People buy home insurance or car insurance to protect themselves against the risks that can cause financial losses. However, who can put a value on human life? Who will make sure that your family’s financial goals are not hampered, if something happens to you? This is when a life insurance policy can help. It offers death benefits to the nominees of a policyholder in case of his or her untimely demise.However, buying a life insurance cover is not enough. You need to purchase one correctly. Here is a guide to help you.
How much life insurance cover do you need?
The first thing you need to do is to decide how much cover you need. An insufficient cover does not help anyone. To determine how much cover you need, it is important to consider certain factors like your current financial state, your liabilities, the income of your family, and your income. Once you have an idea about these details, it will be easier for you to understand how much money your family will need in your absence to maintain their current lifestyle. Buy the life insurance cover accordingly to ensure that the sum assured does not fall short.
The example of Priyanka can help you understand how to plan when purchasing a life insurance plan. She never does any financial planning without studying every aspect of it from all the angles. When she decided to buy a life insurance policy, the first thing she did was to list down all her assets, which include the value of her properties, bank balance, investments, and other existing policies. Then she took count of her debts, medical emergency fund, current household expenses,and retirement fund. This way, she could easily determine how much money her family will need in case of her untimely death. Priyanka then subtracted the value of her assets from the family’s total financial requirements. She opted for a life insurance cover that equals the difference.
Apart from the aforementioned, you need to keep various other aspects while buying a life insurance plan. First, your age is a factor that determines how much premium you need to pay. With age, your premium increases. So, make sure that you choose a cover that is not too costly. Along with age, you also need to consider the inflation rate. After ten years,your family will need more money to maintain their current lifestyle. Hence, decide the cover value accordingly.
Knowing the basic principle of buying life insurance
The basic principle of buying a life insurance plan is to make sure that the financial needs of your loved ones are taken care of in your absence. Do not treat it as an investment. A life policy cover should primarily offer the best possible death benefits. A term insurance policy, for instance, can provide a sum insured of up to INR 1 crore for a very affordable premium.
These are the things to know before buying life insurance to make sure that your policy can cover your needs without creating a hole in your pocket.
