5 Questions You Must Ask Before Purchasing a Life Insurance Policy

 It is easy to feel intimidated by the prospect of purchasing a life insurance policy. The countless options available do little to tame the fears and on the contrary, make you want to avoid the contemplation altogether. However, while life insurance may seem challenging to understand in the beginning, once you break the concept down question-by-question, it reveals itself as a friend who would protect you from unforeseen challenges of life.  

 

Why We Don’t Buy Life Insurance

Life insurance is still a growing phenomenon in India as compared to the west. Closer to home, we don’t feel the need to buy life insurance considering it as an unnecessary expense without attempting to find out about good life insurance rates that reputed insurance companies offer. Some of the reasons why Indians don’t tend to rely on insurance policies are:  

 

• They fail to consider the financial risks that come with not purchasing adequate insurance cover.
  
  

• As there is a lack of knowledge about the types of life insurance policies, Indians are often unaware of what questions to ask when buying life insurance. This confusion puts them off of having to purchase a life insurance policy altogether.
  
  

• They tend to rely on the insurance provided by their employers which can be insufficient to cover the financial needs of the entire family.
  
  

• Indians believe that they don’t need insurance because they are young and in great health. However, when you are young and healthy, buying insurance comes at a cheaper rate as compared to when you are older and unhealthier.

Why do You Need Life Insurance?

Despite what you think of the aforementioned reasons, the truth is that you need life insurance even when you think you don’t. It protects your family and helps you leave behind a non-taxable amount at the time of death. It can also be used to cover your mortgage and personal loans so that you don’t leave your family in debt. It ensures that you are protected during your retirement when you are no longer insured by your employer. The maturity pay out from life insurance also helps you retain your standard of living even when your income and resources are compromised upon retirement.

Additionally, the pandemic has highlighted the need for a secondary source of income as more and more people lost their primary incomes due to massive layoffs. It can get difficult to maintain a lifestyle in the absence of a regular flow of income. Also, with the rising inflation, the value of money goes down with each passing year. Therefore, it is necessary to secure the financial future of your loved ones by investing in a life insurance policy.

 

 5 Questions You Need to Ask Before Purchasing Life Insurance:

It is important to understand that for the sake of your financial wellbeing purchasing life insurance is indispensable, especially when you have dependents who would suffer financially upon your death. To help you make the right insurance choice that would provide wholesome financial protection, we have enlisted a few questions for your insurance agent:

 

1. What should I know about the Life Insurance Company?

Perhaps the most important question before narrowing down on a purchase for life insurance is knowing about the insurance company itself. Some homework needs to be done about the kind of policies offered by different life insurance companies and their reliability. Undertake initial research about the financial strength of the insurance company. This is a crucial first step because you are entering into a contract with the company for the long haul and so you need a company that can handle market fluctuations. While you may be tempted to make a purchase based on pricing alone, other factors are equally important to consider.

The higher the ratio, the more reliable the insurance company. Tata AIA has insurance plans which combine long-term savings and protection needs of individuals by offering a range of products and services including life insurance, accident and health insurance, ULIPs and savings plans.

 

2. Does the policy offer a living benefit?

While life insurance companies generally provide a benefit when the insurer passes away, it can also benefit your loved ones and you before that time comes, through something called living benefits. Through this, you may be able to borrow against the cash value of the policy. This is one of the important questions to ask the insurance agent. Some living benefits of term life insurance include:

 

• Accelerated death benefits: This is a living benefit that offers a portion of your term life policy if you ever face a terminal illness, critical illness or disability (leading to loss of income). With this feature, the death benefit if accelerated if the life assured is diagnosed with a critical illness/terminal illness or suffers a disability.
  
  The accelerated payout can help you pay for the associated medical treatments, debts, etc. However, the benefits differ from company-to-company. The policy will have to be in force for a certain amount of time before you can avail of the benefits and you may be charged interest on the death benefit that you use.
  
  Lastly, the claimed amount is usually subtracted from the death benefit that your beneficiary would receive upon your passing away.

 

• Return of premium: Term life insurance plans generally do not have a maturity/survival benefit. However, purchasing a term insurance policy with the return of premium feature ensures that all your premiums are returned to you if you survive the policy term.
  
  

• Disability waiver of premium: This life insurance rider^# acknowledges and waives premiums if:
  
  

• You suffer from a long-term disability (generally permanent) for six months or more: Generally, after a major disability, the affected cannot continue with their regular occupation for a few months while they are recuperating. Certain disabilities can even make them unfit for the job. This leads to loss of income, causing non-payment of premiums.
  
  

• You face an untimely demise, and the policy benefits continue for the appointed nominee: In case of death of the policyholder/life assured, certain life insurance policies continue offering the stated benefits to the appointed nominee. In such cases, it might get difficult for the nominee to pay the policy premium, especially if they are minor (children of the policyholder).Insurers acknowledge the burden that might be faced upon the death or total permanent disability of the breadwinner and ensures that the policy remains active despite the inability to pay for the premiums.

Consider speaking about these benefits with your insurance agent to get to know them better and to avoid unpleasant surprises.

Ironically, some people get upset over the fact that there might be no returns if they don’t die. If this is something that also bothers you, make sure you discuss this with your agent and ask them what happens when you near the end of the term. Sometimes you have the option of extending your policy coverage; however, this may result in a hefty jump in your premium. In such a scenario, you can buy a life insurance policy that offers maturity benefits. With term insurance plans, you can opt for a term plans with return of premium to ensure maturity /survival benefits when the policy matures.

 

4. What will be covered if my health changes?

Ideally, you must notify your agent of any change in your lifestyle such as marriage, childbirth, etc., to update your current policy. You also need to identify what will change when your health changes for better or worse. When purchasing life insurance, especially term insurance, you will be asked to undergo a medical evaluation. However, health is subject to change even during the period of your policy. Usually, if the insured has had health concerns in the past, additional premium might be charged post evaluating the health and medical reports.

Along with the coverage of changes in health, it is also important to verify the information you provide the insurance company. Claim settlement for life insurance plans is dependent upon submission of correct and true details. So make sure that all the health-related details, especially self-medical history, family’s medical history, pre-existing illnesses, previous surgeries and conditions, etc. are clearly and honestly provided to the insurance company. False information or concealing details will lead to rejection of claim settlement.

 

5. Does the life insurance benefit adjust for inflation?

Inflation is an important factor to consider when purchasing a life insurance policy, especially because it is subject to increase year-on-year. If this is not accounted for in your life insurance policy, your benefit can severely erode even if you may have been regular with the payment of premiums. Inflation risk management requires planning. Some policies automatically factor-in inflation while some others offer it as a rider^# to your current insurance policy. For instance, if you opt for an increasing term insurance plan, the sum assured increases by a certain percentage every year to account for the inflation. Additionally, there are in-built options, like the ‘Life Stage Benefit’ with Tata AIA Life Term Insurance, that allow you to increase the sum assured in tune with your rising liabilities at different stages of life. Before signing into the policy, ask your agent how inflation is managed in your life insurance coverage for a stable and secure financial future.

 

To conclude, it is important to know the details of the life insurance policy that you buy. Ensure that you first assess your specific life cover needs and then research for a policy that can match your unique requirements. Some policies that may seem right to you, in the beginning, might look suspicious upon closer inspection. Considering this, feel free to discuss any additional doubts you may have without hesitation to select the best possible policy for yourself.

 

L&C/Advt/2021/Jun/0845