacks. It is essential to understand the differences between them and determine which one is best suited for your financial goals and personal circumstances.



2

How much life insurance coverage do I need, and how do I determine it?

The amount of life insurance coverage you need depends on several factors, such as your income, debts, family’s financial needs, and future expenses. There are different methods to determine the right coverage amount, such as the “income replacement” method, the “needs analysis” method, and the “multiple of income” method. Consulting with a financial advisor can help you determine the optimal coverage amount.



3

What are the premiums, and how much can I afford to pay

The premium is the amount you pay for your life insurance policy. It is important to understand how much you can afford to pay and how the premium varies based on the coverage amount, type of policy, and your age and health. A financial advisor can help you determine the optimal premium amount that fits your budget.


4

What is the underwriting process, and how does it affect my premiums?

The underwriting process is the evaluation of your health and lifestyle by the insurance company to determine your insurability and premium rates. Your age, medical history, family history, lifestyle habits, and occupation can affect the underwriting process and premiums.


5

How can I compare and choose the right life insurance policy and company?

Comparing different life insurance policies and companies can be overwhelming, but choosing the right plan that offers the best coverage and benefits at an affordable price is equally important. Factors to consider when comparing policies and companies include coverage amount, premium rates, policy features, financial strength, customer service, and reputation. Consulting with a financial advisor or doing your research can help you make an informed decision.

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- A Consumer Education Initiative series by Kotak Life

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