A family suffers a huge emotional loss and a possible financial loss due to the untimely death of the breadwinner. Emotional loss is irreplaceable, but a financial loss could be replaced by life insurance. We must calculate the sum insured by taking into account all the future financial needs of your family.
Life Insurance means Term Insurance. Now many people know this. As per Personal Finance basis, Life Insurance is a risk-hedging tool. Investment and Insurance never should be mixed. Life Insurance products should only provide you with Insurance at a very reasonable cost. Covid pandemic made people realize how life insurance is so important step in financial planning.
A lot of information has already been shared on this topic but still, many of us miss out following points which are important to keep in mind while applying for term insurance.
# You should take life insurance only if you earn and you have financial dependent on yourself. So when you start earning and your parents or siblings are financially dependent on you then immediately you should go for the term insurance.
# But if your parents are working and financially independent then do not rush to go for insurance the right way. Once you get married and your spouse is also working, drawing a similar salary then technically s/he is not dependent on you financially so at this stage also you do not need Term insurance. But if a spouse is not working and has a lesser income than actual household expenses then you must have Term insurance immediately after your marriage.
# Once you decide to start your own family at that time you should go for term insurance. The exact term insurance sum assured requirement is based on various qualitative and quantitative factors like age, monthly expenses, net assets, life expectancy, loan amount (if any), the amount required for other goals like children’s education, etc.
Some more important points to be considered while applying for the term insurance.
# The payout at death should be a lump sum payment to the nominee. Let the nominee decide how to invest this amount as per the financial requirement at that time.
# Don’t buy any riders. Buy a plain vanilla plan. It helps you to keep the premium low and still get a bigger cover. Instead, you can buy standalone policies from general insurance companies for the same purpose.
# The premium payment should be up to the term of the policy (No Single or Limited Premium Payment). Insurance is a hedging mechanism to protect our family financially in our absence
It means you should pay for this contract only if you are alive. How can I say how many years I am going to live? So when you opt for a single premium or limited premium payment you are paying the premium in advance in anticipation of living long.
You are also paying a huge amount in advance which has more purchasing power today than in the future. There are no free lunches in the world. Whatever premium you pay in advance insurance companies earn interest on that amount and offer some kind of initial discount to attract the clients.
# Do not go with the Return of premium option as you will not get any interest on the amount you pay as premium as well as the purchasing power of that amount will reduce over a period of time. So the amount you get at maturity does not carry the same value that it has today.
You are unnecessarily paying more premium throughout the term than required. The term insurance premium is a necessary expense so incur and forget
# Insist on a physical medical checkup than telemedical ones. You pay for this facility through your premium so better to get tested and know your physical condition. It also helps you to know your health condition and start taking appropriate care well in advance.