Though the penetration of life insurance is still relatively low in the country, a lot more citizens, especially from metropolitan cities, are availing life insurance products for the well-being of their loved ones. For those new to the concept of life insurance, a life insurance policy offers financial backup if the policyholder or the breadwinner of the family dies. If the policyholder dies while the policy is still in force, then a death benefit payout will be made to the family and legal heirs of the policyholder.
However, life insurance can now be used as a tool to save for the future, for retirement, to save for the future needs of one’s child, to invest, and it is not limited to the death benefit payout as most people assume about the product. To attract and encourage citizens to avail life insurance policies, the Government of India has given taxable citizens the benefit of availing tax deductions for the amount they spend on purchasing and renewing a life insurance policy. While the tax benefits are just one aspect of life insurance, those who wish to avail a life insurance policy have to keep other factors of life insurance in mind as well.
What you need to keep in mind when buying life insurance policies
Those who wish to buy life insurance policies have to keep certain things in mind as mentioned below:
- The financial backup you are offering your loved ones
If the objective of purchasing a life insurance policy is just to save on tax, then sometimes the coverage of the life insurance policy is not considered an important aspect, which is the wrong way of going about it. When choosing a life insurance policy, one should not consider the premium cost of the policy, as the lower the cost of the policy, smaller will be the sum assured and the financial backup that you are offering your family and loved ones. That said, when choosing the coverage of a life insurance policy, one should consider inflation and should choose a policy that will offer his/her dependents financial backup for quite a few years at least. The best way to go about it is to set the coverage of the life insurance policy 10-20 times of what one currently earns annually.
- Consider the return of premium term insurance policy
If you feel that the premium of the life insurance policy will cause financial strain due to your current financial situation, choose a term insurance plan with return of premium option. The premiums of term insurance plans are a lot more beneficial, but the death benefit payout is made only if the policyholder dies while the policy is still in force and there are no maturity benefits as well. However, with the return of premium option, it could be considered an investment or savings if one survives the tenure of the term insurance plan.
- Set your financial goals before buying a life insurance policy
When buying a life insurance policy, you should have a financial goal. If your goal is to save for the future, then an endowment plan would be ideal or if you wish to save for your golden years, then a retirement or a pension plan will suit such a goal. If you wish to save for the future of your child, then a child plan will do the needful and if you want to make investments as well as have the benefit of a life cover, then a unit linked insurance plan will be beneficial. If you wish to have a life insurance cover at an affordable rate, then choosing a term insurance plan will suit your financial situation.
Most people would rather not invest in life insurance policies as there would be no return of the investment as the primal reason of buying such a policy is for the death benefit payout that will offer financial sustenance to one’s dependents. However, life insurance policies should be considered an investment as not only does it ensure that their loved ones are financially stable, but if there are any debts or loans that one has failed to clear, then the life insurance payout will ensure that they are cleared and the financial stress will not be passed on to your legal heirs and dependents.