Written by Sanjay Tiwari
Life insurance is the bedrock of financial planning and should be one of the starting points for investing in financial assets along with other savings instruments. One positive outcome of the pandemic is that a lot of individuals have started taking their financial planning more seriously than before, and are making conscious efforts to safeguard their financial future by buying term plans at an early age. As a diversified financial asset, life insurance comes in handy to meet goals at various stages of life.
While buying insurance is comparatively quick and convenient in the present-day digital world, do check these four important boxes before you pick your plan:
1. Make an assessment: Understand your life goals. Each individual has a different life journey and ambitions and the goals differ too. An ideal life insurance policy should match your pre-defined goals and safeguard your dependents’ future. These may include paying for your child’s education and marriage, taking a loan or repaying debts, meeting healthcare and disability costs, and building a retirement corpus.
If you would like a policy with affordable premiums and high cover, then a term plan is your best bet. You may also consider investing in a ULIP (unit-linked insurance plan) or a retirement plan for a regular income to enjoy a comfortable retirement.
2. Do your research: Read well before you decide on a specific insurance plan amidst the plethora of products available in the market. Find out the type of policy and its various benefits.
For example, while a term plan will help fulfil long-term goals such as building a retirement fund, a child insurance plan will secure your child’s future in several ways. An endowment policy offers the combined benefits of life insurance and regular savings over a period of time, and bring you lump sum returns. A thorough understanding of your policy will prevent hurdles later on and especially at the time of filing a claim.
3. Zeroing down on your term cover: While selecting the right plan is important, choosing the right sum assured becomes key. The sum assured depends upon the Human Life Value (HLV) or the policyholder’s financial worth and takes into account the income, expenses, future responsibilities and liabilities, and financial goals at various life stages.
While there is no one rule for calculating the exact term cover, one must keep at least 15 times the annual salary for a smooth hurdle-free life of the dependents. A lot also depends on the pre-defined and constantly evolving life goals of the individual and the family. It is hence advised to calculate the sum assured at major intervals of life.
4. Do not let your policy lapse: Make sure that you never stop paying your annual premium till the end of the term. This will ensure a regular flow of various benefits as well as financial protection to the dependents and give assurance and security to them forever.
If you keep these basic but important tips in mind, then your insurance journey from the moment you buy a plan will be a smooth ride with little or no hiccups along the way. This will ensure financial protection for both you and your loved ones in the present and the future.
The author is Director-Strategy at Exide Life Insurance. Views expressed are that of the author.