As careful as we are about getting life insurance, often we are not conscious of the products we are buying. Though these factors do not affect much when all goes well, they become important in case of untimely death of the policyholder.
There are two things you should keep in mind while buying life insurance:
Combining Insurance with Investment:
Investments are made to build wealth over the long term and insurance covers financial risk. However, people often buy products that are sold as a mixture of both. These are neither good as investments or insurance.
The coverage amount for a life insurance policy with maturity benefit is usually 10 times its annual premium. At the same time, they provide returns of 3% to 4%. Now, if you buy a buy ₹Insurance policy of 25 lakhs for 20 years, annual premium amount ₹25,000, while the return will be approx. ₹7 lakhs.
On the other hand, a. annual premium for ₹25 lakh term plan roughly ₹5,000
Now if you buy a term plan instead of a policy with maturity benefit and decide to save the rest (say 8% interest rate), then after 20 years its value will be close to 10 lakhs.
Taking an over or under cover:
Without giving much thought to it, people often buy life insurance based on factors such as what is recommended to them, what others are buying, what is enough to get tax benefits, etc.
There are many wrong ways to determine how much cover you will need. While calculating the amount of life cover, the policyholder must consider factors such as future expenses, liabilities, future goals and pension for his/her spouse.
Also, it is important to ensure that the insurance is not taken for a very long period, but approximately for the time the policyholder will be working.
Don’t miss a story! Stay connected and informed with Mint.
download
Our App Now!!
.