Insurance is a risk management technique; that helps to reduce the risks of financial burden, in case of any mishappening. Insurance is also known as a risk transfer technique, in which you shift your economical losses to your insurance company by paying a fee called a premium. Insurance protects an individual against financial hardships due to unexpected events like; theft, illness, physical injury, damage to property etc. Actually, life insurance is a legal agreement between you and your insurance company; in which you have to pay premiums and in returns, your insurance company pays you a certain amount of money in the event of loss you insured. The amount of money that your insurer pays you or your nominee (on maturity or event of loss) depends upon the amount of protection you have purchased. Your family may face financial problems upon your death; but if you have purchased a life insurance policy then it might help your family to bear the immense loss. If you have dependents then you must have a life insurance policy.
While buying a life insurance policy, there are some important factors that should be taken into account to fulfil your needs. It is very crucial to evaluate your present and future conditions before buying a life insurance policy. In many cases, people insure themselves with unnecessary life insurance policies due to lack of awareness. They blindly trust on insurance agents; whichever policies agents recommend them, they opt those ones. Don’t take life insurance agents’ advices seriously unless they have passed IRDA (Insurance Regulatory and Development Authority) exam (Qualification exam may vary, it depends upon your country for example; Passing of LLQP (Life License Qualification Program) exam is required to become an insurance agent in Canada). At the top, no one knows your needs better than you; therefore, with a little bit effort or research you can find a best insurance policy for yourself. To help you find appropriate life insurance policy for you, we have listed a number of factors to consider before buying a life insurance policy.
Disclaimer: The information and benefits provided herein are for informational purpose only. Please do not take it as a legal advice.
1.Types of Life Insurance
You can find a number of insurance products to insure different types of risks for example; Home insurance, Auto insurance, Mobile or Gadget insurance (See- Everything You Need to Know Before Buying A Mobile/Gadget Insurance
), Health insurance, Business insurance etc. In this post, I will be discussing on Life insurance. Depending upon the features, there are three basic types of Life insurance;
1. Term Life Insurance
2. Permanent Life Insurance
3. Endowment Life Insurance
It is a basic form of life insurance, in which you get pure risk coverage for a specific period of time with no investment components. Usually, Premiums are cheaper than other types of Life insurance because policy provides death benefits for a certain period. In term life insurance, beneficiaries or nominees do not get any type of benefits; if policyholder does not die within the policy term. Premiums are not fixed in term life insurance; normally, premiums increase after a fixed time (5yrs, 10yrs, 15yrs). The major benefit of term life insurance for an individual is that it provides him peace of mind that his/her family will get financial support(tax-free) upon his/her death.
In permanent life insurance, insured gets lifetime death cover. The policy remains in force till the event of death or as long as insured continues to pay premiums. Permanent life insurance accumulates a cash value that is added to the face value of your policy or paid out to your beneficiary upon your death. You may take loan against your permanent life insurance policy; that is an extra benefit of having a permanent life insurance. Permanent life insurance is further divided into two main types;
a. Whole Life Insurance
b. Universal Life Insurance
Whole life insurance is a basic type of permanent life insurance, in which insured gets death coverage for entire life. In whole life insurance, insured pays higher premiums than term life insurance; but premiums are fixed and they don’t change over time. In whole life insurance, your nominee will definitely get death benefits upon your death. The main disadvantage of term life insurance is that the premiums and death benefits are fixed.
b) Universal Life Insurance
To eliminate the mere disadvantage of whole life insurance (fixed premiums and death benefits), life insurance companies have launched a new type of life insurance product called universal life insurance. Universal life insurance is a combination of life insurance and investment account. Premiums and death benefits are flexible in universal life insurance; insured or policy holder may increase or decrease the premiums or death benefits as per their needs. Universal life insurance allows you to take loan against your policy. The death benefits depends upon your cash value; that means if cash value increases, death benefits also increases or vice versa.
Endowment life insurance policy is apt for all age groups. Endowment life insurance policy pays a lump sum after maturity period (usually 10, 15, 20 yrs) or on death. Endowment policies do not cover insured lifetime and the premiums are higher in endowment policies than permanent life insurance policies. If policy holder survives the policy term then he/she will get assured amount along with benefits; otherwise, if he/she does not survive then nominee or beneficiary receives the assured amount along with benefits stated in your policy.
Tip: Now you know the types of life insurance; so, choose your life insurance type (as per your requirements) before proceeding to next steps.
You must have a life insurance policy if you have dependents. If you are a single then Life insurance may not be beneficial for you; however, if you think that you cannot bear the financial loss due to some unforeseen events, then you may buy a life insurance policy for yourself or for your loved ones. Requirements of life insurance, differs person to person so before buying a life insurance policy, understand your needs of insurance. Get answers of these questions;
- Why would I need life insurance? (Answer of this question could help you opt right type of life insurance, see types of insurance discussed above))
- How much cover do I need for life insurance? (Tip: Evaluate your present and past needs of insurance and decide how much cover would be enough?)
- Which life insurance policy would be better for me? (See types of life insurance)
3.What is covered and what is not?
Once you decide the best type of life insurance policy for you. The next step is to see what your policy covers. Carefully read all terms and conditions related to your policy. This way you can decide that do you need to buy extra insurance, known as riders to cover the events that are not listed in your insurance perils. It is remarkable that insurance companies strictly follow their perils; therefore, to minimize the risks of disputes related to your policy at the time of claim, read all the events that your policy covers. Don’t assume anything; if an event of loss is not listed in your policy that means your policy does not cover that event.
There are some predefined conditions; if the event of loss happens in that conditions, then your insurer shall not be reliable to pay you any claim. So it is very important to see what are the things that are not covered by your life insurance policy? Here are some main exclusions in life insurance policies;
If insured dies due to drug misuse.
If insured dies in nuclear war, riots etc.
Suicide or self-inflicted injuries.
5.Revocable and irrevocable
If your policy is revocable then you can change the name of nominee or beneficiary on your policy at any time without consulting older nominee. On the other hand, irrevocable policies do not allow insured to change the name of nominee or beneficiary without getting written permission from the older nominee. An insured may set any trust or charitable institute as his/her nominee.
Unfortunately, if you’re unable to pay your premium at time; then insurance company gives extra time to policy holder to pay his/her premium, this extra time is known as grace period. If you pay your premium within this grace period then your policy remains unaffected from any type of penalties. Usually, the grace period varies from 15 days to 30 days.
Now you have done all the necessary home work. It is the time to take an expert’s advice; ask from insurance agents who have long time experience of this arena. Most of the insurance agents give you free advice; however, there is nothing wrong to give a small fee of consultation. An experienced insurance agent can guide you better because such agents understand the needs of their customers. You may also take advice from your near ones who have purchased life insurance policies.
Nowadays, competition has been increased among insurance companies. Therefore, you can save your money by comparing same insurance policy between different insurance companies. You can find number of insurance comparison websites on internet; that allow individuals to compare insurance policies between different insurance companies. Comparison is a best strategy to get the same life insurance policy at attractive prices.
An insurance company has the right to reject your life insurance policy request; when you apply for a life insurance policy. On the same way, once the insurance company approves your application then you also have 15 days time to terminate your life insurance contract; if you’re not satisfied with your insurer’s services. In case you refuse to continue your policy; premium paid will be refunded you as per the insurance act 1938.
In today’s uncertain world, insurance becomes a necessity. If someone does not have enough funds to bear the loss of any unforeseen event; then that person should insure himself/herself. Above given information will definitely help you choose a right life insurance policy for you or your loved ones; however, further research can help you to take more precise decision.