4 Things to Know Before You Purchase A Life Insurance Policy | SBI Life
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4 things to know before you purchase a Life Insurance policy

Insurance Basics & Financial Advice You might know how Life Insurance works, but still, be apprehensive about going for it. We address four major concerns that people have when purchasing a Life Insurance policy.

4 things to know before you purchase a Life Insurance policy

5 Minute |

4 Things to Know Before You Purchase A Life Insurance Policy | SBI Life

You might know how Life Insurance works, but still, be apprehensive about going for it. We address four major concerns that people have when purchasing a Life Insurance policy.

 
The Need for Life Insurance
  • Life insurance is needed to secure your family financially in case anything unfortunate happens to you. Life insurance ensures that your dependents can look after themselves and cope with the sudden loss of income and maintain their current lifestyle in case of your untimely demise.
  • Some life insurance plans can be useful to save and invest your money. You can avail tax benefits for investing in life insurance policies.
  • Life insurance money can also be used to pay off your pending loan amounts or any other dues in case of your untimely death, thereby saving your family from grave economic consequences.
  • Life insurance policies that cover critical illnesses become important when you are heading towards retirement. Some plans cover you from severe ailments like heart attacks and cancer. These can be a life-saver after retirement when there is no alternate source of income.

 

Types of Life Insurance

Choosing the right Life insurance plan for oneself could be a strenuous task when there are multiple options available in the market. Following are the most commonly offered Life Insurance plans.

  1. 1. Term Plans: The simplest type of life insurance policy with comparatively low premiums. It is valid only for a specific term. It pays your family the sum assured in case of your demise, during the policy term. It does not pay anything if you outlive the policy term.
  2. 2. Endowment Plans: Endowment plans offer a combination of insurance and savings benefits and can be further divided into participating, non-participating and unit-linked plans.
  3. 3. Unit Linked Life Insurance Policy (ULIP): ULIP is a long-term investment option that combines investment with insurance. A part of the premium is used as risk cover while the remaining amount is available for investments.
  4. 4. Retirement Plans: This helps you build a corpus for your retirement so that you can be financially independent after your working years. Your nominee receives the sum assured in case of your death during the policy term.
 

What happens if you do not die?

People are apprehensive when purchasing Life Insurance because plans with no maturity benefits do not offer a repayment or the sum assured in case they outlive the policy term.When nearing the end of term, if you wish to continue with the plans, there might be an increase in the premiums that you have been paying. A better alternative would be to purchase a new plan. Alternatively, if your aim was to cover obligations like your child’s education or your mortgage, which you are done with, you can choose to let your plan expire.

 

Upgrading your life insurance policy

It is advisable to re-evaluate and upgrade life insurance policies annually, or after significant life events like marriage, divorce, starting a family and purchasing huge assets, like a house.

Life Insurance Riders are the most common way a policyholder can modify their plan. Few are listed below:
  • Accidental death benefit rider: Additional life insurance coverage if the insured's death is accidental
  • Waiver of premium rider: Waives off premiums if the policyholder becomes disabled and unable to work
  • Disability income rider: Pays a monthly income if the policyholder becomes disabled
  • Accelerated death benefit rider (ADB) : Lets the insured to collect a portion or all of the death benefit upon diagnosis of terminal illness
 
Alternatively, to address your changing financial goals companies offer you the option of opting for a plan with better features by paying higher premiums within the policy term itself so that you don’t have to go through the hassles of purchasing and paying premiums towards a new plan.

You should analyze your financial situation and determine the standard of living needed for your surviving dependents before purchasing a life insurance policy. Besides, you must also have a sound knowledge and understanding of how each type of life insurance works and then compare between plans to see which suits you the best, in terms of benefits as well as affordability.

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