While you are making your financial plans, the first and the foremost aspect that you should ponder upon is insurance. Getting yourself and your family insured should be the first thing to do before you think of saving your funds. You might have a car loan, a home loan or a personal loan and you might have also invested in various financial instruments, mutual funds, term deposits. But you need to first consider the financial state of your family. Do you think they will be able to meet the liabilities with the income generated from the investments only and still carry on with their day to day activities in your absence? The answer is obviously no, unless you leave behind a lavish inheritance or generated enough money through a lottery!
What questions will you ask?
Ask a simple question to yourself while you are all set to buy term insurance plan. Am I insured enough? You would often find yourself mumbling with ‘How do I know?’ Well, this is not just you! Many Indians buy term insurance without adequate information and consideration.
Is your insurance agent hiding some facts from you?
The first factor could be insurance agents. The job of an insurance agent is to make you aware of the various coverages and plan inclusions and exclusions while selling the insurance plan. However, we often find it a waste of time speaking to one and instantly try to get rid of them. Many insurance agents often mislead you because of their sales target. Term insurance comes with various riders with payment of additional premium. An agent may just drop out on few riders to lower the premium you pay and thus convince you to buy the plan at the ‘best-deal’. How best the deal was, you realise it only at the time of a claim!
But, are you investing right?
Not just Indians, but it is a general tendency to not put money in anything that is not reaping you any benefits. If you are at the edge of deciding whether to buy term insurance plan or not and consult an agent, the first thing you might get to hear for a term insurance plan is ‘No-Returns’ or ‘No-Benefit’. Here’s an important factor to consider.
Don’t mix investment and insurance!
Understand the difference between an investment and an insurance plan. An investment can reap you consistent returns regardless of the health condition of the investor. The amount you get as a return surely depends on the amount you have invested.
Insurance, on the other hand, is an investment you make to safeguard yourself and your family against any risk. It is a form of investment which is locked for certain period of time and is not introduced with an idea of providing you with monetary gains. But, it stresses more on the emotional aspect of the human nature, thus further stressing on ‘insuring’ yourself and your family against any unfortunate event.
It is not just the agents. But the IRDA- Insurance Regulatory and Development Agency measures the success of the insurance companies on the amount of money they earn from the customers than the amount each customer is insured for.
Is your sum assured sufficient?
Another tendency is to buy term insurance plan at the cheapest price. What eventually happens is, you end up buying insufficient cover. As a thumb rule, the sum assured should be at-least ten times your current annual income. This is determined considering inflation and increased cost of living that your family might face in the future. Though the amount you pay as a premium is fairly less, but you stand a chance of inadequately covered with a shorter term plan.
Keep in mind, if you outlive the initial term plan and opt to renew it, the premiums to be paid would increase.
It thus becomes crucial for one to understand all personal needs and choose the correct set of riders of a term insurance plan. It would make sense not to opt for excessive overlapping riders which might increase your premium and also disclose the correct information when requested to avoid any rejection of claims.
Related Article: Know the parameters to choose the right term plan