Are you thinking of buying a life insurance policy but don’t know where to get started? Don’t worry; this article will help you understand everything you need to know before you make the decision of buying one. Keep reading.
The demand for life insurance has increased a lot in the past few years. For most policyholders, it is a step in the direction of securing their family’s future and well-being. Most importantly, it gives them peace of mind to know that their family always has a strong Plan B to fall back upon.
While many people are getting interested in buying a life insurance plan, they often face trouble getting started. With so many companies offering so many types of plans and so many advertorials promising the best plan, it can become overwhelming to make a decision. Let’s look at a few key things people need to know before buying a life insurance plan.
What is a Life Insurance Policy?
A life insurance policy is a contract between the insured or the policyholder and the insurer. The insurer promises to pay a certain sum or give some specific benefits to the policyholder’s family in case of death or upon maturity of the policy as per pre-set terms and conditions. The insured, in return, pays a premium either in a lump sum or at periodical intervals such as monthly, quarterly, or annually.
The Coverage of the Policy
When buying a life insurance policy, it is essential to choose the right coverage. This is the amount the insurance company pays to the family of the insured in case of death or maturity of the policy. While selecting the right coverage, it is essential to ask yourself a few key questions-
- How financially dependent is your family on you?
- Monthly expenditure your family will need to maintain their lifestyle?
- Do you have any retirement savings or emergency funds that can support your family?
- Any upcoming big expenditure, such as your child’s higher education, marriage, etc.?
- Your current liabilities such as home loan, car loan, etc.?
Types of Life Insurance Policies
There are many types of life insurance policies that you can buy based on your specific needs. Some of the most popular types of plans are-
- Term Plans
- Whole Life Insurance Plans
- Endowment Plans
- Child Insurance Plans
- Retirement Insurance Plans
It is important to choose the right plan based on your needs and other factors. While some plans only come with a death benefit, others offer both death and maturity benefit. However, the more the benefits, the higher will be the premium. Some plans, such as ULIPs, also offer the dual benefit of insurance and investment in one plan. Choose one after ascertaining your needs and budget.
Paying the Premiums
While buying an insurance plan, you can select the premium frequency as per your budget. You can choose between-
- Lump-Sum Payment
- Annual Premiums
- Quarterly Premiums
- Monthly Premiums
Inclusions and Exclusions of the Policy
While buying a plan, it is essential to deep dive into the inclusions and exclusions of the policy. The list of inclusions will explain when the insurance company will have to honor the contract with the insured. On the other hand, some events are defined as exclusions in the policy, and the insurance company can deny claims to the insured’s family. Some of the popular types of exclusions are-
- Death caused due to consumption of alcohol or illegal drugs and other such abusive substances.
- Death caused by suicide.
- Death caused due to a pre-existing illness.
- Death caused by any habit that was concealed at the time of buying the policy, such as smoking.
- Death caused due to committing a criminal activity.
It is essential to understand the policy document carefully before signing up for one. While some exclusions can be covered by purchasing an add-on, a few such as suicide or the use of abusive substances can’t be covered.
Lastly, Choose the Right Company
One of the most important things to keep in mind while buying life insurance is the quality of the insurance provider. A company with a strong track record, a high claim settlement ratio, good reviews is more likely to honor the policy when the time comes.