Ways to smarter life insurance planning

Ways to Smarter Insurance planning

Insurance is a very vital part of the overall financial plan for any individual. Ensuring that there is the right amount of insurance is important for the achievement of several financial objectives. This calls for specific attention to several features related to insurance, which are as under:

Make effective use of insurance

Insurance is a route that helps you achieve several financial objectives. One of them is to provide support for your dependents in times of need. The other is the tax benefit that one gets on the premium paid on insurance. At the same time, insurance can provide money in old age when the requirement for funds is high. By making effective use of insurance you can achieve either of the objectives.

Additional benefit possible

There are various types of insurance present in the market. Life insurance is one common area, and there is a tax benefit possible up to Rs 1 lakh on the premium paid in a financial year under Section 80C. At the same time, there is an additional benefit under Section 80D for the payment of premium of a medical insurance. Using insurance you can not only get proper cover but also ensure a higher tax benefit.

Determine amount of cover for self

The basic aim of insurance is to provide support for your dependants in times of need and this requires attention towards the amount of insurance cover. Many times in the search for either return or even tax benefits investors forget about the actual insurance cover that they are getting. For example, there could be a situation where you are paying Rs 50,000 as premium in a year but your cover is say just Rs 7 lakh. This cover can prove to be inadequate and hence a match between need and actual cover taken is essential.

Cover also available for family

There is an additional tax benefit attached to insurance that is not available in several other investment areas. In case of life insurance, you can get a deduction even for premium that you have paid for your spouse or children. In case of medical insurance, there is an additional limit that is available for cover of parents who are senior citizens. Such a facility enables adequate cover for the family, thus achieving your financial objectives.

Understand the time period of policy

An insurance policy covers your life for a specific time period, and this also requires some effort from your side in the form of premium payments. In several cases a longer term is good because it is able to generate a cover for a longer time period. Often the investor is taken in by the marketing pitch that requires premium payment for a less number of years when the reality is different. Focusing on the actual time period for premium payment as well as coverage will ease the process in maintaining the policy.

Change your insurance requirements

The process of insurance is not onetime but has to be continued over a period of time. This requires you to make various changes to your amount of insurance cover and the types of policies when the conditions related to you change. For example, marriage or the birth of children will require a reevaluation of the entire position on the insurance front. This includes raising the amount of insurance cover and even changing of the insurance policy mix for getting the right kind of benefits.

Use relevant options

The insurance arena is very large and there are a large number of options available for you to select from and make the right choice. There are life insurance policies providing you with the necessary cover, health insurance policies and also personal accident policies. All of these achieve different objectives. In addition, there are pension policies that provide a regular sum of payment to you when you are old.

Select specific type of policies

There is some additional work required on your part because just selecting a particular kind of insurance will not complete your need. Within that particular area you have to select a particular policy. Different policies achieve different objectives, and hence the one that suits your needs best is the one that has to be selected. If you require just an insurance cover at the lowest cost then a term policy is right for you, while if you require a savings element linked to market performance then you will select a unit-linked policy and so on.

Return and its importance

A lot of people look only at return even when they are selecting an insurance policy. There is a need to step back and look at the entire issue in great detail because return is not the only point that has to be considered. If you are looking at getting a particular amount of insurance cover or you are trying to achieve a specific objective of receiving money at specific time intervals then the return will occupy a secondary role. Shifting the focus away from return ensures that the right area is considered in terms of importance and then a decision is taken.

Ease of payment

One thing that most people will find is that making the payment for an insurance policy is very easy and this can be suited to your requirements. You can opt for a monthly premium payment or even a half-yearly insurance premium payment, at your convenience. At the same time, there can be a one-time payment in the form of a single premium policy. Even direct deduction of money from your salary each month or from your account is possible. This reduces the pressure on you to remember and make the payments and eases the process.