Do You Really Need Life Insurance?
Life insurance needs vary depending on your personal situation — the people who depend on you.
If you have no dependents, you probably don't need life insurance. If you don't generate a significant percentage of your family's income, you may or may not need life insurance.
If your salary is important to supporting your family, paying the mortgage or other recurring bills, or to sending your kids to college, you should consider life insurance as a way to ensure these financial obligations are covered in the event of your death
How Much Life Insurance Do You Need?
It's difficult to apply a rule-of-thumb because the amount of life insurance you need depends on factors such as your other sources of income, how many dependents you have, your debts, and your lifestyle.
However, there's a general guideline you may find useful: consider obtaining a policy that would be worth between five and 10 times your annual salary in the event of your death.
Beyond that guideline, you may want to consider consulting a financial planning professional to determine how much coverage to obtain.
Is there any single product which we can say the best product and will be suitable to all buyers (not investors)? No…because each buyer’s need is different, hence we can’t say that a single product from any of XYZ insurance company will be best. Having said that, the next question is, why you need life insurance in your life? As the name itself suggest the meaning, we must buy the life insurance ONLY to protect our life but not for investing. But sadly 99% of Indian buyers still feel that Life Insurance is investment and tax saving tool. This is the mindset created by agents since long and by our parents. Because in olden days we don’t have any options like mutual funds or bonds. Only options of investments are Post Office Schemes, Bank FDs or Life Insurance products.
Because there are so many options available, it’s easy to put off making a decision if you are overwhelmed with your choices or don’t properly understand them. The following 10 suggestions can help you make the right decision for you and your family.
- Get multiple insurance quotes that include all options or restrictions so you know exactly what is available.
- Stay away from any agent or organization that cannot or will not fully explain exactly what you are buying and why.
- Always remember that you are the client. At no point should you feel bullied or intimidated into buying something that you aren’t sure of.
- Though you certainly want to purchase adequate coverage, don’t over buy. If your premiums are too high to manage because of the extras that have somehow found their way into your policy, you will be much more apt to allow it to lapse.
- Once you find a company or agent that you are comfortable with, ask questions. The clearer you are on what type of life insurance rates and options are right for you, the easier it will be to agree on a package that suits your requirements.
- Consider life insurance for the whole family, not just the adults. Expenses that follow a death or serious illness or accident will add more stress to an already devastated family.
- Remember to regularly check your policy for changes that may affect you or your family. Almost all companies will send out notices to explain changes that they have made so make sure you review them.
- Review your policies relevance regularly and update as your family and their needs change.
- Consider your life insurance a fixed and non-negotiable expense in the same way you would your mortgage or car payment. It’s easy to consider life insurance as a luxury rather than a need, when in reality that is definitely not the case.
- Don’t be overwhelmed by “what if” or worst case scenarios.
Before proceeding further, let us first understand the different variants of products available in India.
If you want insurance plan only to give financial security to your family, the term plan would be best for you. These are cheapest plan. You can have 1 crore life cover by spending as low as 8 thousand per month. It is really very cheap. These plans also saves tax.
Traditional Endowment plans
If you want to invest some money along with the life cover, you can go to specially designed insurance plan. The endowment insurnace plans are such options. These plans also saves tax. Because of the insurance and investment combination, the premium of such plans are very high.
Traditional Endowment Policies give you death cover during the insurance period. After the maturity, you also get the maturity amount. This plans gives you a guaranteed amount after the maturity.
Money Back Plans
These plans gives some money during the policy period as well. Thus, It gives death cover, some amount during policy and maturity amount. Because of this triple benefit, the premium of such plans are highest. Ultimately, it is your money which is distributed.
Whole Life Plans
The plans runs throughout your life. The nominee of policyholder gets the maturity amount irrespective of the deceased person’s age. This extra insurance cover comes at a cost. You have to pay far higher premium than the term plan.
This plans are also a mix of insurance and investment. But it does not give a guaranteed amount at maturity. Rather, your money is invested in mutual fund schemes of your choice. The maturity amount of ULIP depends upon the performance of your schemes.
After you have decided on the right kind of insurance, do a comparative study of similar policies being offered by different companies.
-Ensure that your premium amount and premium frequency is within your ability to pay.
-Check with the insurance company on the additional benefits offered, such as an accident rider, a critical illness rider or maybe an option later to convert an existing term plan to a whole life plan.
-Read the fine print on the policy carefully and ask the company or your agent to explain anything that is not clear to you, before you sign the offer document.