Your money: A quick guide to buying a life insurance cover

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Updated: April 17, 2015 9:36:13 AM

The first step to buying life insurance is determining the purpose or need for it.

life insurance, life insurance plans, life insurance policies, insurance cover, insurance policies, how to buy insurance policy, insurance policy terms, retirement planning, personal financeThe first step to buying life insurance is determining the purpose or need for it. Life insurance can help provide a financial umbrella to the family in your absence, fund the children’s education and marriage, or help plan your retirement. (Illustration: Shyam)

The first step to buying life insurance is determining the purpose or need for it. Life insurance can help provide a financial umbrella to the family in your absence, fund the children’s education and marriage, or help plan your retirement. It is preferable to consult an advisor or your relationship manager at the bank to help determine the cover. Always insist on doing a detailed need-analysis and risk profiling.

Understand the terms and categories

Life insurance is usually structured as either a term plan, traditional endowment plan, unit-linked insurance plan (Ulip) or a retirement or a pension plan. A term plan essentially covers the risk of death of the policy holder. It is substantially cheaper than other categories of life insurance and may or may not return the premium if the policy holder survives.

On the other hand, a traditional or endowment policy is a non-market-linked plan that combines savings and protection and pays a fixed lump sum upon maturity or death of the policy holder. Ulips are market-linked long-term savings-cum-protection plans, but differ in their payout structure and equity-debt ratio of investment.

Retirement plans could be on either traditional or Ulips platform and have compulsory annuity plan on maturity of accumulation phase. It is important to choose a plan based on your end objective and risk appetite. Riders are the additional risk cover which help in customising life insurance solutions. Further, it is always beneficial to gain an understanding of common terms like cash value, maturity amount, premium, equity-debt ratio and claim amount to ensure you understand the policy document.

Once you have determined how much and which type of cover you require, it is imperative to do a search on various plans and insurers available in the market. Check the insurer’s customer feedback, financial stability, track record, claim-settlement ratio and available riders as well exclusions of a policy.

Evaluate various modes of buying

life insurance, life insurance plans, life insurance policies, insurance cover, insurance policies, how to buy insurance policy, insurance policy terms, retirement planning, personal financeThere are various channels or modes available for buying an insurance policy.

There are various channels or modes available for buying an insurance policy. In addition to directly buying from the insurer, you can get in touch with an advisor to help you purchase the desired policy and clear any queries on the free-look period, claim process, policy charges and capture accurate personal details and declarations.

Some plans give additional benefits to women and teetotalers. It is worthwhile to check if you can avail these benefits. Further, many riders are allowed to be added at the beginning of the policy.

Today, simple life covers are just a click away. Many insurers are enabling customers to buy term plans online with affordable premiums. Additionally, banks and other financial distributors also provide life insurance policies under corporate agency or broker tie-ups.

Categories

Life insurance is usually structured as either a term plan, traditional endowment plan, Ulip or a retirement or a pension plan.

A term plan covers the risk of death of the policy holder. It is substantially cheaper than other categories of life insurance and may or may not return the premium if the policy holder survives.

An endowment policy is a non-market-linked plan that combines savings and protection and pays a fixed lump sum upon maturity or death of the policy holder.

Ulips are market-linked long-term savings-cum-protection plans, but differ in their payout structure and equity-debt ratio of investment.

Retirement plans have compulsory annuity plan on maturity of accumulation phase.

The writer is senior director & chief distribution officer, Max Life Insurance

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