“In case you cannot be there to catch them, ensure that you leave a safety net, at least.”- Anonymous.

Financial planning is one of the most imperative and basic responsibility for every breadwinner. Remember, sudden death of the breadwinner can bring about financial turbulence in the otherwise financially stable family. Therefore, it is important for breadwinners to ensure that their financial plans do not run into rough weathers, even when they are not around. This is where life insurance comes to their rescue. Life insurance plans ensure an iron-clad financial protection for the family, in the absence of the breadwinner of the family.

But there are a thousand life insurance products available in the market that can easily dumbfound even the most experienced of investors. We are sure you will agree when we say that a lot of questions cross ones’ mind pick the best life insurance products to ensure financial security for their loved ones.  In this article, we will focus on 5 such confusing questions and provide you with their best possible answers.

So let’s get started! Shall we?

Q1: I have prepared a financial plan that concentrates on building of a huge corpus through savings. Is there any need of financial protection after this?

A1: It is great that you have designed a financial plan focused on creating a huge corpus. However, is neither savings nor protection and you will need both to ensure a financially secure life for your loved ones. Your first step should be buying sufficient financial protection. This will make sure that your financial plan stays in effect even when you aren’t around. It is a long-term financial goal to build a corpus. And a protection plan will make sure that pre-determined financial goal is achieved, irrespective of the fact that you aren’t around.

Q2: What returns will I get at the end of my policy tenure?

A2: It really depends upon the life insurance product you are investing in. For example, term insurance plan purely cater to your financial security and are designed in a way that your dependents are provided with a lump-sum amount in case of your demise, during the policy tenure. The premiums for term plans are pretty affordable. On the contrary, endowment plans provide both death and maturity benefits. However, the premiums for endowment plans are little higher as against term insurance plans.

Q3: What is the cost of term insurance? How it differs from endowment plans that offer returns at maturity?

A3: The cost of term insurance plan usually depends upon the plan that you are buying. Usually, you can buy a term insurance cover of Rs. 1 crore with a premium amount ranging between Rs. 6000 and Rs. 8,000, annually. On the other hands, the cost of endowment plans is a little higher. Usually, you can buy Rs.1 Crore endowment cover for an annual premium of Rs. 1,00,000 for policy term of 30 years. Here it is important to remember in endowment policies , you get the sum assured upon maturity, whereas in term plans no maturity benefit is paid out.

Q4: How much insurance do I need?

A4: Well, it's a tricky question, but an important one that you must carefully consider when buying life insurance. Remember, the primary objective of life insurance is to ensure financial stability for your family, when you are not around. The amount of coverage should be enough to settle all dues and generate an income to help your family live a decent life. Here’s the formula to calculate life insurance cover:

{% of monthly income (you wish to cover) – monthly savings X 12 X number of years (your dependents will need financial assistance)}

Let’s understand this with an example. Let’s assume:

• Your monthly income = Rs. 60000
• % cover for monthly salary = 80%.
• Monthly savings = Rs.18000
• Estimated years of financial support for dependents = 15 years

[80% of monthly income (60000) = Rs.48000]

[48000-18000X12X15= 5400000]

So you will need Rs.5400000 as your life insurance cover.

Q5: Will there be any changes for the need of my life cover?

A5: Ideally, it is advised that you keep a sharp vigil on your life cover and you must revisit when you monitor amplification in expenses, income and responsibilities. As a rule of thumb, every individual who has attained an age 40 needs an insurance cover equivalent to 20-30 times the yearly income and any person who has attained an age of 50 will need a cover about 5-10 times the yearly income.

Over to You!

Remember, life insurance is an absolute must for every household. And we are sure armed with the answer for these 5 confusing and somewhat dumbfounding questions; you can make your decision-making process simpler and pick the best life insurance for you and your loved ones.

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