Who can predict where your life will take you, or how it will end?
While the question might seem somewhat morbid, you do need to consider the practical aspect of the welfare of your near and dear ones, and ensure their wellbeing, at least monetarily, in the event of your retirement, and eventually, your death.
If you've settled on the type of insurance to buy, then paying out the premium on your insurance policy needs to be factored in to your planning.
There are a number of ways in which you can make this payment.
While cash seems the easiest and most direct way to pay your premium, be aware that there are legal issues surrounding the amount of cash that your insurance agent is actually authorised to handle.
The limit for cash acceptance is Rs 50,000, to control fraudulent activities such as money laundering, so if your policy is for Rs 5 lakh and the yearly payment is Rs 60,000 over 5 years, then seek alternative means to cover the premium, either by cheque or draft.
This might lead you to review the type of policy you choose. Either choose a policy within the cash investment limit of Rs 50,000, or opt for different policies from different insurance companies so the total limit in either of the companies does not exceed Rs 50,000.
The best way to get adequate cover for your family is via a term life-without return of premiums type of policy. This is a pure risk cover without any investment option.
Review the level of cover each year. Then apply a simple formula to find out if you need more insurance or not.
If your investments are equal to or greater than the value of insurance required, you do not need to continue your insurance cover.
In single premium policies, the policyholder pays the premium just once and enjoys its benefits throughout the policy term. Earlier, single premium policies were more of an investment product, offering large returns on an assured basis.
Often there was little in terms of insurance coverage. But because that goes against a purpose of an insurance policy, which is primarily to offer coverage, conditions have evolved for these policies over a period of time. These conditions make single premium policies beneficial only to some people and not all.
A single-premium policy requires a much higher payment compared with products that require paying smaller premiums spread across several years.
But market studies show that investors are shying away from buying life cover that requires long-term financial commitment, opting instead for those that require paying premium just once.
The other ways in which you can pay your premium is on a Yearly, Half yearly, Quarterly or Monthly basis, depending on the plan that you opt for.
Remember that the type and amount of premium you pay is a direct result of the type of policy you choose, so choose very carefully. For example, with term life insurance, the premium on such type of policies is comparatively quite low when compared with other types of life insurance policies, mainly due to the fact that these policies do not carry a cash value.
With whole life policies, the premiums are usually made annually, and are fixed and known, giving you enough rope to accumulate the necessary amount to pay towards the policy.
As important as it is to buy life insurance, it is even more important to pay your premiums on time.
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