How to Choose the Best Life Insurance Plan
It is needless to talk about the importance of a Life Insurance Plan. Life insurance is necessary as it dilutes your risk and secures you and your family preparing you to face the uncertainties that life throws at you.
When we talk of a Life Insurance Plan, we are talking about a contract that is formed between an insurance policy holder and an insurer when the policy holder pays a fixed premium to the insurer and he, in return, gives agreed benefits of the same to the policy holder. It is important to note here that the benefits received may not just be restricted to death of the person insured but may also be extended to critical illness, or terminal illness. However, this would depend on the type of policy and the kind of contract that has been signed by both the parties.
Life insurance plays a vital role when you plan to buy peace of mind for your loved ones. Once your life is insured, you become sure that even your absence would not bring any kind of financial hardships for your loved ones. A regular premium is paid by you to the insurer in order to ensure this security. You may opt for a lump sum payment of premium or choose for a regular monthly, quarterly, half-yearly or a yearly payment mode depending on your source of income and choice. Going by the latest trend, there are insurance companies that are also covering funeral expenses in few of the policies that they offer.
However, if there is no one dependent on your earnings or if the amount generated by you as your earnings does not form a significant part in supporting your family and their needs then you may very well opt out from investing in a life insurance policy.
Choosing the Best Life Insurance Plan
Need Analysis – It is very important for you to analyze whether you require life insurance or not. As stated earlier, if there is no one dependent on your earnings or if the amount generated by you as your earnings does not form a significant part in supporting your family and their needs then you may very well opt out from investing in a life insurance policy. However, if the case is vice versa you should surely invest in a life insurance plan.
Financial Analysis – Once you have determined that you need to have life insurance cover, the next step would be to do a financial analysis. This would not only involve the amount that you can pay as premium towards your insurance but prior to that it would involve calculation of the worth of your life. You need to know clearly the financial loss that your family would suffer if you suddenly disappear from the picture. The most important and relevant question would be – “How much financial compensation would my family require in order to not just sustain themselves but to live financially sound life after my demise?”
Explore Life Insurance Plans – With internet, everything you want is just a click away. You just need to go through all the types of life insurance policies available in the market. There are different types of life insurances available in the market. These are -
- Whole Life Insurance – This insurance provides security for the entire life of the policy holder. The beneficiary gets the benefit only at the event of death of the policy holder.
- Term Insurance – As the name says, term insurance is for a fixed period of time. Once the policy lapses, it is at the will of the insured to get it renewed or to let it go. The benefit is provided at the death of the policy holder but the death needs to take place within the specified time period. It comes handy when you have limited amount that can be invested and limited years to be covered.
- Universal Life Insurance - The premiums, amount of protection and cash values can be altered by you during the contract term as per the change in your needs and requirements.
- Variable Life Insurance Policy – In this plan the cash and death benefits vary.
- Limited-Pay Insurance – In this type of plan you need to pay your premiums for a specific period of time.
- Endowment Insurance - If you buy an annuity policy with the sum received, you will be able to earn regular incomes by way of monthly pensions when you retire.
Assessment of Policies and Insurance Companies – Once you have all the information about the policies that are available in the market, you need to get down to the assessment of policies. Different policies come with different benefits and terms and conditions that may also vary from insurer to insurer. In this case you need to actually figure out what suits you best.
Compare Plans and Quotations – In order to get deeper insights of plans and their benefits, you may chalk out some plans that may serve your purpose and contact the insurance companies. Their agents will help you understand the plans better. Get all details like premiums to be paid, mode of payment, frequency of payment, benefits, riders etc. Get the quotations and compare all the plans useful to you and the companies. Compare the ratings of your insurer. Insurance companies are rated by several trustworthy agencies like Moody’s, S&P etc. A company with a higher rating is surely a good one to sign the contract with. These can be considered on lines of receiving good service and claim settlement process.
Ask Questions – It is important for you to ask questions from agents while deciding the policy. Make sure you opt for a policy that covers maximum benefits and you should not miss on any important coverage. Get all doubts pertaining to mortality charges, processing charges, administration costs and any other hidden costs cleared before hand as there are moments where agents do not talk about the hidden charges in order to meet their pressing targets and deadlines.
Insurance As an Investment – While you make up your mind to buy a life insurance plan for your near and dear ones, it is very important for you to be fully convinced with the idea. That could be done only when you view insurance as an investment for your family. When you do so you will be in a better position to strike a good deal both in terms of benefits and premiums paid. It is important to be convinced and doubly sure when you are buying peace of mind and security for your family.
Contributed By: Megha Sharma
Megha Sharma works as a guest lecturer in Delhi. She holds an MBA & Doctorate from the UPTU. With extensive knowledge and experience in various financial products, she also works as a consultant in banking & finance domains wherein she offers advice to her clients in managing personal finance.
- rahul thakkar:i want new life insurance policy09-Jul-2016 09:14 PMReply