Life Insurance is the most effective solution for the financial problems caused by death. It ensures families live their life with reasonable comfort after the demise of their sole earning member and it can support and sustain a person unfortunate enough to be permanently and totally disabled due to an accident.

A client may have existing life insurance policies but is it the right type of policy with right amount of coverage is the question. Most of the times client park their money in a policy offering returns which are less than inflation and life cover not enough to protect their needs.

Client buys life insurance for various reasons, some of the common reasons are for saving income tax or getting better return on investment or for obliging the close friend or relative.

It is not advisable to use Life Insurance as an investment option rather it is the best Risk Management tool. The ideal way of buying life insurance is adequately covering risk on life and Pure Term plan is the best option among the various policies available in the market for this purpose. 

Now as we know that Pure Term Plan is the right type of policy for adequately covering Risk on your life, the next question is how much is the adequate cover and for how long we need it.

There are various ways to calculate the right amount of coverage, the commonly use method is multiples of salary, majority of insurance agents follow this method, another method which is used by insurance professional is calculating Human life value. The Human Life value calculation is based on theory that insurance can replace the loss of future earnings when a person dies. While these two methods are simple to determine the insurance coverage, the disadvantage is that they fail to consider the needs and circumstances of the individual.

The ideal way to determine the adequate cover is Need based Insurance calculation. It considers the family’s future expenses till the survival of dependant spouse, all fundamental life Goals, all outstanding liabilities (Loans) and all liquid and investment assets while calculating the adequate cover, thus give more accurate estimation of life insurance needs.

Now how long do you need life insurance cover. Some of the policies offer cover till the age of 85 or even 99 but any extended cover will cost you additional money in terms of additional premium. The ideal way of deciding the duration of your cover is by estimating the time required to achieve your fundamental goals, time required to get rid of your all liabilities and time required to accumulate enough corpus to fund your retirement life.

There are 24 life insurance companies operating in India offering different types of plans, therefore selection of the company is also very important. Some of the criteria we should look at while selecting the company are

• Having the product as per our need and at a competitive price as prices can vary significantly among the companies for same type of product
• Having Good customer service
• Having Good underwriting process
• Having Lowest Lapse Ratio, percentage of policies getting terminated each year are low.
• Having good solvency margin, Company which is financially sound and stable.
• Having Good claim settlement Ratio
• Company with good reputation and high customer base in Indian Market

A qualified financial planner is competent enough to help you choose the right company, the right policy, calculate the right amount of cover and the right duration of cover.

This way you can reduce the cost of your life Insurance policy as well as have a peace of mind.