Before you apply for an insurance you should ask following question to yourself and then ask you advisor which would be best product suited to you instead of letting him say that go for this or that product....
- For whom am I buying insurance policy?
You need insurance to provide financial security to your dependents in case of your untimely death. Therefore if you don't have dependents why do you need it.
- What are my risks? are these covered?
The liabilities and dependents determine your risks. You need to thinks about your parents, spouse & children, your current life style. If you are sole or key earning member then your family would require similar amount to continue to lead similar life. What are your current liabilities (outstanding loans). These factor will decide how much insurance you would require?
- What are returns on maturity
Someone might try to sell ULIP stating the return market has provided? Ask yourself how much return you need and what are the other options (PPF, EPF, NPS, etc) available in the market and compare returns and cost of those returns.
- Tax benefit - Do I need them?
This is one of major factor that drives most of Indians toward insurance. If you think so, think again? This is a trap and not actually a solution. There are many products covered under section 80C and you evaluate them before deciding on insurance. Some of these are
Employee Provident Fund (EPF)
Public Provident fund (PPF)
Five Years Fix Deposit
New Pension System (NPS)
- Is it Value for Money?
Check for the premium you are paying and insuranace and/or return you are getting.
It is recommended that you should not mix insuranace and return on maturity together. If you need insurance, find out the amount and then go for Term Insurances. If you require return find some other product. If you require both use any of insurance that fulfil you need but you must be aware that both of these come with certain charges that your agent or insurance company might not tell you upfront. So ask them about these before you sign the papers.
Most of ULIP & traditional
Endowment
policies provide life cover approx 10 times of annual premium but a Term Insurance can provide approx 300 times.
Having said all this, There are lots of uncertainities in the Life and you don't know what will happen. Therefore it is advised that every individual must have insurance cover according to their needs for those needy days.