How do I Choose the Right Type of Life insurance?

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Hello. My name is Ravikant Mishra.  Currently living in Bengaluru with my parents, wife, and two kids, I work for a leading e-commerce company. Today, I would like to tell you how I chose the right life insurance policy for myself.

As we all know, the year 2020 has been the most unusual in our life due to the Covid-19 pandemic and the aftermath of unprecedented challenges. So many people lost their lives, while many more lost their livelihoods.

On a personal front, by God’s grace, I didn’t face any major problem. However, this turn of events got me thinking seriously about the need to buy the right type of life insurance policy that will protect my family in the face of any unforeseen event like critical illness, accident, or death.

There are many life insurance policies available in the market, each offering multiple benefits in unique combinations. I was confused while deciding which one would be right for me.

Here is the step-by-step approach that I adopted for determining the life insurance policy that would be best suited to my requirements:

  1. Understanding the types of life insurance policies:

The insurance policies are principally divided into two main categories:

  • Term plans:

There are pure insurance plans. Here, upon the payment of an agreed-upon premium, the insured’s life is covered for a certain sum (known as sum assured) for a certain time period (known as the tenure of the policy), say 25 or 30 years.

In case of any unforeseen event happening to the policyholder, his nominee will be given the sum assured (known as the death benefit). If the insured is still alive at the end of the tenure, the policy simply expires and there is no benefit.

Here, the premium charged is nominal. This type of insurance is suitable for people who are in the early stages of their life and do not want to pay huge premiums for endowment or money back plans.

  • Endowment plans: In addition to the death benefit, these plans also pay a guaranteed amount to the insured at the expiry of the policy. The premium charged is higher.

You may choose either a term plan or an endowment plan based on your premium paying capacity and the kind of benefit that you seek.

  1. Selecting the right sum assured and tenure of the policy:

While buying an insurance policy, the following three factors will determine the amount of premium to be paid and for how long you would have to pay it.

  • Sum assured:

This is the amount for which you decide to insure yourself. This normally has to be 10 times your annual income.

  • Tenure of the policy:

This is the period for which you need insurance cover. As a norm, people choose to stay insured till their retirement age, by which time they would have ideally fulfilled their major responsibilities. However, you may extend this period well past your retirement age also.

  • Your age:

The sooner you buy a life insurance policy, the better as the premium is calculated based on the health conditions, lifestyle diseases, number of dependents, etc.

Due to the absence or restricted presence of these factors in earlier stages of life, the premium also will be very less. Thus, you can choose to buy a policy for a bigger sum assured.

  1. Choosing the right insurance company:
  1. Claim Settlement Ratio:

While selecting an insurer, the first most important thing to look at is the ‘Claim Settlement Ratio (CSR)’ of that insurer.

For example, a CSR of 99% suggests that out of 100 claims raised against the insurer, it has successfully paid or settled 99 claims.

This ensures that you or your dependents will also get your claim amount without any hassles.

  • Comparing riders:

Apart from the claim settlement ratio, you must also compare riders (additional benefits offered at an additional price) like accidental death benefit, a disability rider, etc., by various insurance companies.

You may also compare the premium charged by different insurers and the option to buy their policies online. However, lower premiums should not be the principal determining factor of your decision to choose an insurer.

Thus, after a careful evaluation of all of the above factors, you will definitely be able to choose the right insurance policy for yourself and your family. 

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