The past few months have driven home how fragile our health and well-being can be, and how disasters can strike when you least expect them. It is all the more important to ensure that we have a financial plan to protect our loved ones should something go wrong unexpectedly. A life insurance plan is a big part of that and, luckily, there are many kinds of life insurance policies offered by dozens of insurers across the country for precisely this purpose.
The abundance of insurance plans, however, can often leave us spoilt for choice. For first-time insurance buyers, it can be overwhelming to decide which option to go for. Keeping a few things in mind can make it much easier for you to choose the perfect plan!
Choose between Whole Life and Term Insurance
The most important point to consider is whether you would like to have indefinite coverage with a whole life insurance plan or life cover for a certain period of time with a regular term plan. A regular term plan is a cost-effective option that pays a fixed sum to the dependants in case of the death of the policyholder. If the policyholder dies after the insurance term, then the dependants cannot receive any of the benefits.
Whole life insurance plans, on the other hand, are valid for the lifetime of an individual. These plans have higher premiums as compared to regular term insurance plans and also boast of several other incentives, such as flexible payments, policy maturity options, and tax saving schemes. If you would like to know more about these insurance plans, read up on Whole life term insurance vs. regular term life insurance.
Claim Settlement Ratio
Choosing a good insurer is critical in ensuring that your dependents are financially secure and protected regardless of what happens to you. A great metric to judge insurers is the claim settlement ratio. The claim settlement ratio of an insurance company is the number of policies or claims that they have settled (or paid out) to the dependents of deceased policyholders. A higher claim settlement ratio is better since it means that an insurance company is not very likely to reject your dependents’ claims. Look for insurers who settle 98 or 99 claims out of every 100 claims each year.
Choose How You Want the Pay Out
You can choose to receive the insurance benefits as a lump sum or in the form of fixed or increasing monthly instalments. Receiving a large, lump-sum of money in a single payment may have negative financial consequences if not managed correctly. Breaking it down into monthly payments can help provide a steady source of income for the dependants. Don’t forget to make sure that these monthly payments are tax-free so that your dependents can live worry-free. Look for insurance plans that have flexible options regarding the payout, so you can choose an option that suits you best.
Online vs Offline
Online insurance plans are quite different from offline plans. With online portals, you can compare numerous plans from various insurance companies side by side, and look at the pros and cons of each. Additionally, since there are no intermediate parties involved, the policies are priced lower. Offline policies are typically more expensive, and your decision is often influenced by the insurance agent who aids in selecting the policy. You will also not have the option to compare the various plans from different insurers side by side when purchasing policies offline.
Look for an insurance plan that also includes accident cover. Despite the extra cost, an accident cover will keep your family financially secure from uncertainties such as road accidents. It can go a long way in establishing a comprehensive, financial protection plan for your family.
Account for Inflation
An insurance plan worth any coverage amount will be worth a lot less 10 years later due to inflation. Inflation results in the price of items increasing, thereby lowering the value of the Rupee. Say you bought a life insurance policy with a cover of say INR 75 lakh, it will be worth around INR 48 lakh after 10 years, given a rate of inflation of 5%. To reduce the effects of inflation on the cover value, certain insurance companies offer a 5% to 10% hike to the sum assured each year. Ensure that your insurance policy takes inflation into account and periodically increases the payout.
Choosing an insurance plan is never a straightforward affair but looking at the variables outlined in this article gives you a place to start. As always, we highly recommend doing comprehensive research about your needs and the best plans to suit them before you make a final decision.