Three Factors to Consider Before Purchasing Appropriate Life Insurance Coverage
Life insurance is the smartest way to protect your family in the event of misfortune. If something happens to you (assuming you are the policyholder), the agent will receive the sum insured as stated in the policy.
That said, many buy life insurance policies for the added benefits of tax reductions and also as a way to secure their financial freedom in old age, which ideally should not be the case.
While there are many reasons to invest in life insurance, buying the right one could get a little tricky. Here are some factors you might want to keep in mind when choosing the best one for your life insurance needs.
Don’t buy just to save tax
Often people view a life insurance policy purely as a tax saving tool. However, the primary purpose of life insurance coverage is not tax savings, but protection. A life insurance plan is designed to provide the policyholder’s dependents with financial assistance in the event of the policyholder’s sudden death. In fact, this plan includes financial protection against three important factors: death, illness and disability.
“After the pandemic, people began to realize the need for life insurance policies that act as a safety net in the event of the premature death of the sole breadwinner. To meet this demand, several insurers have introduced products One such product is term insurance for housewives by Max Life Insurance. Under this plan, housewives can purchase term insurance themselves without being tied to the insurance policy. their spouse’s life insurance,” says Sajja Praveen Chowdary, term life insurance manager at Policybazaar.com.
Additionally, there are a range of plans available in the market today that offer coverage for life or up to 100 years. Until a few years ago, the only downside to term plans was that the policyholder received nothing if they survived the term. However, new age plans offer premium return which is beneficial to the policyholder as it refunds all premiums paid if the policyholder survives the policy.
Consider your life stage
Life insurance is one of the most important expenses you can make to stay financially secure through all stages of life. It supports your long-term goals and even helps to meet the future needs of your dependent family, especially in the event of the unexpected.
That’s why, in order to keep up with changing financial needs, it becomes all the more important to review coverage as you get older.
The ideal way to go about this is to buy life insurance at an early age, when you are in good physical health and the premiums are relatively low.
“Waiting to buy life insurance in your mid-thirties can sometimes be a bad decision – when you’re starting a family and also have other responsibilities. That means you’ll have to buy a plan with higher coverage that can cover your family’s eventual expenses, and you’ll also end up paying a higher premium. For example, if you are married with two children and dependent parents, you should purchase coverage of at least Rs 1 crore,” Chowdary adds.
Get adequate coverage
Several factors should be considered when estimating the ideal life insurance coverage. In the event that you have debts, it will be difficult for your family to pay the assimilated monthly payments (EMI) in your absence. Then there are other factors like your children’s higher education or their marriage, for which you need to keep sufficient funds aside. Then there’s inflation, which could make it difficult for your family to maintain their current lifestyle in your absence.
Therefore, you need to take certain facts into consideration before choosing the right insurance coverage.
You need to find your family’s total annual expenses multiplied by the number of years that income replacement might be needed. Next, you need to know the total amount of your outstanding debts and the cost of paying off mortgages, if any. You also need to figure out how much you need to set aside for future expenses, like your child’s education, wedding, etc. From these expenses, you can deduct the sum of your liquid assets such as cash in hand or the bank, and any other type of investments to arrive at an adequate life insurance coverage.