Covid 19 has spread like a wild-fire across the globe and with no vaccine currently available, the future looks highly uncertain. More than 6 Million people have already been impacted by COVID 19 across the globe in the past few months and numbers continue to grow rapidly.
The future is very uncertain and anyone can catch this virus. During such unforeseen times, one must relook at the insurance policies which a person has and the insurance cover which these policies offer.
If a person does not have an insurance policy or does not have adequate cover in the insurance policy, then he should evaluate taking another insurance policy.
How much cover should an Insurance Policy have?
Irrespective of whether you already have an insurance policy or are enrolling for a policy for the 1st time – the one question which every person has is how much should be the insurance cover?
Although there is no exact answer to this, experts suggest that it should atleast be 10 times of your annual income. And if you are in the early years of employment, then the insurance cover should be atleast 15 times of your annual income. This is because in your early years, your annual income is comparatively lower as compared to later years of employment.
Moreover, considering the speed at which the household expenses are increasing, every person should have atleast this much insurance cover. In case a person does not have this much insurance cover, he/she should ideally contemplate taking an additional insurance policy which offers additional cover over and above the cover which the existing policy offers.
Types of Life Insurance Policies
There are mainly 2 types of life insurance policies i.e. the Term Insurance andULIP. Both these type of insurance policies are eligible for deduction under Section 80C of the Income Tax Act.
- Term Insurance Policy:These types of policies are stand-alone insurance policies wherein the insurance cover is given only to the nominee on the death of the person. Term plan are for a stipulated time period and in case a person does not die during the period for which the insurance policy has been taken – then no money would be given to the insured person or to his nominee.
- ULIP Policy: ULIP stands for Unit Linked Insurance Plan and these type of policies offer the twin benefits of insurance as well as investment. Under this type of policy if the insured person dies during the insurance period – then amount is amount to his nominee. If the insured person does not die during the period for which the insurance has been taken – then in such a case, the sum assured is paid to the insured person himself at the end of the insurance period.
Although ULIP’s offer a unique advantage that the sum assured is repaid to you at the end of the insurance period, the insurance premium to be paid under a ULIP Policy is more than the insurance premium to be paid under a Term Insurance Policy.
Things to check before you buy an Insurance Policy
Apart from checking the insurance coverage, there are various things which a person should check. Some of the important things to be checked are:-
- Claim Coverage Ratio: Claim Coverage Ratio means the percentage of death settlement claims settled by the insurance company in the past. This is important to be checked as no insurer has 100% Claim settlement ratio and some cases always do get rejected. It is important to check this number as this shows the past record of the insurer as to whether they are strict or lenient in approving the claims.
- Add ons: You can make your basic insurance policy by adding it up with some riders like Accidental Death Rider, Permanent and Partial Disability, Critical Illness, Waiver of Premium, Income Benefit Rider etc.
- Ideal Tenure of the Policy: The ideal tenure of your policy should be your retirement age minus your current age. That means if today you are 35 and intent to retire by 60, the term of the insurance should be 60 – 35 = 25 years. This is because by the time of your retirement, your dependents are most likely to become independent and take care of themselves.
- Surrender Policy: Before signing up for the policy, you should also check that in case in future you wish to cancel this policy, would the amount paid by you be reimbursed or would that get forfeited.
Apart from checking the above important points, a person should read all the insurance documents before signing the document and should also read the insurance policy after it has been issued. If after issue of insurance documents, a person is not satisfied with the terms and conditions – he can still cancel the same as a free look-up period of 15 days is there in all life insurance policies.