Life insurance coverage is a key way of providing financial support to your family in your absence. It is, in the simplest terms, it acts as a financial safety net. But unlike other forms of investment, life insurance plan is not a prerequisite for many Indians. However, the covid-19 pandemic has changed people’s views on life insurance. Perhaps never before, has insurance seemed more important. Sadly, this time has also seen mass salary cuts, business losses, job losses, and never-ending expenses. So how can one think of buying life insurance? And is it even affordable? Read on to find out.
Affordable Life Insurance Policy
Perhaps more than ever before, we need life insurance today. Sickness and disease can wipe out an entire family’s savings and throw all financial plans in disarray. And so, at a time when you may be trying to save money, buying life insurance can be seen as an unnecessary burden. But you may need a change of perspective. The one thing you must realise is that life insurance is affordable. It is critical that you choose the right type of life insurance and the appropriate coverage amount.
What Can You Do?
- Change your perspective:
Changing your perspective on life insurance is easier said than done. You may think that you already have mutual fund investments and a PPF. What more do you need to secure your family’s future? Think of it this way—life insurance is your investment for your family. No matter what happens, life insurance is your safety net. Markets can rise or collapse, interest rates can once again fall, there are no guarantees. Except when you purchase a life insurance plan, you have a guaranteed benefit. This benefit could be only a death benefit that is paid to your beneficiaries upon your passing away during the coverage period. Other forms of life insurance have maturity or survival benefits that are paid to the insured person if they survive the stipulated period. - Plan your budget:
Budgeting is not the most popular pastime for most people. But it can make a huge difference in your life. Maintaining a budget and financial plan puts you in a better place to save money on your premiums. You may find that you can afford the higher premiums. Or you may find that you don’t need as much coverage as you originally thought. Use dedicated tools such as a budgeting app or at least an excel spreadsheet to account for all aspects of your budget. Calculate your income and expenses, both regular and occasional. Budgeting will help you reign in unnecessary spending. This, in turn, will help you stay on top of your finances at every stage in life. - Buy your life insurance coverage early:
Young adults usually do not consider life insurance a priority. In fact, for most, it is the last thing on their minds. They may not have bought a home of their own and may not even be married. Ironically, however, life insurance is cheapest and most affordable, when you are younger. Life insurance premiums rise by about 5–9% for every year that you delay in purchasing one. So when you buy young, you will pay lower premiums and lock in those premiums for decades to come. - Maintain good health:
Even though it is tougher to get lower premiums when you are older, it is still possible. One way to do so is by maintaining good health. Older adults who do not smoke and drink pay lower premiums than those who smoke and drink on a regular basis. Smoking has many negative effects on the body such as damaging your lungs, causing cardiovascular problems, and more. Too much consumption of alcohol can also negatively affect your body by damaging your liver. The insurer takes note if you maintain a healthy weight and do not have any major diseases. If you are older and seek a high coverage amount, the insurer could expect you to undergo a medical examination. On the other hand, if you are older, say over 50 years old, and do not have dependents, you could seek a lower coverage amount. The insurance company may bypass a medical examination in your case. - Choose the appropriate coverage amount:
A mistake that many people do is to over-insure or themselves. Or they may just be underinsured themselves. Neither is ideal. Your life insurance plan should be the most suitable one, not the cheapest one. While it is good to save money in hard times, it is a waste of your insurance plan that does not provide adequate coverage. Before choosing a coverage amount, you should go through your income and expenses thoroughly. Make a list of your income, assets, and expenses. Your coverage amount should be enough to cover all your future debt. You must factor in your dependents as well. How many dependents do you have? How much support would they need? How much premium can you afford without compromising your current lifestyle too much? These are questions you should sit down and figure out with a parent or loved one. - Avoid riders unless necessary:
Insurance companies may push you to purchase certain additional riders for extra coverage. These riders include the Critical Illness Rider, Accidental Death Benefit Rider, Accidental Disability Rider, Accelerated Death Benefit Rider, and more. Before you sign on the dotted line, understand whether or not you need those riders. Suppose there is a strong history of critical illnesses such as heart problems or stroke or cancer in your family. Then by all means you should purchase the Critical Illness Rider. But if there isn’t, then maybe you can bypass that one. If your job is not dangerous and you do not need to travel a lot, you may not need an Accidental Death Benefit Rider. Any rider you choose adds to your premium. So the reason you add a rider should be well-thought-out and well-chosen. Do not purchase additional riders if there are not necessary. - Choose the right insurance plan type:
Life insurance comes in myriad forms nowadays. From pure term plans to market-linked plans to money-back plans and many more. If affordability is your top priority, then a pure term plan should be your go-to. Term insurance plans are the cheapest and most affordable types of insurance coverage available. They offer a simple Death Benefit to your beneficiaries if you do not survive the coverage period. A term insurance plan can be quite affordable even if you are at an older age. What if you want more out of your life insurance? Well, you can choose a term insurance plan and back it up with another type for better coverage. Interested in wealth creation? A unit-linked insurance policy (ULIP) plan may be the one for you. It invests a part of your premium in equity markets, thus generating a corpus for you. It acts as a viable investment option along with providing coverage. However, ULIPs tend to have higher premiums. If you would like an additional benefit for surviving the coverage period, then a traditional endowment plan may be suited to you. Whatever you choose, make sure it fits your requirements and financial goals. - Use a calculator:
When you finally choose a plan, use an online calculator to figure out a premium amount that you can comfortably pay in the long term. - Buy online:
All major life insurance companies offer exclusive online insurance plans. These insurance plans cut out the distributors and their commission. They also cut down on the paperwork necessary when buying a traditional plan. Both of these savings translate to reduced costs for the insurer. The insurers on their part share these savings with their clients in the form of lowered premiums. Indeed, if you have to choose insurance, choose an online plan for the best deal. These plans provide a plethora of benefits for policyholders. Lowered costs, convenience, and speed are just some of the advantages of online plans. - Search for discounts:
Insurance companies may offer discounts on their popular plans at certain times. Again, the best place to get these discounts is online on the insurance company websites. Keep a lookout for these discounts and grab them when they come by. - Supplement your group life insurance:
Group life insurance is usually a common workplace benefit offered by employers. A disadvantage is that it is tied to your employment. Still, if you have group life insurance via your employer, you can choose more affordable personal life insurance coverage for yourself. - Don’t be late:
Late fees can spike up your premium amounts quite a bit. So do your best to avoid being late on your premium payments whenever they come around.
In conclusion
By making some small and big lifestyle changes, you will be able to afford the life insurance coverage of your choice. These changes could be relatively simple like building a budget. Or it could be a tougher one, like quitting smoking and getting your health in order. Remember, cheap isn’t necessarily best. There has to be a balance between suitable and affordable. So take the measures mentioned above and buy the best life insurance plan for yourself.
