While conventionally life insurance products have been bought for the tax sops (under Section 80C) they offer, there is much more to life insurance. Buying a life insurance policy is an important exercise for all individuals.
For it is life insurance, that helps the nominees in indemnifying the 'financial loss' in case of an eventuality. Besides, the policy can also act as a savings product and help in accumulating a corpus over a period of time. In this note, we present 3 steps for selecting a life insurance policy.
1. Focus on your needs and your risk profile
It is important to focus on your needs before buying any insurance policy. The policy should be in line with your financial planning goals and your portfolio.
Since life insurance's primary objective is to cover a financial loss in case of an eventuality, a term plan becomes a 'must' in any portfolio, irrespective of your profile. This plan provides a high sum assured at a low cost (i.e. premium) as can be seen from the table below.
The essential life cover
| Tenure (Years) | Ages | |||
| 25 | 35 | 45 | ||
| HDFC Standard Life (Term Assurance) |
20 | Rs 2,720 | 3,580 | 7,620 |
| 25 | Rs 2,770 | 4,120 | NA | |
| 30 | Rs 2,820 | 4,750 | NA | |
| ICICI Prudential (Life Guard) |
20 | 2,933 | 3,798 | 8,258 |
| 25 | 2,933 | 4,067 | NA | |
| 30 | 3,064 | 4,564 | NA | |
| LIC (Anmol Jeevan I) |
20 | 2,544 | 4,613 | NA |
| 25 | 2,861 | 5,534 | NA | |
| 30 | NA | NA | NA | |
| SBI Life (Shield) |
20 | 1,954 | 3,542 | 8,354 |
| 25 | 2,180 | 4,375 | NA | |
| 30 | NA | NA | NA | |
| Kotak Mahindra Old Mutual (Preferred Term plan) |
20 | 2,424 | 3,747 | 7,797 |
| 25 | 2,535 | 4,188 | 8,970 | |
| 30 | 2,755 | 4,739 | NA | |
Taxes as applicable may be levied on some premium quotes given above.
The premium quotes are as shown on websites of the respective insurance companies. Individuals are advised to contact the insurance companies for further details.
Besides, insurance buying should also be in line with your risk profile. For example, if you have sufficient exposure to equities/mutual funds, then buying a unit linked insurance plan (ULIP) with a high equity exposure would be unwise.
Similarly, if you have a low risk appetite, then a regular endowment type plan could make more sense.
2. Compare policies across companies
It pays to conduct some research on what is available in the market. Life insurance offerings differ across companies. For instance, ULIPs vary in terms of expenses, fund management style, minimum premium amount and the equity and debt allocations.
Term plans too offer variants in the minimum sum assured, the premium amount and maximum tenure. You would do well to study such factors before zeroing in on a particular plan.
3. Go for an experienced advisor
Your insurance advisor plays an important role in designing your life insurance portfolio. He is the one who assesses your needs and suggests the appropriate policy for you.
He helps you decide on various aspects like the amount of cover you need, advises you on a continuous basis on issues like how and when to re-align a ULIP portfolio, when you need additional insurance cover and other such matters. It therefore, becomes imperative that you select your advisor with care. He needs to be well versed with the products on offer as well as financial planning.
These 3 simple steps can go a long way in providing you with a trouble-free life insurance experience.
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