6-point checklist for buying life insurance

Here's a quick checklist so that you make a wise decision

Buying life insurance is a necessity for all of us. Who wants to put his family members in a state of misery after her/his demise? It is certainly a pessimistic approach but at the same time, it calls for practical wisdom to manage risks of uncertainty and incidents which are unforeseen.

Many times, people buy life insurance in a hurry. Some people buy it for the sake of it. They just come under the influence of an agent who succeeds in convincing them to buy a certain type of life insurance policy. There are times when these policies become irrelevant mainly because of ignorance of buyer and vested interests of seller.

To avoid such conditions, we are presenting a quick checklist to you.

Analyse your current financial profile

Once you decide to buy a life insurance plan, analyse your current income and expenditure. This will go a long way in deciding the total amount of coverage you require and the amount of premium required to get it.

It always helps to know about your net worth, assets and liabilities. This can help you plan your financial goals in a much more realistic manner.

Think about the objectives

Life insurance is meant to provide financial resources to a family in case the policy holder meets an untimely death. Thus, the amount of coverage should be such that it is able to provide for the basic monthly expenses.

Moreover, there can be several other objectives such as saving for some particular events or stages of life.

A thumb rule

According to insurance experts, one should always buy life insurance cover of at least 10 times her/his current annual income. Thus, if your annual income is Rs 10 lakh, you should go for a cover of Rs 1 crore.

This amount, if kept in traditional bank fixed deposits, should generate interest to the tune of Rs 9 lakh a year. That means a monthly income of Rs 75,000.

What should be the policy term

This depends on your current age and financial goals. If you are 25 years old, married and with children, then you can set the policy term in such a way that you get a lump sum amount for their studies or marriage once they reach the suitable age.

Similarly, you can set other goals like buying a house, car, foreign tour, etc.

Planning retirement with life insurance

There was a time when people used to treat life insurance as a retirement planning tool as well. But now with the growth in the insurance sector in India, there are several specialised retirement plans which are much more efficient and better in terms of results. 

Should you buy it online?

Why not? The online industry in India is going through a revolution. If you buy insurance online, you can expect great discounts on premium. Naturally, the insurance company saves considerable cost through online transactions and they pass on some benefits to you in different manners.

Also, you can pay your premium through credit card and get credit period of up to 2 months. Plus you can get cash back if your credit card company offers this facility.

Supposing you pay a premium amount of Rs 10,000 and your credit card gives you cash back of 5 per cent, then straightaway, you get a benefit of Rs 500.

Illustration: Uttam Ghosh/Rediff.com