Life Insurance is a long-term contract for 20-30 years. You cannot change or amend these contracts during the policy. So take time to understand beforehand about your need (how much to insure and how long to insure), coverage you are looking for and the products available in the market (which policy to buy) etc.
What is the main purpose of life insurance?
The main purpose of life insurance policy is to protect the family members of a person from any financial difficulties in case of his/her premature death. Such unfortunate eventuality to a breadwinner in the family can put the other family members in serious financial problems. Insurance offer financial help in such times. This, therefore, must be the main objective for buying an insurance policy. Any other benefit such as tax advantage etc. must be of secondary consideration. Some examples –
- To provide your spouse with income for life
- To create funds for your children to go to school/college
- To pay off your mortgage
- To pay taxes
- To pay off other debt
Do not insure yourself if you are a single
As discussed above that life Insurance is for the benefit of the dependents. Thus, if you are single with no one is financially dependent on you, it is not necessary for you to buy an insurance policy. Better invest your money in high risk and high return areas like equities/stocks, business, property etc.
Do not insure if you are wealthy
If you are a person, who has lots of wealth – properties, business, bank balances, investments, etc. in your absence; this may be more than enough for your family and dependents to continue living comfortably. A few lakhs of rupees from an insurance company may not make any material difference to their future financial security.
Do not insure the child
Any unfortunate eventuality involving a child is no doubt emotionally very shocking. But it usually does not hurt the family financially. Whereas, insurance cover is for justifying the financial difficulty, that may arise with the death of the insured. Therefore, taking a policy for a child is meaningless. It is a needless expense.
Do not consider insurance as an investment option
As we have mentioned above, the primary purpose of the insurance policy is to provide a risk cover in case of happening of insured event. So all the investment insurance products are made up with risk coverage part plus investment part. Therefore a part of the premium paid is first appropriated towards this purpose. The balance amount is invested in financial instruments, which are generally very safe ones like government bonds. Also, the commissions and charges are substantially higher than other investment options. Consequently the returns from an insurance policy are nothing much to talk about therefore it cannot be considered as a feasible investment option in comparison with other competing financial products.
Go for Long Term
Always go for long term for coverage, because if you buy same insurance cover later on than you may get cover very hardly with some exclusions and also it will costs you a fortune. For example if you bought term insurance at 30 years of age for 25 years term. Than when this cover get over after 25 year, your age would be around 55 years, so the insurer insure you at high cost with lots of exclusions.
Read the policy documents carefully
Always read the policy documents carefully specially the charges, premium term, maturity date, surrender charges etc., before you buy an insurance policy. As per IRDA guideline, all the insurance companies offer a 15-day look-in period after you have taken the policy. The 15-day look-in period starts when you receive the policy in your hand. Go through all the terms and conditions written in the policy wording which is supplied with the policy. If you have any doubt discuss with your agent or call the customer care. And if you are not satisfy with the policy, you can cancel the policy with in the 15-day look-in period without any charge. You may have to pay some administrative charges.