Buying Life Insurance? 8 Most Important Points to Consider
Everyone is aware of life insurance and its benefits but buying a policy can be confusing if an individual is not aware of various nittie-gritties and technicalities. And to get the most out out it apart from the benefits, you must know what does the policy cover and what it doesn’t when you or your dependents need it. Here are the most important points to assist you in buying an optimum life cover for you and your family:
- Sum assured: This is nothing but the quantum of the life insurance cover that you will get with the policy. Effectively, this is the sum that is given to the dependents when the policy benefits come into effect.
- Premium Paid: This is the amount that the policy holder pays to the insurance company either every month, quarter or annually. Most of us don’t know that along with the annual premium, service tax and any other taxes as applicable are also charged. For e.g. starting November 05, 2015 Swachh Bharat Cess of 0.5% would be levied on all services that are liable for service tax. So for e.g. on every Rs. 100, 50 paisa would be charged as Swachh Bharat cess. So the effective service tax would be revised from existing 14.00% to 14.05%.
- Tenure: This is the period for which policy is active.
- Maturity: At the end of policy tenure all the proceedings of the policy are paid to the policy holder or dependents by the insurance company.
- Exclusions: Situations which are not included in the policy cover. This is very important and every policy buyer should get the list of exclusions from the insurance company. For e.g. policy benefits won’t be passed to the dependents, if the policy holder commits suicide in the first year of buying the policy.
- Nominee: It is the act by which policy holder can authorize another person known as nominee to receive the policy benefits in case of his/her absence. This is the reason, why nominee must know these important things to avoid trouble that might arise in the future in your absence.
- Free look: Insurance regulatory and development authority has introduced this consumer friendly provision to benefit the policy holder. It is a provision under which, person who has bought the policy can return the policy with the free look-up period of 15 days of receiving the policy documents. However be noted that, the premium amount will exclude expense incurred by the insurer and stamp duty charges. But important thing is that, such a provision is not known to many of us. So before buying the policy especially through an agent, ask for free look period. And most importantly, do not rely on verbal assurance.
- Income tax benefits: Premiums paid for life insurance policies qualify for tax deductions under section 80C of the Income Tax Act, for upto R. 1, 50,000 in a financial year. Upto a maximum of 10% of the total sum assured for the policies which are issued on or after April 01, 2012.
There are number of players selling life insurance policies with each offering wide range of life policies catering to the needs of buyers. Broadly an individual can choose from either term insurance (most inexpensive as it covers the policy holder only during the term of the policy) or endowment policy (expensive than term plan but there is sum assured including bonus i.e. it offers savings as well as protection).
Some of the prominent companies offering policies are:
- Life Insurance Corporation of India
- ICICI Prudential
- SBI Life
- HDFC Standard Life
- Birla Sun Life
- Bharti AXA
But before buying a policy, think about following three points:
- Is life insurance really required? Read this.
- If yes, how much cover you need?
- Will the plan you have finalized, meet your career objective?