A Life Insurance Policy is crucial for the financial security of your loved ones. Professionals say that while planning your financial portfolio, you must embrace a Life Insurance policy in it. When the fiscal ends, you might have to buy a life cover for yourself to save tax. Before you rush into buying a life insurance, keep the following points in mind to avoid unpleasant situations:
Do you have to sign a blank proposal form?
You must ensure that you fill in all the details in the proposal form by yourself and never sign a blank proposal form. Although you make sure that you have gone through all the details when a copy of it in conjunction with the document of the policy is received by you. F you are unhappy with the policy you buy, you could, at all times, return it for the duration of free look-in period.
What kind of insurance should be bought by you?
There are largely two kinds of life insurance policies. The ones which are plain vanilla term plans that offer only death benefits and others that offer death along with survival/maturity benefits. The choice is contingent on whether you consider life insurance as a risk management investment or tool. The bottom line is that the life insurance must not be confused with wealth investment or creation.
The amount that is guaranteed by the insurance company or the insurer on the maturity of policy or demise of the insured is the sum assured or cover. The thumb rule is the cover of the life insurance policy must be at least 10 times that of the annual income. Suppose anybody has an annual income of Rs. 8 lakh. So, that individual must have life insurance plans with a cover of Rs. 80 lakh. If that individual were to die, his dependents would receive Rs. 80 lakh and if you assume that the sum assured received is deposited in a bank with a rate of interest of 8%, then the family will receive Rs. 6.40 lakh as income from the interest that may not add up to the insured’s income prior to his demise, the dependents gets compensated financially to some extent.
Which option to choose-discontinuing or surrendering the policy?
The choice you make will depend on the type of policy you have purchased. If you surrender the policy that has maturity benefits before maturity, then it can be expensive as you could mislay considerable benefits. Alternatively, under the term plans, as they don’t have any surrender value, you can merely stop making the payment of the premiums the minute you do not feel the requirement for life insurance.
What are the Benefits of Tax?
Many of the life insurance plans are purchased as the insured can claim for deductions under the Section 80C of the Income Tax Act on the premiums paid by them. Also, the maturity proceeds are exempted from tax under Section 10 10D of the Income Tax Act, 1960. You must purchase insurance for the sake of insurance only and not for the benefits of tax they offer.
The charges that are paid by you in a life insurance plan differ from policy to policy and are recovered from the paid premium. Despite the fact that there are mortality charges for term plans, a ULIP will have charges except for mortality charges, premium allocation charges, policy administration charges, fund management charges etc., and these charges are usually revealed in the brochure. The traditional plans such as money back and endowment plans do not reveal the charges and the agents/distributors get the maximum commission in these plans.
Once you have enquired and answered the queries above with prior satisfaction, you can step ahead and buy an insurance policy. You must keep in mind that you do not purchase any policy on a whim lest you suffer. Beware and knowledgeable and you must consider such questions while buying a life insurance policy.
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