Understand Why You Need Life Insurance
When you plan to buy your first life insurance policy, the first thing to consider is the reason behind it. You need to know why you want to buy the policy so that you can find the right fit as per your financial needs.
Here are some factors that can help you find the reason for buying life insurance –
Financial Protection for Family
If you are the sole earner, a term life insurance plan can help your family financially in case you are no longer around. The death benefit received from the policy can help your family pay for lifestyle expenses, debts, EMIs, and their financial goals.
Covering Loans & Liabilities
If you have a home loan, car loan, or personal loan, their repayment might become an issue in your absence. This is where a life insurance plan can help. The death benefit paid under the policy can help your family clear your outstanding dues.
Income Replacement
Life insurance plans can also cater to your income replacement goals. They pay a death benefit if you pass away during the policy tenure. If your family is dependent on your income, the death benefit received from the life insurance plan can potentially help replace the income that they lose if you pass away.
Wealth Creation + Savings (If Opting For Plans like Ulips, Endowment etc)
If you want life insurance with a savings or market linked investment element, ULIP plans and endowment plans can be a good choice. These plans combine financial protection with corpus creation. You can choose a suitable policy and premium payment tenure, pay the premium and create a corpus for your financial goals.
Evaluating Your Financial Responsibilities Before Buying
Before buying your first life insurance plan, take a moment to review your finances. Write down your monthly expenses, any loans you still need to repay, and the people who depend on your income. Don’t forget your financial goals, too, like your children’s education. This will give you a clear idea of how much money your family would need if you weren’t around.
Short-Term vs. Long-Term Goals
When buying life insurance, look at both current and future financial needs. Short-term needs may include paying off loans, handling emergencies, or covering everyday expenses. Long-term needs include retirement planning, children’s education, or creating wealth for your family. Assess your goals and find their horizon so that you can choose suitable policy tenures.
Retirement, Children’s Education, Spouse Security
Retirement, children’s education, and spouse’s financial security might be three important goals that you might have. Find out how much you would need to create a corpus for them. Then, choose suitable plans. For instance, annuity plans can help with retirement planning, while child insurance plans can help you save up for your children’s education. Similarly, a term plan can help create a secure financial corpus for your family in your absence.
Tips For Protection from Financial Worries
When you buy your first life insurance plan, think of it as a financial safety net that ensures your loved ones will get financial assistance in your absence. The right cover secures daily living costs, clears debts, and protects long-term goals, such as education or retirement.
Here are some useful tips to help you choose wisely:
Figure out how much cover you need
Don’t pick a random figure. You must calculate how much your family will truly need. Add up everything:
- Monthly household expenses
- Any outstanding debts, such as home loans, car loans, personal loans,and credit card dues.
- Future goals like children’s education, spouse’s retirement fund and medical care.
Subtract your existing savings and investments. The remaining figure is a good estimate of the sum assured you should choose.
You can also use life insurance calculators to find the right sum assured for your needs and goals.
Start with term insurance
For those who are first-time buyers, a term plan can be an important choice. You can get optimal coverage at affordable premiums. This can help you provide for the basic financial needs of your family in your absence and act as a financial safety net.
Think about your dependents
The more dependents you have, the higher the need for life insurance. If you are a parent with children or if your parents are dependent on you, then you should choose a higher sum assured.
Plan for your long- -term financial needs
When choosing life insurance, think about your long-term goals. such as retirement savings or building wealth over time.
Compare carefully
When understanding how to buy life insurance, comparing is essential. It helps you pick the right coverage at the right premium. When comparing, it’s tempting to just go for the lowest premium, but that shouldn’t be the only factor. Look at the insurer’s claim settlement ratio, the benefits included in the policy, available riders, and how long the cover lasts. Choose a plan that offers the most inclusive scope of coverage at the most competitive premium rates.
