Choosing an insurance plan is like ordering with friends at a restaurant – the most popular person’s choice prevails.You perhaps do your own research, but end up choosing a plan that your friend has purchased.
Does this sound like you?
Well, it’s a golden rule of investing that what’s good for your friend may not work for you. So what are the things you should know before you buy insurance? Here are some pointers.
Choose the Right Stuff
Know the types of insurances available before choosing the best one for you.
Term Plan: A term plan just gives you coverage over a set period of time without mixing up your insurance needs and investments. Here you can avail a high coverage at a lower premium as long as you wish, but you cannot expect any returns for the amount you are investing if you survive the policy tenure.
Endowment Plans: If would like to get returns for the invested amount, you can go for an endowment plan. The attraction here is that you will get back the money you invested. But remember, it’s insurance, so don’t keep high expectations about the returns. It will be just nominal. But the downside is that for a high cover, you will have to invest more, as compared to a pure term plan.
Money back plans: This too works similar to endowment plans, but good if you do not want to wait till the end of the tenure to get the money back. Here, the benefits are being paid out at regular intervals.
ULIPs: This is also an insurance-cum-investment option, and is good if you are willing to take a risk and ready to go for a wait-n watch mode for a long tenure. The returns of ULIPs being market linked, come with higher returns as compared traditional plans, but not guaranteed, as in a term plan.
Pension plans: Pension plans, as the name suggest, is a retirement planning tool, and most of them are not intended for providing death benefits.
The sooner you opt for insurance the better
Fun is like life insurance – the older you get, the more it costs. So when you are young and healthy, your life insurance premiums would be lower, making it easy for you to get a high coverage at very nominal costs. So, if you delay your insurance buy, your premium charges will rise.
For example, if you buy a term plan at the age of 25, the premium will be around Rs.5000 to 7000. But if you are taking when you are 35, the same coverage will cost between Rs.15000 to 20000.
Choosing the premium
Your coverage is contingent upon your premium, but choosing a premium that you cannot afford simply for the sake of a high coverage will only stretch your wallet and land you in troubles. Remember, defaulting on insurance payments will only make it worse for you. So you can opt for monthly or quarterly premiums, or invest in one-time products when you get some perks.
For example, if you get a sizeable amount as gift from your parents, or a handsome yearly bonus, you can directly invest it in a one-time insurance plan.
Disbursal of Life Insurance Benefits
Your beneficiaries are the ones who will receive the payout if the unexpected happens. For plans other than term plans, you are the beneficiary if you survive the tenure. Apart from your spouse and children, you can also keep aging parents, or anyone else who currently relies on you as beneficiary. The returns from insurance are tax-free for the beneficiary, except for pension plans.
Understanding Riders
Apart from purchasing a basic life insurance policy, there are also various insurance riders offering protection against accidental death, critical illness, permanent disability etc. These are additional benefits attached onto your basic policy at the payment of small additional premiums, making it more comprehensive. But remember, you may not require all of them. It’s easy to fall into the words of agents who will push products in a way that you will feel all of them are required. Think yourself, what’s required and not required for you.
As an instance, if you are already having a term plan with a high cover, going for an accident rider doesn’t make sense. Accidental death benefit rider assures double sum insured for your beneficiaries if something untoward happens to you during an accident. But, dwell on whether you really need it. Not to mention the claim process.
So, when you shop for insurance, forget your friend’s choice of Kheema Pulao and go for your own helping of stuffed Kulcha!