Decisions that have long-term impact require thorough thinking so that you can minimize the possibilities of making mistakes. The same applies in case of buying life insurance – an ideal financial instrument that provides protection against life’s risks. Therefore, it is important to know your needs for a life insurance and review such needs annually or when there is a life-changing event so that you can plan for changing your financial requirements.
Therefore, while you may have invested in an insurance policy years ago based on your needs at that time, it is always prudent to review it along the way to gain the maximum benefits. Below are the five pointers by which you can maximize your life insurance benefits.
1. Prioritize Your Long-Term Needs:
It is important to identify your short-term and long-term needs separately and also view the liabilities you are carrying from your past. It is also important to know that the financial instruments for both these needs are also different. Life insurance aims at fulfilling long-term needs as well as inculcating the habit of saving regularly for fulfilling those needs.
“Learn from yesterday, live for today, look for tomorrow.” – Charles Schultz in Charlie Brown’s Little Book of Wisdom.
2. Evaluate Your Insurance Needs from Time to Time:
What do you expect from a life insurance policy? A life insurance policy should cover your life’s risks and meet your long-term financial goals. You may have bought a policy or multiple policies to meet your financial goals like child’s education, marriage, retirement, and so on. It is important to review them periodically because your aspirations and needs might have significantly changed with time. Your earning capacity has a direct impact on your lifestyle and hence the quantum of life cover needed to ensure that your family does not have to compromise on their living standards in case of some eventuality.
Similarly, once you marry and have a child, it is important to invest in a child’s plan in addition to your term plan to cover their education, marriage, and also to ensure that your family’s financial comfort continues even if you are not there.
3. Maintain a Long-Term View
More often, due to lack of proper guidance, people are led to believe that they can reap the benefits at the end of a 5-year tenure. However, that’s not true. Life Insurance policies, especially the market driven ones are designed to provide the dual benefits of both saving and protection, therefore, providing maximum benefit over the long term.
It is always beneficial to read and understand the benefits you will have if you hold the policy throughout its tenure, i.e. until maturity. It is also important to start the policy early in life so that you can get the maximum benefit from the power of compounding.
4. Consider Benefits of Riders
Another advantage that you may have overlooked in your insurance policy is the option of adding riders. Riders provide added benefits and help in customizing life insurance as per your requirement(s). For example, if you have a traditional life insurance plan but now, are also willing to invest in an accidental death plan, one option is to check the availability of an accidental death benefit rider in it.
There are various riders like critical illness cover, waiver of premium, accident, disability cover, and so on. While they are mostly chosen at the beginning of the policy, some life insurers also allow you to opt for them later as well. Riders are ideal for enhanced financial protection, and that too,at a low cost.
5. Review Your Tax Implications Periodically:
Life insurance also serves as a good tax saving tool and reviewing the tax-saving features of your life insurance policies and riders is important.. You can claim deductions on the premium paid for life insurance by you for your spouse or premium paid for your child’s policy in addition to any premium paid for rider add-ons. A periodic review at the beginning of the year is, therefore, important as you can plan for your tax liabilities for the year. No matter how educated you are or how well you know this insurance industry, reviewing your policy will always help you cut down on unnecessary premium costs.
The Bottom Line:
Keeping these points in mind, you can derive maximum benefits from your insurance policy. What is important is to review your policy periodically, understand its features and tax benefits, and keep a long-term view. This will go a long way in helping you attain your life’s goals easily.