Life Insurance: How To Choose The Right Policy

Life Insurance: How To Choose The Right Policy

Life insurance is important for people who have people in their lives who are financially dependent on them. In case of unfortunate death of the earner, the family or the beneficiary will get financial compensation. This payment can be a blessing for someone who is left without a stable income.

How to choose the optimum sum insured

Life insurance offers different payment methods such as lump sum compensation, monthly income, annual income, or a combination of lump sum and income. In many cases, people are not insured enough. On the other hand, there are some who insure themselves for a much higher amount than is necessary. Calculating this amount can be difficult. Let’s take a look at the ways to calculate your ideal sum insured correctly. But first, we need to understand what it is to be uninsured, underinsured and overinsured.

Uninsured: A person who does not have a life insurance policy does not lose anything on his death. But in his absence his family will suffer financially. To provide adequate financial support, paying a small premium is worth it.

Underinsured: Keeping in view the future needs of the family, inflation and rise in standard of living should also be taken into account. If a person’s insurance is Rs 50 lakh, but his family’s needs are Rs 1 crore, then he has a shortfall of Rs 50 lakh.

More Insured: If a person takes a policy of Rs 3 crore, while the family requirement is only Rs 1 crore, then he has exceeded the amount required by Rs 2 crore. One may think that this should not be an issue as at the end of the day the family will get more amount. But given that a higher sum assured will also result in a higher premium, the additional premium amount can be invested in more attractive ways.

Factors to consider when calculating insurance

current income

husband’s income

current expenditure

future needs


debts and liabilities

increase in standard of living

Methods of Calculation of Sum Assured

Income Multiplier – Take your current income, and multiply it by 10 or 12. This will give you a good idea of ​​your ideal sum insured. For example, if your annual income is Rs 6 lakh, your ideal life insurance would provide you Rs 60 lakh to Rs 72 lakh.

Income Substitution – This method takes into account the current income and the number of earning years before retirement. If the current income of the individual is Rs 5 lakh and he has 20 years of working life left, the ideal insurance cover would be Rs 1 crore.

Need for analysis This method takes into account the needs of the family and the planned future goals. Estimating day-to-day expenses, routine necessities such as rent, health care, groceries, utilities, loan emi, and then considering future milestones, a figure of how much it is necessary to live the same lifestyle can be obtained. This method also factors in inflation, current savings and investments held by the insured.

Taking a life insurance plan is a good step to meet the financial needs of your family. term insurance plan They also offer a large sum insured for very low premiums. The money saved on investing in term plans can then be invested in more useful opportunities.

Factors affecting life insurance premium

While taking a life insurance policy, it is important to know what will and will not affect your premium. This way, you can get lower premiums for better coverage. Some of the factors that affect life insurance policies are listed below:

Ages – The younger you are, the lower the risk to the life insurance provider. Hence, the premium is very low. If you choose to take a life insurance policy after the age of 20, your premium will be much higher.

gender – According to statistics, women in India tend to live for about 5 to 7 years longer than men. Therefore, women are paid a lower annual premium than men. This is because insurers think women will have to pay for more years.

family history – The medical history of the family will play an important role in determining your premium. History of heart disease, high blood pressure, cancer or diabetes can increase your premium. Genetic or hereditary conditions will also have an effect on your life insurance.

smoking – Smokers get higher premiums directly for obvious reasons. Smoking is known to be the cause of many cancers and deaths worldwide. Insurance companies offer lower premiums for non-smokers and discount premiums for smokers.

Liquor – Drinking habits can also affect your premium. Alcohol can affect your lifestyle and drinking too much water can also affect your health.

kg – Being overweight can lead to serious health risks at a young age. Obesity is a killer and the issue is taken seriously by insurance companies. Having a body mass index (BMI) over 30 is not ideal for an insurance provider. Losing weight can help lower your premium.

Livelihood – Your business can potentially increase your premiums if your work is hazardous in nature. White-collar jobs usually do not pose significant hazards to health and life. Blue collar jobs generally have high health hazards.

lifestyle – The way you live your life can also be a determining factor in life insurance. Those who indulge in adventure sports like bungee jumping, cliff hanging, tight walking may face a higher premium.

Life insurance is an important investment for those who have dependents. life insurance premium They are quite affordable and assure a comparatively large amount. However, the premium rate for one person may not be the same for another person. Various factors like age, gender, medical history and lifestyle affect premium rates. Even between two people of the same age, the premium may differ if one is a smoker and the other is a non-smoker. for someone who has home Loan On their shoulders, a life insurance plan can ensure that dependents do not have to bear the burden if they are not the earners.

Before taking out a life insurance policy, it is important to do your own research. Agents can help guide you to an ideal policy but it is advised that you do your own study. Look at and compare insurance policies before making a decision.

(This content is not created by the editorial team.)


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