What would be the best life insurance policy for your family? While you may already understand the meaning of life insurance, choosing the right plan is no piece of the cake.
Experts advise choosing plans which can ensure consistency and continuity in income while enabling families to meet future financial goals.
You should thus consider several factors, like your income sources, liabilities, assets, number of dependent family members, and so on, for determining the right coverage. Here is a guide to choosing the right life insurance policy for your family.
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What to remember while selecting a family life insurance policy
Here are a few core points that you should keep in mind while making this decision:
- Tenure- For insurance policies, available life coverage, and duration are both important since they are linked to the life goals of the policyholder and the family. The ideal tenure is usually 60 years for a protection policy, which may increase to 80 or 85 years based on higher life expectancy. The tenure should also exceed 10 years for a life cum investment plan like a ULIP to get suitable results.
- Claim Settlement Ratio- It plays a crucial role in your final decision, indicating the ratio of the total claims settled by an insurance company to the claims received in total for a specific duration. A good life insurance policy is one from an insurer with a CSR of more than 98%, indicating the credibility of the company and its seamless claim procedures.
- Sum Assured- This is one of the biggest pillars of the life insurance policy. A good life insurance policy is one where the sum assured is enough to cover not only existing liabilities and future monthly expenditures but also family goals, including higher education, weddings, and so on. This coverage amount should be chalked out, keeping inflation in mind. You may calculate your monthly costs and multiply them by 12, which is the annual expenditure. This money should be garnered from interest by the family in case of any untoward situation within the policy period.
- Hence, whatever the interest rate, divide the amount by it likewise. For instance, if your family spends Rs. 50,000 monthly, the annual expenditure is Rs. 6 lakhs. The corpus for generating this as interest is at least Rs. 1 crore.
If you already have an investment portfolio of Rs. 30 lakhs, you will need coverage of Rs. 70 lakhs as a minimum amount. Do not include your home as an asset while calculating the same. Suppose you currently have loans of Rs. 40 lakhs along with your children’s higher education needs, which can be Rs. 50 lakh in the future. Now, add it all up, and the total overage requirement is Rs. 1.60 crore. Make sure that you add future inflation into the calculation. The coverage amount may balloon up to Rs. 2 crores and upwards in this scenario. However, it will be enough to protect your family in your absence while giving you greater peace of mind.
- Consider Rider Additions- An ideal life insurance policy for the family has specific riders that ensure added layers of security. For example, term insurance policies can be beefed up with riders like critical illness or accidental death. The latter can enhance the sum assured amount while ensuring coverage for another incident. The former can ensure a payout upon the diagnosis of any critical illness, enabling better treatment and even income replacement for the family in a difficult situation.
- Always compare and contrast policies- You cannot instantly find the right policy for your family. Comparing multiple policies is essential to find the best one for your needs. Before deciding, you should carefully check out the insurer’s CSR (claim settlement ratio), the features and benefits, inclusions and exclusions, and other aspects.
- Premium amount- Of course, the premium matters since you must consistently and responsibly pay it every month before the due date. Hence, make sure that it is something you can afford. Yet, do not skimp on the premium, i.e., go for the lowest possible option, since it will limit your coverage greatly. Ensure to give your family the coverage they need as much as possible.
- Watch out for additional charges- Many policies may require additional charges. Look for these in policy documents and calculate them accordingly. Check the policy documents in the 15-day look-in period, during which you can return the policy if you are unsatisfied.
These are a few tips to help you choose the best life insurance policy for the family. It should cover all their future requirements while being from a reputed insurer with a track record of timely claim settlements. It should give you mental peace above everything else. Invest some time and effort into your decision.