Here are some tips to help you choose the ideal insurance policy that meets your needs
Numerous insurance products such as children's education plans, life insurance plans with huge death benefits, and accident insurance covers are marketed aggressively. Often, people aren't aware of the actual insurance coverage. They jump onto the bandwagon, without reading the fine print.
Tax payers make hasty last-minute insurance purchases to avail tax benefits under Section 80C. Though you may be saving a small amount of tax money, you could be stuck to a worthless policy for long years.
Here are a few points to ponder over while buying an insurance policy:
Insurance is not investment
Insurance products are designed to provide protection. A term cover usually offers insurance protection but no benefit in case the insured survives the term of the policy. A unit-linked insurance policy (ULIP) on the other hand provides dual benefits of insurance protection and a flexible investment option. A certain part of the premium is invested in equities, debt funds and bonds. The rest is used to provide for life insurance and fund management costs.
Some experts advice against mixing insurance and investment. You can always invest in some mutual funds that meet your goals and risk appetite.
Keep in mind inflation - You might be setting aside substantial amounts of money towards your premium. But wouldn't you feel cheated if what you get after a long term is worth nothing? In an inflationary economy, products and services are bound to cost more than what they do today. Hence, will the benefits or returns cover your needs completely? Or will it only form a small portion of your actual requirement at the end of many long years?
Roughly compute how your benefits will look like after 10 or 20 years. It is advisable to stay away from insurance products that do not have inflation protection. Cost of living, education expenses and medical costs are bound to swell up after 10 years owing to inflationary pressures. See that the policy you opt for has insurance protection or hedge.
