Steps before buying Life Insurance Policy

By | December 24, 2015

Steps For buying Life Insurance Policy

Life Insurance Policy


Step 1 : What is my financial goal which i wants to meet from Life Insurance ?

Your objective  may be :-

  • Protection or financial security,
  • saving for your children’s education,
  • Retirement Saving
  • ownership of some valuable assets, or
  • Marriage of Your Daughter

You have to do the cost benefit analysis of buying a Insurance Plan or Investment in FDR  etc . You have to diversify your portfolio .

Step 2 : How much am I willing to spend for Life Insurance ?

  • Decision to buy life Insurance should not drain your pocket or should not affect your monthly budget.
  • You should decide about the periodicity of the premium , Monthly, Half yearly , Yearly
  • Due date of payments of  premium. normally during festival season , diwali etc, it is very difficult to pay for Life insurance policy .

Step 3 : How long am I willing to stay invested for Life Insurance ?

  • If your goal is saving for your child’s education, the investment horizon would be a minimum of 10 years
  • If your objective is that of providing for life after retirement, the term of the policy would be at least 25-30 years.

Step 4 : How much risk I can take for Life Insurance ?

The basic principle of investment is: higher the risk, higher the return. Hence, knowing your risk appetite is important to decide if you would be comfortable with a unit-linked plan or a traditional plan.

Factors to be considered for risk appetite :-

Age: A young person can take more risks since there are few dependents, a safe livelihood and a longer earning life ahead of him/her.

Ownership of Asset : If one owns a lot of assets and has few liabilities one can afford to take more risk as the cushion of assets can safeguard from the short-term losses due to fluctuation in the market.

Investment Experience: Those with knowledge and prior experience in investing in financial markets understand the long-term impact of short-term fluctuations in the market, hence, can take more risk.

Step 5 :Choose the plan for buying Life Insurance ?

Unit linked plan : your returns are linked to the performance of the fund you opt for.

Traditional plan : Your returns are secured and times are pre-determined.

Money Back Plan : Money is paid at regular intervals

Term Insurance : Money is paid at maturity


Step 6 : Know about the product of Life Insurance ?

You must make sure that you are aware of the following.

1. Does the plan cover the intended financial goals in the unfortunate event of your death?

2. What is the premium payment mode, i.e., whether it is a single premium policy or regular premium policy. Also, consider the premium payment term.

3. Also be aware of features like the term of the policy, maturity benefits, and surrender benefits.

4. Bonus track record of the policy. It is critical for you to have answers to the questions mentioned above, as these can make your decision simpler and ensure that you make a smart choice about the insurance plan you opt for.


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