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5 Frequently Asked Question About Buying Life Insurance
Life Insurance is a Must Have in Your Investment Portfolio
Life insurance penetration in India fell to 3.3% of the gross domestic product (GDP) in 2015 from 5.2% in 2009-2010, says an article published in DNA in November 2015. This is surprising, since life insurance is really a critical to your money management. It is meant to provide financial security to your family after your death. It can help your family take care of daily expenses, fund your child’s education and marriage, pay off your debts as well as cater to other emergency financial needs. You may have a lot of questions once you decide to buy a policy. Some of them are discussed below.
When Should I Buy Life Insurance?
It is a common misconception that you need life insurance only after you start a family of your own. The truth is that life is unpredictable irrespective of your age! Moreover, the premium that younger individuals pay for a cover is lower that what you may have to pay once you are older. This is so because younger individuals are more likely to be at the peak of their health and have lesser risk of contracting diseases. You should buy a policy as soon as you start earning, according to an article published by Bharti AXA Life. You can review your cover from time to tine and enhance your cover and change your nomination as and when required.
Which Policy Should I Choose?
There are five types of policies sold in India: term plan, endowment, whole-life, ULIPs and money back. Only a term plan is a pure product, while the remaining ones are part investment products. A term plan offers a high cover at a low cost primarily because the entire premium amount goes towards funding the cover. You can buy term plan online by choosing the cover amount and term. Other policies are good for individuals who have low insurance needs and have a high risk appetite. Moreover, you should evaluate your insurance needs to determine the types of products that suit you best.
How Much Cover Should I Opt For?
You must decide the cover amount keeping in mind your family’s standard of living, your child’s education and marriage expenses, debts that you may be paying off and the inflation rate. As a rule of thumb, you should opt for a cover 10 times your annual income, says an article published in Moneycontrol.
Should I Buy Life Insurance Online or Offline?
Once you have decided on the type of policy, you can browse through its features and benefits online. You can buy life insurance online as these policies tend to be 20-30% cheaper than their offline counterparts. This is due to two reason - the absence of agents and insurers regard mortality of online buyers to be higher than offline ones, according to a blog post published by ComparePolicy.com in October 2015. Moreover, an online purchase saves time.
What are the Tax Saving Benefits offered by a Life Insurance Policy?
You are eligible for tax deductions of up to Rs. 1.5 lakhs on premium payments per year under section 80 C of the Income Tax Act. For policies sold on or before March 31, 2012, a maximum of 20% of the sum assured is eligible for deduction, while for policies sold on or after April 1, 2012, annual premiums of up to 10% of the sum assured is eligible for deduction, says an article published in Business Standard in May 2015. Also, the sum assured by a policy is exempt from taxation under 10 D of the Income Tax Act. Maturity proceeds where premium payments exceeded 10% of the sum assured in any year during the policy term is taxable.