Photo: Mint
Photo: Mint

How to buy the right life insurance policy

The life insurance industry offers several products, from term covers to a host of traditional plans and unit-linked insurance plans. So how do you choose the right plan which is best suited to your needs?

Tarun Chugh, Managing director and CEO, Bajaj Allianz Life Insurance

Life insurance has triple benefits—investment, security and tax advantages—and is ideal to help you meet your long-term life goals.

Having a policy is essential to ensure yours and your family’s life goals are on track. The ideal life insurance strategy depends on the stage of your life, your life goals and the overall liabilities you have. To meet each of your life goals, there is a product, but planning is critical before investing.

One must have products that offer a life cover, so that in case of death of the breadwinner, the family is able to cope with income loss through this cover. Also, the product should help your investments grow over the long term by investing in India’s dynamic markets. It’s a fact that markets have given favourable returns over the long run, and Ulips and other products not only help invest in the markets but also help manage downside risks. The chosen product should help you manage the income loss that may happen during critical illnesses. Critical illness or health products designed by life insurance covers work differently and one should have it in addition to a reimbursement health cover.

Investing in life insurance for tax-saving purpose only and signing up for it at the very the last minute is a common mistake.

Suresh Sadagopan, Founder, Ladder7 Financial Advisories

Life insurance is a safety net that we throw around the family to protect them against sudden loss of an income-earning member and the consequent distress that the family would be subjected to. A family would have a set of goals and lifestyle based on the income of the earning member. That needs to be largely protected. Hence, a proper estimation of expenses and goals is necessary, based on which an appropriate life insurance cover should be taken. Any loans one may have should also be covered by the insurer.

An appropriate product to go for in this situation is a term insurance cover. This is the product that can offer a very high life cover for very low premium. A term insurance provides necessary security to the family in case of death of the income earner. An appropriate term cover to take is one which has an income option. In such a case, about 10% of the sum assured is paid on the death of the policyholder and the balance is paid on a monthly basis to the family over a span of 10-15 years. This ensures that the family gets sustained income for a long period of time and can stabilise their position.

Melvin Joseph, Founder, Finvin Financial Planners

Many experts suggest a sum assured that is 15-20 times your annual income as the sum assured. But the practical method to calculate the sum assured for an insurance policy is expense replacement method. This will ensure that your family can manage the financial goals like children’s education and marriage, clear all the liabilities like home loan, car loan and have a decent life with dignity, in the absence of the breadwinner.

While there are a lot of products available in the market like whole-life policy, money-back policy, endowment plans and Ulips, few talk about the simple and most suitable product—term insurance. A person should choose term plan because it offers insurance at a low premium. You should buy a pure-vanilla term cover without riders. You should mention the details of your existing policies, health conditions and habits while purchasing this policy.

Investment-linked insurance policies neither offer decent returns nor sufficient risk cover. Low returns, less cover and lack of flexibility are their biggest disadvantages.

Karthik Raman, CMO and head, products and strategy, IDBI Federal Life Insurance

When planning one’s life insurance strategy, an individual has to consider various scenarios. To protect her loved ones in case of her unfortunate demise at an early age, an individual needs to select the ideal life cover, based on her human life value (HLV).

By calculating her economic value to the family, an individual will be able to decide on the appropriate life cover for herself.

It is also important for her to consider her financial situation once she retires. Purchasing a long-term investment-linked life insurance plan at an early age, would help to secure her and her family’s lifestyle even post retirement.

Once she starts a family, an individual should also consider a child insurance plan with waiver of premium option, as it would help secure the child’s dreams even in the absence of the family breadwinner.

An individual should definitely invest in a term insurance plan as these cover pure risk and give an individual substantial cover for a nominal amount. Moreover, these plans are easy on the pocket as they offer guaranteed premium over a longer period. Hence, the earlier they are purchased, the better it is for the individual.

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