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One of the simplest and quickest ways to secure the financial future of your loved ones is by investing in an adequate life insurance plan. A life insurance policy is known to offer death benefits to the beneficiaries of the plan in the event of your (the insured) untimely demise.
However, there are a few things that one needs to keep in mind before buying life insurance in India. These include –
#1. The Claim Settlement Ratio of the Insurer
The claim settlement ratio is the percentage value of the number of claims settled against the total number of claims received by the insurer in the given financial year. In simple words, the higher the claim settlement ratio of your chosen insurer the better are the chances of your future claims being settled immediately.
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The formula to calculate the claim settlement ratio is –
Claim Settlement Ratio = (Total number of claims settled/paid out) / (Total number of claims received in the financial year) x 100
If your insurer has a claim settlement ratio of 97%, it means that they have settled 97 out of 100 claims received in the financial year.
#2. Sum Assured Amount of the Policy
Another thing that you need to take into consideration when buying life insurance is the sum assured amount. The sum assured is the amount your beneficiaries receive in the event of your untimely dismissal. This amount should be sufficient to repay the financial liabilities under your name (if any), future financial aspirations of your loved ones, etc.
Usually, the higher sum assured, the higher the life insurance premiums will be. Hence, to reduce the premiums charged on the policy, many people tend to opt for a low sum assured amount. What they forget is that making a small mistake when doing so will cost their family much more in the future.
You can use the life insurance calculator to determine the premiums charged based on the coverage you choose. Ideally, the sum assured amount should be at least 15-20 times more than your current annual income.
#3. Life Insurance Premiums
Many times, people are unaware of the factors that influence the life insurance premiums. These include the age of the applicant, lifestyle habits, coverage amount, etc.
Life insurance is much cheaper when bought at an early stage in life. As you grow old, your health starts degrading as well and so the insurance premiums will be high.
Lifestyle habits such as drinking and smoking will affect the premiums as well. If you drink or smoke often, you will be categorized as a high-risk applicant. All the high-risk applicants are charged with high premiums.
If you are unsure of what your life insurance premiums will be, use the life insurance calculator to determine the same.
#4. Rider Benefits (if any)
Most life insurance policies offer extensive coverage under the rider benefits. These add-ons are optional and can be purchased at any times during the policy tenure. Some of the most common and worthy rider benefits to consider are as follows –
- Critical illness benefit
- Accidental rider benefit
- Waiver of premium benefit
It is necessary to note that each rider benefit you opt will increase the premium charged on your basic life insurance plan as well.
Now that you know the factors to consider when buying life insurance plans in India, we will look at some benefits of the policy.
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Benefits of Buying Life Insurance in India
The following are the benefits of life insurance plans available in the market –
- Life insurance plans will secure your family financially in the event of your death during the policy term.
- Some life insurance plans offer maturity benefits, as well.
- Life insurance like the Unit Linked Insurance Plan (ULIP) allows you to build your wealth over time through market-linked funds and enjoy life insurance cover as well.
- All life insurance policies provide tax benefits.
Bottom Line
When buying a life insurance plan, you should take into consideration a few things, such as your current financial situation, expenses, and future financial objectives, into deliberation. Considering this and factors mentioned above will help you choose a life cover that fulfills yours and your family’s needs.
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