by The sooner we understand that financial planning is not entirely about numbers the better it will be. In this age, it is important to note that financial planning extends beyond numbers and includes peace of mind. That’s why having comprehensive life insurance in one’s financial portfolio has become a necessity. Individuals should think of this as more than an investment and consider it as a safety net woven to protect their future. Such a protective shield will help secure their future and safeguard their loved ones, even in case of the insured’s sudden demise.
This is because when life throws unexpected curveballs, a comprehensive insurance policy emerges as a safety net. Insurance is designed to ensure that the insured’s family’s financial requirements are met and they remain financially independent. In the modern world, insurance is more like a gift of security and financial stability, wrapped in one comprehensive plan.
However, to select life insurance that ensures peace of mind and more, it is crucial to keep in mind these for holistic financial planning –
Under the policy type by reading about it thoroughly
First thing first, it should be noted that not all life insurance plans are built similarly and different plans are designed distinctly to meet varying needs. For instance, a term insurance plan is deemed best for those who need high coverage for a given tenure. It typically acts as a temporary protection that comes at an affordable price. On the other hand, a whole life insurance plan is best for those looking for lifelong coverage along with a savings component. This plan helps build a corpus over time by extending features of both protection and financial growth. Then again, plans like unit-linked insurance plans or ULIPs are best for those who are looking to combine insurance and investment. Such a plan enables individuals to grow their accumulated wealth while also ensuring their protection. This plan is typically considered to be a viable option for long-term financial goals and securing one’s financial future. Since different categories cater to distinct needs, it is important to pick an insurance policy that is best suited to one’s financial goals, need for security, and approach to savings. Keeping their distinct features in mind will help pick the best-suited plan.
- Evaluate your financial goals
Buying life insurance is not a big deal, because what matters the most is that you choose the one that meets your needs the best. That is why before one starts to look for a life insurance plan, it is vital to take a moment to identify one’s goals. One’s goals can be of distinct types, for instance – building a corpus for a child’s higher studies, generating wealth, paying off ongoing debts, or building a financial safety net for dependents. Having an idea about one’s goals makes it vital to help pick the best-suited insurance plan. This is because it is not always about picking the perfect insurance plan but more about the coverage and guaranteeing loved ones the safety they would need in the absence of the insured to lead an independent and comfortable life.
- Take cover amount into consideration
It should be noted that life insurance is not about replacing one’s income. However, it’s definitely about protecting one’s loved ones’ future by offering them financial security. Typically, the ideal coverage should cover more than one’s daily expenses. This is why before getting an insurance plan, individuals are advised to weigh in their future needs, like their child’s college expenses, wedding, and even retirement savings for the insured’s spouse or parents. Similarly, they should also pay attention to their ongoing debt and obligations to ensure their family is not left with the burden of debts and mortgages.
More importantly, the coverage should also enable the family members to maintain their current standard of living and should not add to their financial troubles.
Typically, 10-15 times one’s annual salary is considered to be a good starting point. However, it is advised to take this estimate as a
roadmap, not the last rule. Individuals must tailor their planning based on their unique situation and financial goals. They can also use an online life insurance premium calculator to understand their estimated coverage under different plans and pick one accordingly.
- Assess the importance of insurance tenure
Individuals should match their policy length to their financial needs.
Life insurance is like a safety net tailored to the insured’s specific situation. For instance, suppose Karan has a 20-year home loan, so picking a term insurance that lasts 20 years will guarantee two important things – the insured and the dependents will have peace of mind knowing their loans will be paid off and will not add to their financial troubles even if there is a mishap. The family will inherit the remainder, offering them the financial flexibility to remain independent and account for future obligations with much ease. So set a tenure, it is recommended to take into consideration major financial commitments.
- Check the insurance premium
Individuals should not squeeze their financial budget for their insurance coverage. As that can add to their financial burden. Typically, choosing a premium that one can actually afford and pay comfortably over the long term is a wise move. This is because stretching one’s financial capacity can lead to insurance policy lapse and devoid the insured and the family of when they need the help the most. Alternatively, going too low than one’s financial capacity can also leave one’s family under-protected. This is why it is recommended to use a premium calculator tool to understand the premium they are likely to pay for a cover and proceed accordingly.
Check the Rider benefits
Riders or policy add-ons such as accidental death benefit, critical illness cover, and waiver of premium tend to enhance a basic cover. However, adding them to existing life insurance or different types of health insurance plans can inflate the premium amount as well. This is why individuals should be careful in analyzing their needs and financial standing to understand whether they would need the rider or not.
Don’t forget the surrender value
It is highly recommended to check the surrender value of the policy before signing the policy document. This will help understand what an individual can expect from the insurer in case they have to surrender their policy before the term. Additionally, different policies have different surrender values and terms of surrendering a policy. Having a clear insight into this would help to make an informed and effective decision and prepare better for unavoidable circumstances.
In this way, a life insurance plan helps enhance one’s financial planning and allows them to create a security blanket for their loved ones. Based on one’s needs and requirements, individuals can pick an insurance plan and enhance their financial planning.
