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Securing Your Life Insurance Policy

Introduction: How I came across this idea? While been selling life and general insurance for over a decade and continuing in the field of financial planning, I came across numerous individuals and families asking me these types of questions. Hence they became relevant and hence I thought of listing all the essential criteria, one must look out for, while planning to buy any kind of life insurance. My ideas below can be called bench marking tools to assess on how much, where to buy, what to buy and whether to buy- life insurance policies queries. These tools shall equip you with a crisp list of check-points and shall save you not only money but save you the embarrassment sometimes unavoidable circumstances but also cautions you to ensure actual well being of your loved ones for whom you are building the secure net.

Some good 25 ideas to look out for while planning to buy a life insurance policy, some pointers no one will ever tell you. So, a nice checklist of do's and don'ts

  1. The Cover: Have you actually calculated how much life insurance do you really need, Have you done an analysis of your current and future needs based on your loans, household/ lifestyle expenses and children's future expenses etc.
  2. Who Needs: Are you the only earning member of the family? Insure and secure well all those earning members only and not insure non-earning members.
  3. Tenure: Do you know till what age would you need life insurance or would you retire at what age?
  4. Disclosures: Are you aware of the necessary and relevant disclosures very critical while taking a life insurance policy and how they can be used to reject your claim?
  5. Exclusions: Are you aware of the first or the second year exclusions like suicide clause.
  6. Riders: Hope you are not taking the riders available as optional? Don't.
  7. Not Investment: Life insurance policy should only be treated as a replacement plan and not as a “what if investment plan".
  8. Child Plan: Don't look at “children's insurance"/ child plan wherein the life of the child is insured!
  9. Disclose: Be aware! Do not miss represent facts and hence disclose all facts today of current, past illnesses of yourself and your parents and your smoking, drinking habits etc.
  10. Myth: “Term insurance gives you nothing at the end…" kind of miss-selling propositions are only myths as it is a feature, a fundamental purpose of looking at life insurance and not are treated as an investment, for you have many other options for investments.
  11. Returns: Combining PPF or ELSS with term gets you a much better “returns" while ensuring safety, security and long term investments objective
  12. Save tax and “invest" in life insurance policy is a myth as investing and insurance are two separate incongruent goals and should not be mixed. Investing is a deferred spending while insurance is spending now in hope of avoiding future losses; investing and insurance are hence, opposites.
  13. Investment: “Insurance policy is an investment vehicle…" is a myth as it is not an option or objective of maximizing yields while minimizing peril.
  14. Comparison: Do consider important factors while trying to compare term policies: Terms, coverage, features, cost
  15. Factors to be considered before selecting a life insurance company are: claim ratios, premiums, brand you trust, are all important.
  16. Check agents background and tenure to see his credibility, trust, reliability and experience
  17. Obligation: Don't just try to oblige an agent by favoring him or her, rather just give some one time donation or gift and avoid getting into false commitments or features that you never wanted or may not help you.
    Tax saving is important but life insurance, by now you would have understood, is perhaps not an investment or return, instead look at 3 great
  18. options: PPF, ELSS and if still not happy, (if employed), increase your commitment to EPF, where you can accumulate tax free, tax beneficial investment and save taxes.
  19. Guaranteed return life insurance policies have their own downside also, as they would necessarily be investing their funds in very safe instruments, to get you finally very conservative and perhaps less than inflation returns. Avoid.
  20. What to buy: Now, once you are sure of all the above information, time to buy you're your most preferred Life insurance from a life insurance company. My suggestion is to go for Term insurance as it is the best or the simplest.
  21. Buying online term insurance is the cheapest, is true. About 40 % cheaper than buying from an agent. But look out for convenience and support.
  22. Don't sign till you are convinced and get everything in documented format, checking brochures for features, and consider cancellation clause within 30 days if you feel deceived, for features missing in what your agent told you and you found absent in the main policy document.
  23. No health checkup trap for low sum insured, should be avoided while all health related material facts, is honestly disclosed.
  24. Keep Informed: Have you informed your family members and nominee about the policy being taken and are they aware of the claim procedure etc.
  25. Do they have an action plan, that after you, what and how to manage the claim amount, like how to settle the loans and manage the future expenses?

Conclusion: Insurance is a means securing financially future unseen circumstances so that your family members can be provided for a big amount in case of an eventuality. Just keep it that simple. Avoid all the 25 traps mentioned by me above and be happy. Be happy with your “spending" on a term insurance policy and remember to renew it every year, as statictics prove that only 8 % term policy holder renew it till the end of the policy. Don't be the 92 % to give the insurance company a chance of benefit from your hard earned money. Consult your financial plan for understanding your insurance needs and keep updating and re evaluating the needs. Buying life insurance is not a one-time event. With sudden wealth or sufficient assets or with no debt/ loans and with sufficient assets to protect your family against unseen circumstances, perhaps you may not need to spend any longer on life insurance and hence, save valuable premium from going out of your pocket. Trust your financial advisor for such long term advises and stay Happy.