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  • 10 facts about life insurance which you must know before buying one

    Life Insurance
    • Premiums as low as Rs.17/day for sum assured of Rs.1 crore*
    • Claim up to Rs. 1,50,000 deduction under section 80C**
    • Choose between annual and monthly premium payment options

    Life insurance is one of the most trusted tools when it comes to securing the future financial needs of one’s family. Life insurance policies ensure that the dependents of the policyholder get the coverage amount following the unexpected death of the policyholder. There are different types of life insurance policies available in the market, and they can be chosen as per one’s specific requirements. Some of the common forms of life insurance include term covers, whole life policies, ULIPs, endowment plans, etc.

    In India, the state-owned Life Insurance Corporation of India (LIC) is the largest insurer in the market. This is followed by private players like ICICI Prudential, HDFC Life, etc. Today, people have a lot of choices when it comes to choosing life insurance coverage. Before you opt for a life cover, you need to select the right type of policy and the right brand suitable for you. Apart from that, there are several other factors that must be considered before choosing a life insurance policy.

    Factors to be considered while buying a Life Insurance Policy

    Here are the 10 things to be considered while buying a life insurance policy:

    1. Life insurance is mainly for risk mitigation. While there are people who consider life insurance as an investment tool, it should be mainly used for risk mitigation rather than investment options. There are different types of investment plans offered by life insurers. Even if you pick these plans, risk mitigation should be your main focus. Besides, there are many other options like mutual funds, fixed deposits, equity investments, etc. that can be used for investment purposes.
    2. Life insurance is not just for tax saving. Tax relief is just one component of a life insurance policy. However, there are many people who buy life insurance simply for tax saving purposes without even considering the benefits available in a policy. This is an extremely bad investment practice. Life insurance must be bought mainly for the financial security of dependents. Tax saving must be considered as just a by-product of this financial security.
    3. Maturity date and policy term cannot be changed in life insurance. One of the key things that must be noted when buying life insurance is that the maturity date and the policy term of a cover cannot be changed midway through the policy. Policy term must be chosen at the time of purchasing a policy. For instance, if you have taken a term plan to cover you till 50 years of age, you cannot increase this to 60 years at any point of time. If you feel that you need coverage till 60 years of age, you may have to purchase another policy altogether.
    4. Term plans do not have any maturity benefits. Term life insurance coverage is also known as pure life insurance. This is because there is no maturity benefit associated with a term insurance plan. If the insured outlives the policy term, the coverage becomes void immediately. This is the reason why term insurance is the cheapest among life insurance covers. Also, term plans do not have any additional benefits like bonuses or profits. Here, the sum assured amount mentioned in the policy schedule will be paid to the dependants following the unexpected death of the insured.
    5. Endowment policies offer loan facility. All the top insurers in the market offer endowment plans. The amount available as loan is based on the surrender value of the policy. Hence, loans can be applied only after three years of continuous policy coverage. If the loan amount is not repaid, the company may deduct it from the benefits offered on maturity or the survival benefit.
    6. Group insurance is mostly not adequate. Most employed professionals have group life insurance coverage for them. However, group life insurance is not adequate in most cases. In group life insurance, the employer chooses the coverage amount that he/she could afford for the employees. Moreover, this cannot be customised according to one’s specific requirements. Hence, it is better to have an individual life cover even if you already have a group life policy.
    7. Life insurance policy cannot be repudiated after three years. If at least three annual premiums have been paid by the policyholder, the company cannot repudiate the policy. If subsequent premiums are not paid after three years, the policy becomes a paid-up policy (in case of endowment policies). Here, the policy will continue to remain active till the end of the maturity period. The accrued benefits will be paid along with the profits and bonuses.
    8. Life insurance can be helpful even if you are single. Many people are of the opinion that they don’t need life insurance as long as they are single. It is worth noting that life coverage gets costlier as you age. Hence, it is better to enter the policy at a young age even when you are single. Also, you may leave your estate to manage your liabilities and the future requirements of your parents.
    9. Coverage amount must be determined after careful research. Most people determine the sum assured amount in an arbitrary manner. This is a bad idea especially if there are dependents who need the financial support of this coverage. You need to evaluate your yearly income, your family’s current lifestyle, future liabilities, inflation rate, etc. before arriving at the exact sum assured amount.
    10. The legal heir will get the insurance proceeds if there is no nominee. Insurance companies ask policyholders to declare a nominee while subscribing to a cover. However, if you haven’t declared a nominee for any reason, the legal heir will be entitled to receive the compensation amount upon submission of all the necessary documents.

    Conclusion

    Life insurance coverage is necessary for everyone irrespective of their income or profession. Future planning is extremely important especially if you have dependents to look after. Your life cover must be adequate to cover the day-to-day living expenses of your family. Most importantly, it should also cover education expenses and marriage expenses of your children. In addition, it is essential to keep these 10 factors in mind when you purchase a new life insurance policy.

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