Life insurance has been an elusive topic for many. The long-held perception is that it is complex, substitutable and inflexible. It is only recently that the masses have realized the need for insurance, as the Covid 19 pandemic has created an unprecedented financial burden for several families. At the heart of it, life insurance meets all your life goals with solutions aimed at protection, savings, investments and health. It facilitates financial independence so that your future life goals can be successfully achieved. An important part of life insurance solutions is the Mortality Element, which allows you to protect your loved ones from financial disruption resulting from events such as job loss, disability and death.
I always recommend taking out an insurance plan as soon as you start your first job. In addition to the protection aspect, insurance also helps to instill a habit of saving from an early age, which leaves room for prudent financial practices in the longer term. There are various factors that contribute to the decision making process. Insurance should be viewed holistically, as part of the financial planning process. When deciding which product is right for you, first define the life goals you envision and then consider the different products available to you. Unless your life insurance solution is tied to a financial goal, you won’t be able to determine the right product for yourself.
How do you determine if they need adequate insurance and coverage?
Term insurance is the purest form of protection and anyone with dependents should opt for it. There are several factors that come into consideration when purchasing term insurance, including income, expenses, liabilities, inflation rate, etc. There are tools available online that can help you determine the right coverage for you, based on your unique needs.
The general rule of thumb is that life coverage should be at least 10 times your current income and add up to liabilities in order to achieve adequate income replacement. As your liabilities increase, your coverage should also increase.
Key factors to consider when choosing a life insurance company
While choosing the right life insurer is important, identifying the right product is much more essential. First, preselect the product you want to buy, and then determine if the company offering it has solid fundamentals. It is essential to look at indicators such as the claims settlement ratio, the performance of funds managed by the company, the IRR, the charges applicable on the products, the reversion bonuses announced in the past, the performance of the company, etc.
Precautions to ensure that your dependents receive the expected benefits
A life insurance policy serves as a promise that comes true at a later date and in your absence. It is essential that you make sure that you fully disclose all relevant details to your insurer. Details about income and education, occupation, health (including pre-existing illnesses), family history, and habits such as smoking and drinking should be disclosed upfront. If all the facts are honestly disclosed when purchasing the policy, there is a good chance that your dependents will be the subject of a hassle-free claim.
Don’t blindly follow a friend or relative’s recommendation. Let them guide you, but make sure the decision you make is based on your own research and understanding.
Different types of life insurance products to consider
Life insurance offers a variety of solutions aimed at achieving different life goals. Term and critical illness insurance solutions are some of the key protection products that give you financial immunity against events such as death or the diagnosis of critical illness. There are also wealth accumulation products like endowments or market related policies that not only help people save money but also increase their wealth for longer term goals like raising children. Income solutions offer a surefire method to create an alternate or second source of income for people of all age groups. Likewise, pension and annuity products are an ideal method for retirement planning.
(By Anup Seth, Director of Retail Sales, Edelweiss Tokio Life Insurance Ltd)