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How to select, buy, and make the best out of the right life insurance plan

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For a person, who is new to financial investments, the idea of buying a life insurance plan can seem daunting. There is a lot of confusion around the various options available. However, the most important aspect of buying life insurance is to choose one that suits your financial goals and needs.

Let’s try to dispel the confusion by first trying to answer the question, “What is life insurance?

What is life insurance?

What is life insurance?

Life insurance is a contract between the policyholder and the insurance company, where the life insurance company pays the policyholder’s family an assured sum upon his death. The assured sum is paid in exchange for a specified premium amount. The premium is a pre-decided sum of money that a policyholder pays the insurance company in return for the insurance cover.

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The policyholder is also provided with the option to choose between many riders. Riders are the optional paid features offered with the life insurance policy. We can say that life insurance is a backup plan for life. It empowers a person to financially provide for their family even after the policyholder’s death.

Why should you buy a life insurance plan?

Why should you buy a life insurance plan?

There are certain benefits of getting life insurance plans that you should remember before setting specific financial expectations from them. The benefits are as follows:

  • Financial security for your family
  • Provision for income replacement in the event of the assured person’s death during the policy term
  • Settlement of debts
  • Financial security after retirement
  • Fulfilment of long-term and short-term financial goals
  • Education of children

How to select a life insurance policy?

How to select a life insurance policy?

A sturdy life insurance plan can be your first step towards financial planning. There are various types of policies that you can choose from, depending upon your specific financial goals.

Insurance agents are equipped with the knowledge of various financial instruments and can accelerate the process of buying an insurance policy for you. It is best to contact various agents, compare different life insurance plans, and then select the best one according to your needs.

Also read: Health Insurance in India: How it Works & Benefits to Expect.

Find out which policy suits your needs

Find out which policy suits your needs

The insurance sector in India offers a diverse range of life insurance plans. Some popular types of life insurance are as follows:

1. Term life insurance

A term life insurance, for example the iSelect Star Term Plan offered by Canara HSBC Oriental Bank of Commerce Life Insurance, provides insurance cover for a definite period of life. In case of the policyholder’s death, the beneficiaries get the policy amount.

2. Whole life insurance

Whole life insurance is a permanent insurance plan that offers lifelong cover to the insured person, in the event that premiums are paid regularly for the required period of time.

3. Child plan

Parents can choose a child plan for financially securing their children. Such a plan takes care of a child’s financial needs as they grow up, ensuring that they receive a quality education, and have a significant financial corpus to begin an independent life.

4. Unit Linked Insurance Policies (ULIPs)

Unit Linked Insurance Policies (ULIPs) offer a fusion of investment and protection. These policies are financial systems outlined to provide choice to policyholders about how their premiums are invested.

A ULIP’s value is connected to the current value of the units invested by the policyholder in the fund. This current value, in turn, depends on the performance of the fund. Customers have the freedom to choose the fund. They also have the option to change funds during the policy term.

ULIPs are more complex than other life insurance policies. Therefore, it is suggested that you understand relevant terms like lock-in period, surrender value, and surrender charges before you buy a ULIP. An insurance agent can be of assistance in this regard.

5. Money-back plan

A money-back plan offers a benefit based on a certain percentage of the assured sum periodically. The balance amount is paid in the form of maturity value after the expiration of the term.

6. Endowment plan

An endowment plan is an insurance policy linked to savings. They have a definite maturity rate. In case of a policyholder’s death during the plan period, the assured sum is given to the nominated beneficiary. If the policyholder outlives the policy term, the maturity amount is paid to the policyholder.

7. Pension Plans

Pension plans are ideal for you if you want to be free from any financial worries in your old age. These plans make sure that you have a steady income after retirement.

Study the Claim Settlement Ratio (CSR) of the insurer

After choosing your desired insurance policy, you should look for the claim settlement ratio (CSR) of the insurance company. CSR is the ratio of insurance claims that the company has resolved to the number of claims it has received. The Claim settlement ratio is an important factor in ensuring the financial security of your dependents.

How to buy a life insurance plan?

After you have selected your life insurance plan, it’s time to go ahead and buy it. Having a monthly instalment plan in place will help you plan better financially. You also have the option of a lump-sum payment of your premium. This mode of payment can avail you of an annual discount, depending on the insurance company’s terms and conditions. Online payments are even better as they keep a record of your payments.

Important things to remember while getting a life insurance cover

When it comes to deciding your family’s future after your death, you simply cannot afford to take chances. Therefore, you should keep a few salient points in mind when choosing to purchase life insurance. While purchasing an insurance policy, ensure you follow these steps for a hassle-free experience:

1. Compare the policy

The internet is a helpful resource. Utilize it to compare different life insurance products available in the market.

2. Examine the documentation

Before buying the policy, examine all the documentation provided to you. These documents include the insurance policy brochure and prospectus. Ensure that you understand the terms and conditions.

3. Ask the right questions

After you have studied the insurance documentation, there might be some financial jargon or policy terms that you don’t understand. In those cases, it is always best to clear your doubts by reaching out to the insurance company or your insurance agent. Essential details that you shouldn’t ignore include frequency and mode of premium payment.

After you purchase your insurance policy, it is essential that you keep track of some essential things, such as:

1. Paying premiums without delay

It’s recommended to ensure timely payment of premium. Delay in doing so might incur a penalty or even the discontinuation of the life insurance plan.

2. Keeping all documents safe

It is always a good idea to keep a copy of the insurance documents handy. These documents include the proposal form, declaration, and terms and conditions. Make the best use of the right insurance plan.

Planning and ensuring your family’s financial security after your death should be one of your foremost priorities. Therefore, selecting and buying life insurance plans is a decision that should never be rushed. Take your time to research and identify why you need one, and which insurance policy is most suited to your needs.

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