A Smart Man’s Insurance Guide: All that you need to know about life insurance!

Life insurance is one of the most crucial and difficult decisions in one’s life. While the number of people buying an insurance policy and the penetration of the insurance sector is even dismal, its importance to money-proof our future can’t be undermined.  Here’s everything that you would like to know about life insurance.

What is life insurance?

Life insurance is more than a protection mechanism and goes beyond tax planning. It is a tool to protect you and your family’s financial interest in case of an unexpected event. Ranging from financial protection to savings for the future and from investment needs to tax planning; life insurance has got you covered.

Why do I need a life insurance policy?

You wouldn’t want your family to suffer financially or compromise on the lifestyle when you aren’t around and due to that, there is no fixed source of income.  The future is uncertain and you don’t know if the cards are in your favour or not. With the right life insurance on your side, you can take a sigh of relief knowing that your family members are in good hands. Here are the 5-compelling economic and social reasons that make life insurance even more relevant and life-altering phenomenon in today’s times.

  • Looking after your family in your absence

This is the most crucial and beneficial aspect of life insurance. If you are the sole breadwinner of the family and your family is dependent on you for money, it becomes all the more important to get life insurance. Of all things, money shouldn’t be a reason for your family’s downfall. They shouldn’t feel compelled to compromise on their lifestyle, children’s future, education and health because the money flow was stopped abruptly.

  • Dealing with debts

The milestones of your life shouldn’t turn into roadblocks for your family when you aren’t around. A car, a home or an education loan, it is all taken care of by life insurance.

  • Achieving long-term financial goals

If you happen to have the right insurance, you can use the investments to create new milestones such as a house of your own! Some insurance policies have certain dividends based on the company/brand performance. This means that you not only have an assurance of secured future for your loved ones but also solace in achieving your financial goals.

A life insurance policy can give a regular stream of income when you retire. Life insurance can work like a pension plan when required. The steady monthly amounts can be used to maintain your lifestyle even when you are not earning.

  • Peace of mind

Isn’t it wonderful that you know that your family is in safe hands and financially secure even when you aren’t around? This peace of mind can be achieved by investing in the right insurance company. Knowing that your family’s future is secured and well cared for is the biggest comfort indeed.

 

Do only the breadwinners need to be insured?

Insurance is gender and age-neutral. From your wife to dependent parents and kids, everybody needs comprehensive financial security against unexpected occurrences. While the breadwinner needs to be adequately covered, so do other family members who are as important.

I do not need life insurance because I have invested in shares and mutual funds that generate higher returns.

Life insurance is a part of financial planning for the future. While it makes an assured component for tax planning, it can’t be compared with any financial / non-financial tool. The moment you draw a policy with insurance companies, you and your loved ones are eligible for financial protection. It is the only financial tool that gives you financial coverage from day 1. Your investment portfolio should have a component of life insurance and adopt a balanced approach to diversify the risk.

I am too young to think of financial planning.

The right time to buy insurance policy is when you receive your first salary.  An early start ensures lesser premiums and better coverage. In young age, you are healthy and you are usually eligible for the most of insurance plans. This might not be the case when you have aged. Besides, insurance can only be bought when you don’t need it. Hence, this is very important that you take financial planning very seriously and invest in the insurance policy that can cover you on all fronts in the years to come.

I earn enough. I don’t need insurance.

This high disposable income can be used to pay higher premiums resulting in better savings and higher annuities in your absence or when you retire. Additionally, inflation and recession are real-world phenomena and you don’t want to leave anything to chance. This is why it is better to make hay while the sun shines! If you have an income to spare, use it to invest in a diversified portfolio including life insurance. This will ensure comprehensive coverage for your family as well as cover you for the years to come when you are retired.

I have group insurance with my employer.

Would you want the financial well-being of your loved ones at stake after you have changed jobs or taking a break? Hence, this is recommended that you invest in a dedicated personal life insurance that covers you and your family irrespective of your professional stance.

I prefer to invest only in property (Real Estate).

It is always a better idea to diversify your investments. Real-estate property depends on inflation and market. You don’t know if the property can be liquidated at the time when you need money the most. This is better to diversify your portfolio and invest in comprehensive life policy that can give you an all-inclusive coverage.

Fixed deposits and bonds give me the same return with capital protection. What do I need life insurance for?

Life insurance policies cannot be compared with any other non-insurance financial instruments. As stated above, it offers financial coverage right from day 1. By the means of premium payments, it instills the habit of savings. Also, you can have FDs only for 10 years and tax-adjusted returns are even lesser in bonds and FDs.

