5 Questions You Should Ask Yourself Before Buying Life Insurance

By Adhil Shetty | March 31, 2017

5 Questions You Should Ask Yourself Before Buying Life Insurance

A Life Insurance policy is imperative for the financial security of your dependents. Experts say that when you plan your financial portfolio, you should include a Life Insurance policy in it. This being the financial year-end you may have bought yourself a life cover or may be planning to buy one to save tax. Before you rush into getting one, ask yourself these five questions.

# 1 – Does the plan you want to buy fit your financial needs?

Life Insurance policies come in different variants and each variant is designed for a specific need. For instance, Term Insurance plans help in income protection, while child plans are meant to secure your child’s future, and pension plans help in building a retirement corpus. The trick to buying the best policy is to first assess your own long-term financial requirements. Only then should you choose a life plan that helps you meet those requirements.

Q # 2 – Is the Sum Assured sufficient?

We often become stingy when it comes to paying Life Insurance premiums. To reduce the premium outgo we settle on a smaller-than-required coverage. Needless to say, it is harmful to the interests of our dependents. An optimal sum assured (based on your financial requirements) is essential if you want to reap the maximum benefit of your Life Insurance plan. A life cover that doesn’t protect the long-term financial interests of your dependents is inadequate.

Additional Reading: How much Life Insurance do you need?

Q # 3 – Are you buying the plan only for investment?

Life Insurance provides many benefits, investment being one of them. However, the plan should be bought primarily for insurance purposes—and for investment purposes only in select cases (such as the insurance seeker having no financial dependents). The main objective of a Life Insurance plan is the security it provides. Though endowment and unit-linked plans help in creating wealth, the returns may not compare to those provided by other investment avenues. So if you are buying the plan only for investment purposes, beware. You may be availing a low cover by paying a high premium which could be better used in other investment options such as PPF or Mutual Funds.

Additional Reading: Buying the definitive Term Plan

Q # 4 – Will you continue with the plan for the stipulated tenure?

Sometimes people buy a Life Insurance plan in the heat of the moment without paying heed to its long-term nature. Later, after paying premiums for the initial few years, they stop the premium payments and let the plan lapse. A lapsed Life Insurance policy has a lower value than a policy which continues. You lose out on the benefits of the plan if you stop premium payments. So, when buying the plan, ascertain whether you will be able to continue paying the premiums for the tenure you are choosing to buy. If you are unsure, go for limited premium or single premium plans where your premium payment liability is limited.

Q # 5 – From where are you buying the insurance policy?

Agents, banks, and brokers are middlemen who can sell you a Life Insurance policy. Being middlemen, they are paid a commission. This commission is included in the premium you pay for buying the plan. Instead, you can get insurance online where the plans are sold directly to you without the middleman’s commission fattening up your premium.

After you have asked and answered these questions satisfactorily, go ahead and get an insurance policy. Do not buy the policy on a whim lest you suffer. Be aware, be knowledgeable and keep these questions in mind when you get a Life Insurance policy.

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About Adhil Shetty

Adhil Shetty is the Founder and serves as the Chief Executive Officer of BankBazaar.com. Adhil has a Master’s degree in International Relations with a specialization in International Finance and Business from Columbia University in the City of New York, and a Bachelor’s degree in Engineering from the College of Engineering Guindy, Anna University. Adhil is an expert in Personal Finance (Car loan/Home loan and personal loan) and he majorly consults on investment and spends rationalization for the Indian loan borrowers. His guidance is number based with real time interest rate calculations and hence useful for consumer’s real time query.

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