5 tips to buy life insurance
Most of you make mistakes when buying a life insurance policy. Due to these mistakes, the plans you buy do not fulfil your financial requirements completely. What do you do in such situations? You put the blame on the agent or on the insurance company which sold you the plan. Do you ever realise your mistakes?
Many don’t. There are various types of life insurance plans and each plan has a particular use. Many of you ignore this fact and buy a policy blindly. You shouldn’t. You should understand every plan’s benefits and then choose plans based on how they fulfil your requirements. Do you know how to do that?
No? Don’t worry! Here are some tips of buying different type of life insurance plans –
Let’s start with term insurance. Term plans are simple insurance plans which promise to pay the sum assured in case of death during the term of the plan. Thus, these plans guarantee a financial corpus for your family if you are not around. Premiums are very low and you can buy an optimal amount of coverage under term insurance
Term insurance is a universally required plan. Everyone wants to protect their families financially in case they face premature death. A term plan fulfils this need. Since premiums are low you can also afford sufficient coverage. So, have a term plan at all stages of your life to fulfil the income replacement and financial security needs.
Read more about Why term insurance is an absolute buy?
Endowment plans also promise a maturity benefit which is absent in term plans. These plans give you a guaranteed fund either or maturity or in case of death during the term of the plan. Many endowment plans are offered as participating plans making them eligible for bonus declarations. These plans come with a term ranging from 10 years to 30 years and the returns are guaranteed.
Endowment plans give you a guaranteed corpus and helps in creating savings. So, you can buy these plans for creating a corpus for future use. The term of the plan should be kept in mind when buying the plan so that you get the corpus when you require it. Try and buy a participating plan to earn additional bonus which increases the benefits payable under the plan. The returns are guaranteed and if you don’t have any risk appetite, you can invest in endowment plans.
Child plans, as the name suggests, are designed for securing your child’s financial future. These plans can be offered as traditional endowment plans or unit linked plans. What sets this plan apart from other plans is the plan’s design. There is an inbuilt waiver of premium rider under this plan. If the parent, who is also the life insured, dies before the completion of the term, the rider waives the future premiums. The plan continues but premiums are not payable. On maturity, the benefit promised is paid. Thus, a child plan ensures that the plan benefits would be paid as and when they are promised irrespective of whether the insured is alive or dead.
These plans are a must if you have children. You should buy a child plan securing your child’s future. Don’t forget to opt for an optimal sum assured which would provide the required corpus when your child needs it. Choose a term which coincides with your child’s needs so that the plan pays the funds when they are required, not before and not after such requirements.
ULIPs give you market-linked returns and, as such, are finding favour among many investors. You can invest your premium in any type of asset-class through a wide variety of funds available with ULIPs. Returns depend on the investment fund you have selected and the market performance. Since returns are linked to the market, they are inflation adjusted and yield a good corpus. There are flexible options too which let you switch between investment funds, withdraw your funds partially and also invest additional premiums through top-ups. Lastly, you get insurance coverage too where higher of the sum assured or the fund value is paid in case of death.
If you have a healthy risk appetite and want market-linked returns, ULIPs are an ideal choice. There are child ULIPs and pension ULIPs too which helps fulfil your child and retirement planning need. So, you can invest in a ULIP to get the dual benefit of insurance and investment.
Pension or annuity plans help you plan for retirement. You can either buy a deferred annuity plan to create a retirement corpus or invest your retirement corpus in an immediate annuity plan to get annuity pay-outs. Pension plans also allow you to withdraw (commute) 1/3rd part of your accumulated retirement corpus tax-free. Thus, these plans create an earmarked retirement corpus for your golden years.
Buy a pension plan in your late 30s or early 40s to plan for your retirement. At that time, a deferred pension ULIP would be an ideal choice since the corpus would be inflation adjusted. Make sure to create a sufficient corpus.
Term plans are the most important ones and should not be ignored at any cost (Read more Term insurance are evolving here’s what’s new). After securing the need of financial security through a term plan you can choose other plans. Choose the different plans based on their requirement and their need and you would not make mistakes when buying life insurance.
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Read more about Life insurance policy in India