The purpose of Life Insurance is to protect your family from loss of income due to untimely death of the main income earner. With this objective we advise ours clients to use Life Insurance as an instrument for protection of income and not as an investment tool. Traditionally, we have been using Life Insurance products for the purpose of saving money for retirement or some other long term objective. However Life Insurance plans should not be used as investment instruments because they provide very low returns and inadequate Insurance cover.
With the objective of insurance mentioned above, Investors should secure their family by opting for Term Insurance. Term Insurance is a pure insurance instrument and there is no saving element attached to it. Because of this, Term Insurance can be purchased at very low premium for very large Insurance cover, as required, depending on your income. You should take term cover only to the extent of a certain multiple (20 times) of your annual income to cover yourself, only till the age of retirement. The logic behind this is that in the untimely death of the main income earner his family should continue getting the same income after investing the insurance amount received in a fixed deposit or post office scheme or some income generation financial instrument.
You should increase your Term Insurance cover, every 5 years or so depending on the increase in your salary or income, so your family can continue to maintain the same standard of living in the unfortunate event of your untimely death.
Investors should purchase a Term cover as soon as they start earning or get some stability in their career as increase in age is usually accompanied by health related issues and this may make it difficult or impossible to get a term cover at a reasonable price.
You must disclose complete health history and preexisting illnesses while purchasing Term Insurance plan to avoid any complications during claim settlement.
You can check the claim settlement ratio of Life Insurance companies as one of the important factors while deciding the Insurance Company. This information is available on IRDA website at http://www.policyholder.gov.in , this is an investor education website for reference of Insurance policy holders (Health as well as Life). One may also refer the other IRDA website for regulatory information at https://www.irda.gov.in . The other parameters one may need to consider are features of the policy and premium.
Mungekar Wealth 