The basic requirement for a successful financial plan and a secure financial future is a life insurance policy. A life insurance policy not only provides a lump sum amount at the time of death but some polices also provide a maturity benefit. All life insurance policies offer great tax saving benefits.
As there are numerous life insurance plans offered which differ in their features and long-term benefits, buying an insurance policy can be a hectic task for an individual who doesn’t know what to look for. Lifestyle and financial conditions differ from person to person, a policy purchased by one person may not meet the needs of another person. This is the reason why you should be cautious when buying insurance. You must ask yourself these ten questions before buying an insurance policy so that the policy you purchase is ideal for you in every situation of your life.
Ten questions you should ask before buying an Insurance policy
1. How much money will you need in the future?
As vague as it may sound, it is the foundation of every investment you will make for the future. Take a look at your financial condition, write down every possible future expenditure you can think of, add them up and get a rough idea of the amount you will need in the future. This will give you the amount for which you have to buy the policy and which, you will get after the maturity of the policy. If you find this process complicated, you can always consult a financial adviser.
2. After how many years will you want the insurance money?
Keeping in mind that you will get the sum assured at the time of death, you can also live to see the policy mature. At the time of maturity, you will get the whole sum assured as a lump sum and that maturity time should synchronize with your big future expenditures. In other words, you should figure out after how many years you will need the money to cover your big expenses like child’s marriage or college education. Once you have determined the number of years, you will get your tenure for which you have to buy your Insurance policy.
3. How much money can you afford to pay for your insurance policy?
You will have to pay a regular premium to the insurance company for the promise of a life cover, failing which will result in the lapse of the policy and its benefits. You have to ask yourself if you will be able to afford the premium on a regular basis. If yes, go ahead and buy the policy. If not, you could go for a policy which has a lower premium amount.
4. Who am I buying from?
The company (insurer) as important as the plan or policy itself. You must figure out for how long the company has been in business, its ratings and consumer reviews. Meet with its insurance advisor and ask about the business they have done over the years, the claims they have fulfilled and the growth they have made. Investing in a policy without researching about the company is never a good idea.
5. What is the lock-in period?
Many insurance policies like Unit Linked Insurance Plans (ULIPs) provide a policyholder to invest in the financial market, apart from providing a life cover like a traditional insurance plan. Every policy or scheme offering an option to invest in the financial market has a lock-in period before which you cannot withdraw your money. You must ask about the lock-in period, and if you think you can go for that time without withdrawing your money, go ahead and buy the policy.
6. When will you have to pay the premium?
After you have determined how much you can afford to pay as a premium, you must ask when you have to pay the premium: monthly, quarterly, half-yearly or annually. For some people who don’t have a regular source of income, paying the premium monthly can be difficult, and for that, they will prefer a policy which doesn’t have a monthly premium paying rule. If the period of paying the premium affects you, it must be something you should ask about before buying the Insurance Policy.
7. How much money will you get if you surrender the policy?
Surrender Value is the amount which you will get if you voluntarily surrender your policy before its maturity. Surrender value differs with every policy and with every Insurance company. If you have figured out the tenure and the amount of your policy, you must ask about the surrender value and base your decision of buying the policy accordingly.
8. Will the company charge you if you surrender the policy?
The insurance company charges a part of surrender value if you wish to surrender the policy. It reduces your surrender value and you are left with a lower amount. Before buying a policy, you should ask about the surrender charge and make your decision accordingly. In general, it is always a smart decision to avoid buying a policy which charges a surrender fee at the time of surrendering the policy.
9. Does the policy have other benefits?
Every life insurance policy provides a life cover; what matters is the added benefits you get if you choose a specific plan from a particular insurer. You should contact the company and ask about the features it provides which you will get. It can include Top Up facility to increase your sum assured, riders to customize your Insurance policy and other bonuses to increase your overall savings. While choosing among different policies, go for a policy with the most benefits.
10. Does the policy provide a Free Look Period? How long is it?
The policy you buy will affect your entire financial future and to safeguard yourself that you have bought the right one, a free look period is a perfect way. As per regulatory norms, all insurers must provide a time period (lasting fifteen days) to a policyholder to decide whether to keep it or not and if he/she is not satisfied with the policy, the company returns the whole amount to the policyholder. If you are not sure that the policy you bought is the perfect one, you can opt out within the free look period.
Keep in mind there are a lot of different insurance products in the market. Each product has its own features, benefits, terms and conditions. One should always read the policy document and understand the product carefuly before making a purchase.
Edelweiss Tokio Life’s every Insurance policy is tailor-made to provide numerous benefits like choosing among different riders, top-up facility and bonuses with the added benefit of tax saving under section 80C and 10(10D).