Are you planning to get a life insurance policy? Are you mindful of the "small" things that might lead to all good for the financial future? People often rely on intermediaries when getting life insurance. However, they are unaware of how unknowingly they blur the line between investment and insurance, thus putting the financial security of their loved ones at stake.
Buying a life insurance policy might be confusing due to the information overload on the internet.
Here are some factors you should take care of before getting a policy:
- Do you need a life insurance policy? What is the adequate life cover?
Would your family be able to maintain their standard of living if anything were to happen to you? The reason you need life insurance is simple: to secure your loved ones in your absence. But now the question arises, how much coverage do you need? There isn't really a thumb rule that can determine the insurance you need because the situation varies from person to person.
However, when purchasing a life insurance policy, it is crucial to understand the components that go into making the premium sweet for you. There are various features that differentiate one insurance policy from another, but the premium amount you pay towards your life insurance policy is dependent on a number of factors such as age, gender, medical records, family history, lifestyle habits, etc. Ideal life insurance coverage should be adequate enough to cover all of your debts and provide your loved one’s same financial lifestyle so that they are secured even when you are not around.
- Are you upgrading your cover from time to time?
Life does not remain the same, and one's life insurance policy should not either. Your income and standard of living will both increase as your career progresses. You do not require a high life insurance cover if you are single and have no dependents. However, as you get married and have kids, your financial responsibilities will also grow. You must review your life insurance policy after each significant turning point in your life. Hence, with changing responsibilities, it is important to upgrade your life insurance policy from time to time. Periodic review will not only allow you to modify current coverage, but also evaluate it in the context of your future plans and prepare for necessary changes in the coming years.
- Are your nominees aware of your life insurance cover?
The purpose of buying life insurance is to give your family financial stability in case of any unforeseen event. This purpose, however, is of no use if the family is unaware of the insurance policy and thus unable to file a claim. A report by ET Wealth in July 2021 suggests that there is a staggering amount of money hidden in unclaimed bank accounts, life insurance, mutual funds, and PF accounts, in India. This is primarily due to improper nomination, or the failure to inform the legal heir or successor about the investments. The nomination becomes null and void in case of an unfortunate event for the nominee while the insurer is alive. In such a case, the insurer can further change the nomination.
The sum would, however, be given to the legal heirs of the insured if the nominee is no longer around, before collecting the claim amount. Therefore, it is crucial that you inform your spouse or other close family members about all investments you make, including life insurance, to ensure that they receive what they are due in the event of your absence.
- Do you trust your insurance company?
Your life insurance policy is based on your needs, so it is advisable to compare policy options before selecting the one that best suits your requirements. You should always research an insurance company's claims history and claim settlement ratio after selecting the insurer and the appropriate policy. It is possible that the insurance company denied certain claims in the past, but you should look into the reasons for such decisions.
- Last but not least, is all your documentation in place?
Before signing the insurance documents, make sure that you have gone thoroughly through the terms and conditions of the policy. In order to avoid discrepancies, be truthful when providing your medical history. Any mismatch between the information that you have provided, and the actual facts may lead to the nullification of the claim. Since you won’t be around at the time of claim settlement, it is advisable to safely keep your policy documents and let your nominee also know about the same.
As rightly quoted in the book The Monetary Wisdom, "The only thing money gives you is the freedom of not worrying about money."
Undoubtedly, a life insurance policy provides great financial security for you and your family. But before that, it is necessary to equip yourself with some basic understanding of the significance of life insurance. So, what are you waiting for? Start ticking off the items from your checklist.
Akhilesh Gupta is Chief Investment Officer, Aviva India
