10 things to keep in mind before buying life insurance

Unfortunately, we still believe Insurance is one form of investment. Hence, we typically ask how much will I get in return when an agent/advisor approaches us. The question of returns itself is incorrect! And when we take policy buying decisions based on saving a small amount and getting a big amount in the future, that is the starting point of disappointment!

Let us in this article understand 10 things to keep in mind before buying a policy:

1.??????Policies need to be calculated based on Human Life Value and not on the basis of premium ‘budget’

2.??????The Human Life Value derived must be split into Term Insurance and Endowment Insurance

3.??????Life Insurance is not only for death – it is for early death or longer life. Hence, both term & endowment policies are necessary. Many of us avoid term insurance simply thinking that it doesn’t generate ‘returns’

4.??????Endowment policies cannot be purchased for getting returns. They must be opted for other reasons – tax-free maturity, disciplined inflow after retirement, regular corpus earning

5.??????The purpose of life insurance is most important. If it is for an inheritance, then a term policy is necessary. If it is for regular earnings post-retirement, then a suitable endowment plan has to be chosen. If you are employed, it is a good idea to have a systematic knowledge of life insurance cover provided by an employer, if any.

6.??????Small Sum Assured is like buying life insurance just for the sake of it. Having a policy is not sufficient, it must actually reap the benefits & meet the purpose decided

7.??????An insurance company usually would have a bouquet of 25-30 life insurance products. Each plan would have highlighted features. It is important to align our insurance buying purpose to this feature of the plan

8.??????Never assume that a premium can be paid for 2 consecutive years and then discontinued. Technically, your policy would get lapsed. You can then surrender it, at a loss. Or you may choose to continue it as a ‘paid up’ policy. In both cases, you end up losing huge money – hence, only buy policies where you are ready to pay premiums for the entire payment duration

9.??????Combining policies is usually a smart way of maximizing benefits. However, before getting lured by the small premium v/s big maturity benefit, it is better to check all policies included in the combination – features of each plan and again, aligning features to the purpose of buying insurance

10.??Avoid comparing insurance with any other form of investment. A financial pyramid is made of 3 parameters: Security, regular income, and capital appreciation. Insurance is only for early death & longer life security. If you feel, instead of paying a premium – what if I invest the amount somewhere else? This leaves a dearth in the security section of the pyramid and can prove dangerous during early deaths. It also proves equally dangerous during lengthier life cases where the regular inflow provision is missing.

Life Insurance is a thoughtful decision, that ensures the best interest of you & your loved ones!