Calculate the Right Coverage Amount (Sum Assured)
Choosing the right coverage amount is one of the most important steps when buying life insurance. This isn’t just about numbers. It’s about making sure your family can continue their lives without financial struggle if you’re not there to support them.
In the event of your death, your family will receive the sum assured. It's important to pick the right amount so they don't have to worry about money.
Here’s how you can decide:
Think about your working years ahead
Start with how many years you plan to keep earning. If you’re 30 today and expect to work until 60, that’s three decades of income your family might depend on.
Look at your family’s expenses
List down what it takes to run your household. This could be groceries, school fees, utility bills, medical care, and even lifestyle costs. Don’t forget future milestones like your children’s higher education or marriage. And always factor in inflation. Today’s ₹50,000 a month won’t feel the same 15 years later.
Include all your debts
Add any loans that would need to be repaid, like a home loan, car loan, or personal loans. You don’t want your family to feel the burden of EMIs if you’re not there.
Subtract your existing savings
Whatever you’ve already built up, i.e., fixed deposits, mutual funds, PF, or even another insurance policy, can be taken into account. Check the value of the savings that is available to your family in emergencies.
Use a quick rule of thumb
If you want a simple check, most experts recommend coverage of at least 10 times your annual income1. Another way is to multiply your annual income by the number of years until retirement.
Round up, don’t cut corners
It’s always safer to choose a little more cover than to fall short. A slightly higher premium today is better than your family struggling financially tomorrow.
By adding up your expenses and taking away your assets, you can find the right coverage that gives you the most protection at the best price.
Key Takeaways
- If you are young and planning on buying your first life insurance policy, understand the different aspects of life insurance before buying.
- Find out why you need life insurance, whether it is for your family’s financial needs or to create a corpus for your goals.
- Evaluate your short and long-term goals before choosing the right life insurance policy.
- Choose an adequate sum assured so that the policy covers all your financial needs.
Conclusion
When you buy your first life insurance policy, make sure the coverage is adequate to handle your family’s daily needs, clear any debts, and secure future goals like education or retirement. A well-chosen plan does more than protect against unexpected risks. It also helps your loved ones stay financially secure and fulfil their dreams.
In short, by planning today, you’re giving your family financial security and yourself the comfort of knowing they’ll always be taken care of.
FAQs
What is the Best Life Insurance Policy for First-Time Buyers?
The best life insurance policy depends on your needs and goals. A term insurance plan is good if you want financial security for your family in your absence. However, if you want to save for a specific goal, you can choose savings life insurance plans like endowment, money-back, or life insurance plans with market linked investments like ULIPs.
How Much Life Insurance Coverage Should I Take at 30?
The coverage would depend on your family’s lifestyle expenses, existing loans and debts, and financial goals. It is usually recommended to get coverage that is 10 times your yearly income1. However, this is the basic rule of thumb. You can use life insurance calculators to find the right sum assured.
Are Online Life Insurance Plans Safe to Buy?
Yes, online life insurance plans are safe as long as you do it on a trusted site or the insurer's website. They usually cost less, have clearly defined terms, and offer the same benefits as offline plans. Most insurers also make renewing a life insurance policy simple through online reminders and payment options, helping you keep your cover active without any lapse.
How do Riders Affect my Life Insurance Premium?
You can add on riders, such as a critical illness rider or an accidental death benefit rider, to your policy. Check the riders available with the plan and choose those that meet your coverage needs. They will slightly raise your premium, but they will also give you more financial protection, which will make your policy more comprehensive.
What Documents are Required to Buy a Life Insurance Policy?
Some of the common documents required to buy life insurance include identity proof, age proof, address proof, income proof, etc. Based on the amount of coverage, some insurers may also ask for medical reports.
Source:
- https://economictimes.indiatimes.com/wealth/insure/how-much-term-cover-is-enough-dont-rely-on-thumb-rules-heres-what-experts-have-to-say/articleshow/124382634.cms?from=mdr
