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Things to consider when buying a life insurance policy

Posted in Finance, Insurance.

When disaster strikes, it is best to be prepared. Protection is the key when faced with danger, and life insurance policy acts as a shield that keeps the harm and loss at bay.

life insurance policy

How to find optimum sum assured

Given that it is used by people to not only protect themselves but also their belongings and loved ones, how does one decide that a particular level of insurance, especially life insurance would be enough?
Even in cases, where one holds multiple insurance policies, how would one be able to determine that they are collectively sufficient to protect them from harm?
Truth is that there is no one single amount that would suffice for everyone. There are however, multiple factors at play that go on to determine the amount of life cover you need.

  • Marital status
    Usually, when one is in a relationship, they do bear a certain responsibility towards their partner and should something was to affect them, the individual would have to make arrangements to provide for them in their absence.
  • The dependent factor
    If you have your parents living with you, then your life insurance requirements would be different from those who live on their own. Similarly, in the case of joint-families, the number of dependents would have a definite bearing on the coverage needs.
  • Liabilities
    As you progress in life, there are bound to be liabilities. These could be in the form of outstanding loans (Most likely to be for having purchased a home or a vehicle, or sometimes, for personal activities too). One is also require a large amount of money for funding the education of one’s children and/or their marriage.
  • Number of bread-winners
    Being the sole earning member of the family or having others to contribute to the collective income too has a bearing on the amount of life insurance one would be required to purchase.
  • Asset Valuation
    The monetary value of one’s financial assets too is factored into the equation. 

What all things a life insurance policy should cover:

It is extremely important that one makes adequate arrangements to support their dependents in maintaining a similar lifestyle even when you are not around.

  • Family Expenses
    These are the single largest worry for those that lose their primary bread-winners. Purchasing coverage that would take care of these, helps ease the pressure and takes the edge off their ordeal.
  • Inflation
    One’s monetary outgo increases due to a rise in inflation rates. For example, if the Monthly expenditure of say, ‘A’ is Rs.10000 (& one presumes a 10% Inflation Rate), then in Ten Years, ‘A’ would need approx. Rs. 26000. You could use this nifty calculator to arrive at the value of this factor here. You can check your future expenses by using this future expenses calculator.
  • Financial Capability
    Even as one needs tons of insurance to truly secure the future of their loved ones, their financial capability (individually as well as collectively) would also be needed to be taken into consideration before deciding upon the quantum of coverage required.
  • Family Knowledge of finance
    In instances where one’s family members are not that strong when it comes to financial knowledge, it would be a boon to have additional cover in accordance to their needs.
  • Monthly Income or Lump sum
    One would have to check if a single, one-time pay-out would suffice, or the dependents would need regular payments at pre-determined intervals. If regular payments are required, one can also go with Max life newly launched monthly income term plan. Max life Term plan offers twin benefits of Sum Assured as well as fixed income every month for 10 years after the death. e.g. By paying just Rs 14000 annually, policy holder family will get Lump sum amount of Rs  1 Cr + 40,000 p.m. for period of next 10 years.

How to choose right insurance company:

Given the saturation in the Life Insurance Sector, confusion reigns rife on how to narrow down on the right insurer. The factors mentioned below, would help you towards this decision:

  1. High Claims Settlement Ratio
    Insurers with a high claims settlement ratio are willing to pay-out the insured amount in the case of a claim being made for some eventuality and are favored by policy buyers.
  2. Customer base of the company
    Larger the number of customers, the higher is the confidence of those looking to purchase their insurance solutions.
  3. Market Reputation
    The goodwill of an insurer is an important factor for making a decision amongst prospective buyers. These days, there are multiple avenues for checking up on the quality of a particular insurance offering, from consumer forums and review sites, to popular social platforms like Facebook, Twitter, etc.

3 Responses

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  1. Rajiv Ahuja says

    Wise words . Don’t make the mistake of lumping insurance with investment. It never achieve both ends.

  2. Neeraj Sharma says

    Great article Pankaj.. and also include the Age factor like if you are at 30 then Insurance company can cover till 65 (35 years).. So u need to choose the Plan as long as possible.

  3. Anupam Rastogi says

    Nice article Pankaj !!! I like the article very much and the points to remeber while choosing right insurance company are absolutely impressive.



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