If you really think about it, everything about life is uncertain. You cannot predict if you will find the love of your life. You do not know if you will ever have a high-paying job. You cannot say if you will always be happy or healthy, or that your parents will still be around to play with their grandchildren. There are very few factors in your life that you can actually control. After all, when was the last time you accurately predicted that something good or bad was about to happen? Better yet, when was the last time you were able to avert an unfortunate event in the nick of time?
The fear that you will abruptly cease to be in the lives of your loved ones is a very real one. Apart from grappling with the emotional trauma of losing you, your family may also suffer the pangs of financial suffering. This vision can keep you awake at night, and wreak havoc with your mental peace.
And yet, all is not lost. There is something you can exercise control over – your financial destiny. No, we do not mean that you must amass so much wealth that you or your family need never work another day – though that is a desirable thought! Also, it is not as tough as one presumes it to be. We refer to taking a life insurance policy: it is the best way to ensure that you and your family are protected against financial upheaval in the future. But before you buy a life insurance policy, ask yourself:
1 Do I need life insurance? Most people take life insurance in the hope that their families will be well cared for in their absence. The fear of financial uncertainty is real for those people who are the sole breadwinners for their loved ones – for, if the family income suddenly stops, their loved ones will be in jeopardy. There are some lucky few who have a large savings corpus stashed away for their family’s use after they have passed on. They may not need a life insurance policy, but everybody else does. In times of high inflation and rising living expenses, it becomes difficult to meet the monthly household expenses, let alone set aside money for savings. Thus, a life insurance policy can work wonders in protecting one’s future.
2 What are the types of life insurance available? There isn’t just one life insurance policy that you must necessarily buy. You can choose from term insurance, money back life insurance and whole life insurance policies. The insurer you approach can best tell you which policy to opt for, basis your requirement for the future. If you have low reserves but would like sufficient life coverage, you can take a term insurance plan. Do note, however, that there are no maturity benefits in term insurance if you outlive the plan tenure. Meanwhile, money back policies are useful if you want to receive periodic repayment to finance major milestones such as children’s education or purchasing an expensive appliance. Or you can plan the maturity date of your life insurance policy such that it provides a large sum of money right in time to fund a major milestone such as sending your child abroad for studies.
3 How much insurance cover do I need? When calculating the sum assured of the policy, most people err by not taking future inflation into account. It is easy enough to be swayed by a figure of Rs 10 lakh, for instance, if it is taken into the present context. However, will this sum of money be sufficient, say 15 years hence? Will it pay for children’s education and wedding, household expenses, etc.? When calculating the coverage, ensure that is at least eight times your annual income plus future inflation. Also factor in expenses and medical treatment costs for your spouse, who might need the same in your absence. In short, the sum assured and other benefits like bonuses should be an amount that pays all major expense heads and also leaves a comfortable sum of money after everything is paid for.
4 Am I looking for returns on investment? If you view insurance purely through the prism of investment, then you should not opt for term insurance plans. These are pure life insurance policies that offer only a death benefit. If you wish to get maturity benefits, you can choose unit linked insurance plans (ULIPs) or whole life insurance. More significantly, however, it is wiser to not view insurance as an investment destination. Unlike most investment instruments, insurance does not give bumper returns, nor is to be used to create wealth. However, the safety net it casts on the family is incomparable with the money coming from investments. It replaces a lost income and takes care of the family’s every need. Which investment does that?
5 Should I take individual plans or family plans? It is always advisable to take a single life insurance policy that covers the immediate family members. You could also take individual policies, however – each member of the house will have a separate life plan in his or her name. The benefits of the plan accrue to that person and the person(s) nominated in the policy therein. But before deciding on taking a family plan v/s individual plans, do calculate how much premium you will pay on both options. Naturally it is more prudent to choose the option that is most affordable and which gives the highest amount of benefits.