Insurance aggregators agents are probably not the only advice you should take before buying a term insurance. Often what you get are incessant calls by their agents just asking you to close the deal somehow. Not pointing fingers, but perhaps they are either ill-equipped to guide you or their incentives are not aligned with getting you the best deal.
This post is perhaps useful for people planning to quit their regular jobs or moving abroad, pursue business or people returning to India after a stint abroad where they never cared about taking a personal insurance relying on corporate plan throughout. This post is absolutely a personal opinion and I am happy to take inputs from others. These are not observations from a qualified or expert financial advisor.
Here are some of the points to keep in mind while buying a health of life insurance.
- Total cover distribution: Keep the cover amount practical and relevant to your needs and don't get carried away by 1Cr / 2 Cr pitched by the agents and advertisements. Check what is the present needs of your family and dependents, consider if you have a family house, alternative sources of income already in place, expected expenses etc.
- Consider your Corporate cover: If you are planning to stay in some form of organization(small or large) for most of your career, you can assume that some default life insurance will be provided to you. This is usually 2x to 5x of your Annual salary. Eg. If in today's scenario, if you feel a cover amount of 1 Cr is needed, then first check how much of this will get covered by the corporate one.
- Consider NPS and EPF: With the tax benefits and expected steady returns one gets through investing in NPS and EPF, investing 50k per year on NPS and 50k-1L on EPF has become a no-brainer. Although this sum would be small in the initial stages of the career, this corpus will grow in time to become significant with 10-15 years of investment. We should keep in mind that this too will add to our overall cover amount.
- (1) Shows your investments growing over time.
- (2) Shows your inflation adjusted value of your term life insurance cover.
- (Don't ?) Consider ULIP: If you have a pension plan linked to ULIP, do consider it. However, the current returns offered by ULIPs aren't that promising yet and investing into it from a life insurance perspective may not be as beneficial.
- Premium period: Term insurance provides various schemes on the premium period. Try and keep this to a minimum, eg. The premium paying period could be 20 years and life cover until you are 70 or 75. This also carefully should be evaluated and decided based on personal career goals.
- If you are someone who is deciding to quit the regular work force or plan early retirement, you want to pay the larger premiums for a shorter span and get this over with.
- If you envisage being on a payroll for most of your career, do keep in mind the time value of money and increase in your salary would make paying smaller premium amounts in later stages of your career seem negligible.
- Premium returns: Although this scheme is often pitched where the sum of premiums paid with a nominal interest is returned at the end of premium paying period, this needs to be carefully evaluated.
- The term insurance is generally an device where you are willing to pay and forget an amount every year to give you peace. Expecting good returns is not often feasible in such schemes and unnecessarily often drives up the premium amount.
- Consider the difference in such schemes to regular and calculate if you put the same amount SIP, the possible returns you could get.
- Add-ons: Insurance aggregators have built a great amount of transparency to this field and makes it a breeze to compare various schemes. Do spend enough time comparing the various add-ons like disability cover if available by the provider.
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