Life Insurance: Invest in your family's future

Securing your future with the right insurance policy is a crucial decision for every individual. Whether you're safeguarding your family in your absence, protecting your assets from unforeseen events, or ensuring peace of mind regarding healthcare costs, choosing the optimal insurance plan can feel overwhelming.

Choosing the right life insurance will depend on what you want and your financial limits. In this article, we will start with the basics of choosing the right insurance policy.

Who should buy life insurance?

People who have others depending on their income should consider taking life insurance because it is very important for financial protection. Whenever a family is uncertain about the future welfare of their loved ones, the main breadwinner ought to take a life insurance policy. If there is more than one employed person in a household, then each of them should ensure he/she takes out insurance during his/her lifetime.

The necessity for life insurance is mainly decided by two major factors: whether one is an earner or has dependents on your earnings. If you are not married, you live with your parents, and there are no dependents under you; then life insurance might not be of importance to you. Essentially, where there are people that rely on somebody financially, that is where life insurance becomes important; because it acts as a way of looking after their welfare in case you pass away.

Till what age and how much cover should you buy?

Premiums go up with age due to a higher risk of death, it is important to note that age is a key point one should consider in purchasing life insurance. For example, the monthly premiums would be much lower if an insurance policy covers one from age 25 to 60 than it would if it were to last up to 70 years. Nonetheless, Whole Life Insurance, which provides coverage throughout a person’s lifetime, usually requires between four and five times more charges compared with regular term life policies.

Therefore, it is most appropriate for individuals to insure themselves until certain ages like retirement or when their kids become self-reliant. If you expect that by the age of 60 your offspring will have learned how to take care of themselves; then go for one lasting up to this period.

Please consider taking a life insurance policy worth about 20 times your annual pay for a secure financial future. Consequently, an appropriate amount for someone earning Rs 6 lakh annually would be Rs 1.20 crore. The objective here is to secure the economic future of your beneficiaries should you die prematurely.

When should you buy insurance?

It is best to choose insurance as soon as possible. As you become older and your health risks increase, your rates may go up. Furthermore, getting insurance early will spare you the financial strain of higher rates that accrue if you put off getting it if family members become dependents.

Types of Life Insurance Plans

• Term Insurance: A life insurance providing coverage at a fixed payment rate for a limited period. Add-ons like critical illness riders and return of premium options are available.
• Unit Linked Insurance Plans (ULIPs): These combine life insurance with investment options, allowing fund switches based on risk appetite, with a 5-year lock-in period.
• Endowment Plans: Life insurance that pays out a lump sum on either death or maturity.
• Child Insurance Plans: Combines life insurance with savings, specifically aimed at funding a child's future education needs.
• Whole Life Insurance: Offers life coverage up to age 99, ensuring financial protection for the policyholder's beneficiaries.
• Money Back Policy: Life insurance that provides periodic payouts during the policy term and a lump sum on survival past the term or on death.

When selecting an insurance plan, it is often advised that one should go for a term plan if they want their coverage maximised and pay less premium. What is saved from these premiums shall be channelled towards high-risk asset classes like equities and mutual funds at a later date. With Unit-Linked Insurance Plans (ULIPs) having identical investment options, their profits have been historically less advantageous. Other types of insurance could offer added features, but most of them will be associated with increased costs and offer less coverage than term plans.

Riders to add on

If you ever find yourself in a situation where a sudden disability affects your ability to work, it's a good idea to consider adding a Disability Insurance Rider to your life insurance policy. This rider can provide you with financial support if you're unable to earn an income due to illness or injury, which can be a huge help during challenging times.

Additionally, if you have a Critical Illness Rider on your life insurance policy, you get extra protection. If you ever get diagnosed with a major illness like cancer, a heart attack, or a stroke, you'll receive a lump sum payment. This money can help you cover your medical bills and other financial burdens. It's a big help during tough times when your health is seriously at risk.

Examine the insurer’s claim settlement ratio

A crucial metric in the insurance industry is the insurer's claim settlement ratio which gives the number of claims successfully paid against the total number received for that company within one year; hence showing their dedication and ability to honour their pledge in terms of money support if required. The recommended claim settlement rate is 95%. Another point worth noting is the settlement amount ratio i.e. ratio equivalent to the claim amount paid against the total amount under it.

While choosing the insurer make sure you consider factors like good AUM, Brand Value, backing of the strong institution, and 24-hour claim settlement.

It is crucial to pick the right life insurance policy to ensure your loved ones are taken care of financially when you are no longer around. You will want to consider a few key factors like coverage, cost, and the right riders that suit your needs. It's all about securing your future and peace of mind!