Types of Life Insurance Policies

The basic types of life insurance policies offered by the companies are

Term insurance

The most basic yet most flexible and most affordable form of life insurance! The term insurance plans don’t offer any savings or profits but the most important aspect of the insurance, which is to protect your loved ones financially. The most advanced form of term insurance would cover you against all the three eventualities of life- Death, Disability and Disease. You need to invest a fixed sum of money (sum assured) to be paid to your beneficiaries as a lump sum amount or fixed monthly income.

Endowment plans

Endowment plans offer you the same level of risk coverage as term plans. However, the endowment plans give you maturity benefit irrespective of death or survival whereas the term plans don’t unless you specifically opt out for one. This is why you endowment plans tend to have higher sum assured and premiums. The profits reaped on the premiums are due to investments in equities and debts.

Unit-linked insurance plans (ULIP)

ULIP offers three benefits, rolled into one! It is a market-linked variant of endowment plan. It offers you investment, insurance and earnings for your future! They are different from mutual funds as they offer insurance too whereas mutual funds are only meant for investments.

Whole life policy

A whole life insurance policy ensures risk coverage for the entire life. The premiums are paid after death until the corpus (the entire sum assured) is paid to the family.  This kind of policy doesn’t have any pre-defined policy tenure and is only paid out in case of an occurrence.

Money back policy

A money back policy offers you periodic payments and is also a variant of the endowment plan. A portion of sum assured is paid after the policy term is over. Upon the survival of the policyholder, the balance is paid to him. In case of an eventuality, the full sum assured is paid to the beneficiary.

What is the right life insurance policy for you?

A right insurance policy covers you on all fronts. Be it death, disability or disease, the heat of financial crunch shouldn’t kill the dreams of your family. Be it education, career or marriage, money shouldn’t be an obstacle but an enabler. With insurance policy in place, you don’t have to think about the financial well-being of your family, even when you aren’t around.

How much does life insurance cost?

It is a human tendency to cut corners on even the most significant things. You shouldn’t be settling for a cheap insurance policy but the most comprehensive one! The premium of life insurance can vary from a person to person. This depends on

  • Age
  • Gender
  • Profession
  • Whether you smoke or not
  • Health (Any history pertaining to health doesn’t preclude you from insurance but significantly increase the premium amount.)
  • Any history of chronic disease in a family
  • Any deaths before the age of 55 from a chronic ailment
  • Your lifestyle
  • The policy term

Why does gender matter in insurance?

This doesn’t have to do anything with the gender pay gap folks, but with the psychological behaviour. Men tend to smoke more and indulge in risky adventure sports. Similarly, women over the age of 35 are at an increased risk of cancer and other diseases. Maternity issues are also prevalent in women. This gender assessment helps to bring forth the right premium amount and hence, the comprehensive coverage.

What isn’t covered in life insurance?

A comprehensive life insurance would cover you on all fronts such as disease, death and disability along with a number of added benefits or riders. However, insurance isn’t offered to politically exposed candidates, drug addicts, convicted people and maternity period over 12 weeks. A health issue or excessive smoking don’t preclude you however, the premium amount can be significantly high for you in that case.

In case of health issues and an increased risk of terminal illness, you can alternatively look for critical illness insurance cover to reduce the future financial risks for your loved ones.

Who doesn’t need life insurance?

Everybody needs financial assurance in life. While it is said repeatedly that money can’t buy happiness, in real life money is a great enabler for things that bring happiness to us. If you want your parents and family to be happy and not suffer when you aren’t around, life insurance is for you!

You need insurance if you have

  • Dependent parents
  • Wife
  • Kids
  • Tax saving needs
  • Disposable income
  • A mortgage

How much insurance do you need?

Now when you know whether ‘I need life insurance’ or not, it is time to learn how much insurance do you need? The answer to this person varies from a person to another. Life insurance quotes also depend on a number of factors such as lifestyle, dependents and family size.

  • Overall needs (Including present and future)

Your life insurance will work as a substitute for your monthly income in your absence.  You need to have a real-time estimate of your present needs and future needs while taking inflation into account.

  • Current Debts

Do you have any outstanding debts, loans or mortgages? Your family or dependents might not have enough money to repay them in case of an eventuality. You need to take any such debts in consideration to assess your insurance needs.

Hope this will help you to assess and determine the need for life insurance and get insurance. The coverage benefit of life insurance policy should help your loved ones to cope with your loss and financial burden.  Please share your comments and let us know if you have any queries regarding ‘how much insurance do you need’ and we will be glad to answer!

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