Buying Life Insurance? 5 Things to Know

Today almost everyone understands the importance of life insurance. After one's demise, it proves to be a life saver for the rest of the family.

There are different ways adopted by people today for buying these so very important life insurance policies. Some call upon agents for assistance whereas others do it themselves online.

There are five important things to consider before going ahead and actually buying a policy:

How much cover do I need?

Do not buy life insurance just because someone has suggested you to do so. If you know the importance of life insurance, begin with this. The first and foremost thing you have to do is to calculate the amount of insurance your family would need to be able to maintain the same lifestyle after your demise. There are online tools to help you with this. Out of many methods, the most preferred one is to calculate the required insurance cover based on expenses.

There might be cases where a person does not need life insurance at all. It could happen when one does not have dependents or when one's net assets are enough to take care of the family's needs.

What is the claim settlement record of the insurer?

Once you have decided to buy an insurance policy, you need to shortlist the best companies to buy from. There are tonnes of insurance companies or 'insurers' in the market. Some are popular for service while others are popular because of their advertisements. However, your utmost concern should be the claim settlement record. It is the ratio of number of claims settled to the number of claims received.

At per latest data, LIC is the leader with a 97.73 per cent claim settlement ratio, followed by ICICI Prudential (96.29 per cent), HDFC Standard (95.76 per cent), SBI Life (94.41 per cent), Max Life (94.25 per cent) and Kotak Mahindra (92.04 per cent). However, you should always do your homework before deciding on the right insurer for yourself.

All these companies come close in terms of claim settlement ratio. You may also compare various other features such as premium, service, etc.

What type of policy do I need?

Decide the purpose of taking insurance policy. Purchasing a term plan is recommended if the purpose is protection. However, there are various other plans available for those looking to invest as well as insure themselves. You can choose among these policies - money back, endowment, whole life, annuity, ULIP, etc. You should pick one of these according to your need. If you want some equity exposure, you can opt for ULIP (unit-linked insurance plan) and stay invested for a long term. On the other hand, opt for the whole life option if you want protection for entire life.

(Also read: Why All Life Insurance Plans May Not Save Tax)

Do I already have insurance?

You might have already purchase life insurance long ago. Before buying another policy, check how much you are already insured for. There are cases where employers provide life insurance to their employees. You can also consider this. You would then have to deduct this from the total insurance amount needed. And then, you may aim for a cover according to the additional cover required.

Should I buy online or offline?

Online insurance industry has drastically improved in the last few years. The reason behind this could be improved internet penetration or investor awareness. This has actually done a lot of good to the consumer. Online policies are cheaper than offline counterparts because there are no agents involved. However, if you are someone who doesn't like to go with the DIY (do it yourself) option, go for the offline route. Also, agents could be handy when it comes to claim settlement. Online mode is recommended because it is cheaper by at least 20-30 per cent compared to offline mode.

InvestmentYogi.com is a leading personal finance portal.

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