Undoubtedly life insurance is an important product of financial security that would act as a good replacement for the income that you bring home. Your family depends on you and your responsibilities may stretch even beyond death which is why you should prepare for them. Despite life insurance being such an important product, most of us have sketchy ideas about them at best.
Here are 6 things about life insurance that you wouldn’t come to know from traditional sources.
1.How much coverage do we need?
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When you buy insurance, you need to carefully think up the aspects influencing it such as the age till which you will be holding responsibilities and the inflation rate. Most policies offer coverage only till 50s. Therefore, you need to start early and decide upon the term for which you want to continue with the premium payment.
Moreover, since the returns will be reaped later on, the inflation rate also needs to be factored in. A cover of Rs 50 lakhs would amount to only Rs 28 lakhs in 10 years, considering an inflation rate of 6% only. You have to visualize along a longer horizon and choose an inflation-indexed policy.
2. Insurance as a tax saving instrument
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Admittedly, the premium payable for a life insurance policy is deductible under Section 80C, but that should not be the reason you buy insurance for. Insurance is meant to support your family and dependents after your death. If you opt for a policy only for the tax benefits offered, then you may discover later on that the cover falls short in an unforeseen circumstance.
3.Insurance Salesmen Know it All
Insurance salesmen may be the source of information about a lucrative insurance scheme, but they are hardly reliable. Most of them push the salient features of a policy without discussing the risks to meet targets. Buying a policy based on their word can lead you into an unfavorable situation where you may not derive the benefits that you expected to, from an insurance policy.
Prior to purchasing a policy, make sure you read it on the floater’s official website and discuss it with a qualified financial planner.
4.Buying insurance in the name of your spouse or child
Many buyers feel that since the end beneficiaries of insurance policies are their spouses and kids, it would be better to buy the insurance in their name. However, an insurance policy should be in the name of the person paying the premium as the policy is supposed to offer benefits in the event of your absence. Your children and spouse can always be nominees to the policy so that they can get the corpus without any hassles.
5.Investing in term insurance late in life
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Insurance companies sell their policies to individuals who are typically healthy and pose lowest risk to them. In your late 30s and 40s, you are at high risk of contracting diabetes or coronary diseases which would elevate the premium payable. Even if you are completely healthy, you will have to pay a higher premium to complete the cover obtainable on death. Therefore, life insurances should be bought while one is young and healthy in order to pay the lowest premiums possible.
6.Sufficiency of Group Insurance
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Large and mid-cap companies usually offer group insurance to their employees, which cover for them and their families. Many people believe this is adequate and they abstain from buying further insurance. However, if you are handed the pink slip or you decide to leave the company, then you lose the cover. It would be wise to have a policy of your own to fall back on.
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