Life is full of unexpected events that occur without warning. A life insurance company can provide financial security for your family in the face of such uncertainties. This type of plan will serve as a source of income for your family members.
When it comes to different types of life insurance policies, individuals have numerous options. The astute individual is particularly interested in life insurance plans; however, how does he select the best term insurance plan?
Choosing the right life insurance plan from the right life insurance company entails focusing on the key features that will benefit you and your dependents.
What is a Life Insurance Plan?
Life insurance is a contract between a person and an insurance company in which the life insurance company promises to pay a sum assured (death benefit) to the policyholder’s family in the event of the policyholder’s untimely death. The plan also provides the insured with a survival benefit if he or she survives the policy term. Thus, a life insurance company protects an individual and his or her loved ones financially against the uncertainties of life.
How to Choose the Right Life Insurance Plan?
Before investing your money in a life insurance plan, you must select one that meets your insurance needs while remaining within your budget. The following are some pointers to consider when choosing a policy for yourself from a life insurance company:
1. Identify the Type of Life Insurance Policy you Need
There are various types of life insurance policies available in the market from different life insurance companies, including term insurance, ULIPs, endowment, whole life insurance, child life insurance, money-back plans, and retirement plans. Whole Life Insurance and Term Insurance plans are pure protection plans that provide financial protection to the life assured’s family in the event of the life assured’s untimely death during the policy tenure.
Other plans are savings and insurance plans, which provide an investment opportunity as well as financial protection to the life assured’s family in the event of the life assured’s untimely death during the policy term. A life insurance company can be chosen based on one’s insurance needs and budget.
2. Sum Assured/Coverage Amount
Before purchasing a life insurance policy from a life insurance company, you must first determine the coverage amount/sum assured. It is recommended that you consider a sum assured that is 10-15 times your annual income.
Before deciding on a sum assured, consider your current lifestyle, expenses, liabilities, number of financial dependents and their costs, and so on. A life insurance policy’s sum assured should be sufficient to cover your family’s expenses in the event of your untimely death.
The flexibility to increase life cover during critical stages of the policyholder’s life is a feature offered by certain insurers’ term plans. For example, a life insurance company may allow policyholders to increase their life insurance coverage by 50% when they marry and 25% when they become parents. This enables policyholders to begin with a low-cost policy and gradually increase coverage as their responsibilities grow, as does their ability to pay a higher premium.
3. Incurred Claim Settlement Ratio
The incurred claim settlement ratio is an extremely important factor to consider before purchasing a life insurance policy from a life insurance company. A life insurance company with a high claim settlement ratio can be completely relied on in difficult times.
It is best to select a life insurance policy offered by a life insurance company with a high claim settlement ratio, as it reflects the insurance company’s credibility. The claim settlement ratio is calculated by dividing the total number of claims settled by the total number of claims received.
4. Compare Several Plans
Compare different plans offered by various insurance providers before purchasing a life insurance policy from a life insurance company. It will assist you in determining which plan provides what and whether it meets your needs within your budget.
Comparing plans allows you to make an informed decision, and you can select a plan that meets your needs while staying within your budget. After comparing several plans, a person can purchase the best life insurance policy.
5. Add Suitable Riders
There are several rider options on the market, including Accidental Death Benefit, Accidental Total, and Permanent Disability, Critical Illness, Waiver of Premium, Income Benefit Rider, Term Rider, and so on. Different riders serve different purposes; it is recommended that you purchase an appropriate rider for your life insurance policy.
It is also recommended that you do not add too many riders to your life insurance policy. Riders are optional coverages that can be purchased in addition to a life insurance policy. These riders supplement the policy’s coverage.
6. Avoid Cheap Premiums
Avoid life insurance policies with low premiums at all costs. If you are purchasing a low-cost life insurance policy from a life insurance company, make sure to read the policy’s terms and conditions to determine what is and is not covered by the policy.
Life insurance policies with low premiums may not cover certain aspects, resulting in discrepancies when filing or settling claims. To avoid purchasing a misleading life insurance plan from the wrong life insurance company, read the terms and conditions before purchasing a life insurance plan with relatively lower premiums.
7. Human life value
The primary reason for purchasing life insurance from a good life insurance company is to provide financial security to your dependents in your absence. They anticipate that the insurance policy will provide financial support to their dependents in their absence. As a result, they must ensure that their life insurance coverage is adequate. Or, as it is known in the insurance industry, the insurance must cover the individual’s human life value (HLV).
Simply put, the HLV is the sum of an individual’s income/salary and liabilities such as loans. This serves as the foundation for life insurance coverage, and the best plan for the individual is one that provides for at least the HLV.
Life insurance is the most innovative of the various types of life insurance plans. For one thing, costs and, by extension, premium rates have been significantly reduced, and this process is ongoing. The internet has made it easier to purchase a term plan. As defined by the insurer, a healthy individual can now buy a term plan on the company’s website without taking a medical exam.
Wrapping It Up
Aside from these eight factors, purchasing a life insurance policy from a reputable life insurance company boils down to getting the right coverage at the right price. As a result, once you’ve determined the top five life insurance companies based on the criteria listed above, compare them in terms of cost, coverage, and flexibility.
The types of life insurance policy you choose will also be determined by your protection and investment needs, as well as your age and income. Check to see if your life insurer provides a variety of add-ons at reasonable rates, such as critical illness, accidental death, and permanent disability. The premium for life insurance is directly proportional to the policyholder’s age.
As a result, don’t put off purchasing coverage because it will become more expensive as you get older. Purchase a life insurance policy to ensure that your family has adequate life insurance coverage in the event of your death. As a general rule, your insurance coverage should be 10-12 times your annual income.