Today you have a wide variety of life insurance products to choose from. In such a case, it is important that you select a product that suits your requirements most appropriately. However, the question is how to identify what suits your requirement best. Here are a few essential questions that you must ask yourself to help you decide on a most suitable life insurance plan.
What is my financial goal?
The first question that you need to get an answer to while choosing your insurance plan should be your financial goal. You need to know the purpose of your insurance plan. Your objective could be protection or financial security, saving for your childrenís education, retirement, ownership of some valuable assets, or even for your daughterís marriage. Having your insurance need identified will enable you to move on to the next step.
How much am I willing to spend?
Deciding on why you are opting for a certain type of insurance plan is not enough. You also need to evaluate the quantum that you are willing to spend in the form of premium, towards this insurance plan. You must ensure that this decision is taken wisely so that it doesnít pinch your pocket in the long run and can be sustained over the full term of the policy.
How long am I willing to stay invested?
The decision regarding how long you are willing to invest is based on your financial goal. The decision on the investment horizon or the time frame needs to be taken while evaluating the amount of your premium.
For example, if your goal is saving for your childís education, the investment horizon would be a minimum of 10 years, while if the objective is that of providing for life after retirement, the term of the policy would be at least 25-30 years.
whatís my risk appetite?
Your risk appetite is a crucial determinant of the returns that you can expect on your investment. The basic principle of investment is: higher the risk, higher the return. Hence, knowing your risk appetite is important to decide if you would be comfortable with a unit-linked plan or a traditional plan. In a unit linked plan, your returns are linked to the performance of the fund you opt for, whereas, in a traditional plan returns are secured and at times are pre-determined.
Since the tolerance of risk varies for different people, you should consider the following to