Life is unpredictable – here one moment, gone the next – and while we can’t stop the unexpected from happening, we can certainly do our best to minimise the impact such unfavourable events can have on our dependants. Life insurance is one way to help weather the financial storm that follows the death of an earning member.
In its most basic form, insuring your life means you pay a premium so that when you die, the insurance company pays a predetermined amount (sum assured) to your family (beneficiaries). If these terms are making your head spin, look up our previous post on essential insurance terms 🙂
Now that you’ve decided to opt for it, you need to figure out
• Coverage amount (sum assured)
• Type of insurance
• Which insurance company to buy from
• Buy online or via an intermediary (agent)
The amount your family will typically need if you are not around will be:
Day-to-day living expenses (taking inflation into account)
+ Current loans
+ Major foreseeable expenses like education, marriage
– Current earnings of dependants
– Current and future earnings from investments
If the last two amounts exceed the first three, you’re in a relatively comfortable situation. Also, if you don’t have dependants or expect anyone becoming financially dependent on you any time soon, you probably don’t even need any life insurance. However, keep in mind that the premium increases as you grow older, in case you decide to take it later.
The coverage amount also depends on what premium you can afford, as well as your age, income, policy term, your health (any medical history), and your lifestyle / hobbies (smoking, drinking, adventure sports etc).
Now, track your expenses and pending bills without any user input. See where your money goes, split and settle expenses with your friends over chat, get bill payment reminders, export your data – all this is auto-magically possible with Walnut.
Type of insurance
The two most common types of life insurance are:
• Pure term life insurance
• Insurance with benefits
Pure term life insurance is a no-frills insurance – you pay a premium, if the insured event occurs, your beneficiaries get the sum assured. If the event doesn’t occur till the end of the term, you don’t get anything. In other words, the cash value of such a policy is zero. In most cases, getting a term policy and buying it online will have the lowest premium and is the most cost-effective way to insure yourself.
ULIPs, money back, savings plan policies, endowment policies are all variations of insurance with benefits. If you survive the term (policy duration), you get the entire amount back with interest / bonus as applicable when the policy matures. Money back policies pay in instalments every 5 / 10 years as a survival benefit.
So which one is better?
There is no clear answer – for a lot of people, the idea of not letting your premiums “go to waste” is extremely tempting. And of course the catch is that the premium you pay for a ‘with-benefits’ policy will be several times higher than for a pure term policy. It is more suited for individuals who do not have the discipline to put away that extra money in a savings / fixed deposit or the know-how to invest it in a more lucrative mutual fund / any other investment option.
Picking the ‘best’ insurance company
There is no one single insurance company that is the best – once you’ve decided the type of insurance you want, you can compare premium charged for similar policies, as well as the claim settlement ratio of the company, along with feedback from anyone who has bought a policy from them before.
Buy online or via an agent?
The process of picking the right policy / company can get confusing. Luckily, there’s always a helpful insurance agent / financial planner around who will help in selection, send you premium payment reminders (even collect the cheque and deposit on your behalf) and help your survivors in filing a claim when the need arises. However, all this advice and assistance often comes with a fee (fixed / percentage of the sum assured). They may also promote a particular policy/company to get a higher commission – irrespective of whether the policy is suitable for you.
Since the past few years, many insurance companies have gone the online route, so you can buy and pay policy premiums online without any hassles now. They also send reminders via SMS and email. There are also many online aggregators that let you compare and choose policies across multiple companies.
No matter which company you choose and irrespective of the policy you pick, there are two very important things to remember:
1. The truth and nothing but the truth
When buying a policy, NEVER lie about anything, especially issues related to your health. You may avoid paying a high premium by telling a lie, but if found out, the smallest of untruths could create problems when your survivors file a settlement claim.
2. Always pay the premium on time
Be extremely diligent about this. Defaults in payment of premium could render the policy void. Sure, most policies allow a grace period, but why take a chance? You can use an app like Walnut to set your premium payment reminders, whether monthly, quarterly or yearly.
Download Walnut and never miss a premium payment again!