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5 things to consider before buying a life insurance cover

If you are among those who are planning to buy a life insurance policy soon, especially with the tax-saving season on, remember that not all life insurance policies may be suitable for you. Here are five aspects you must consider before buying a life insurance policy.

Ensure adequate life cover


Covid landed many families in emotional as well as financial turmoil as many of them lost their breadwinners. While some families suffered due to the lack of any insurance policy taken by the breadwinner, others found that the insurance payout was not enough to support the family. That’s why it is essential to ensure adequate life cover.

Most people have traditional insurance policies, which they end up buying every tax-saving season. However, it is essential to check if the sum assured is enough to take care of the family’s needs. A general thumb rule is to have a cover equal to at least 10 times your annual income. Since this may come to a large amount, buying simple term insurance policies may get you maximum cover at the lowest cost compared to traditional or market-linked policies.

Additional Read:What is Life Insurance? What are its Coverages?

Choose the tenure that suits your needs


Typically, when you are buying life insurance just for protection purposes, it is essential to choose a tenure that matches with the financial needs of your family.

For example, if you are a 30-year-old and have dependants you need to provide for at least 20 years, then you should choose a tenure of at least 20 years. On the other hand, if you are in your 40s and expect your children to become independent in another 10 years or so, you can settle for a shorter tenure. But if you have other dependants such as your parents or a disabled relative, whom you may need to support for a longer period, the policy tenure should be longer. A longer tenure may entail a slightly higher premium but that shouldn’t deter you as long as the policy is serving your needs.

Choose the insurer carefully


There are a number of insurance companies in the market that offer term life cover and other policies. The amount of premium is usually the first criteria that one checks before buying.

However, it is also essential to check the claims settlement ratio of the insurer. This figure essentially shows how many claims has the company settled in the past versus the claims it received. A higher claims ratio would indicate that the likelihood of claim settlement is higher with the company.

This is essential to ensure your nominees or dependants do not have to run from pillar to post at the time of making a claim.

Make all the disclosures


It is essential to make all disclosures regarding your income and medical condition while buying the policy to avoid claim repudiation.

Suppose you hide a smoking habit, and the insurer finds that it was one of the reasons for your demise, the company may refuse to pay the claim. You may have to pay a slightly higher premium after disclosing the details about your habit but then it will give you mental peace that it won’t become a reason for the insurer to reject the claim when your nominees and dependants need the money.

Additional Read: What is Insurance all about?

Check the payout options


Insurance companies offer multiple payout options. Some policies come with a lump sum payment option, where the entire sum assured is paid to the nominee at one go.

However, there are other options like monthly and quarterly payout options. You could opt for one of these according to the needs of your dependants. For instance, if you think your dependants would not be able to handle a lump sum on their own, a monthly payout option will provide them a monthly income stream, where there are less chances of going overboard with expenses.

A quarterly payment option may work, where a particular policy is taken with the intention of funding, say, the quarterly school or investment fees cycle for your child.


Disclaimer: ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code : 56250) and having SEBI registration no. INZ000183631. 

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