Since you started earning, agents are continuously trying to sell you one or other life insurance policy. But do you trust them blindly? In fact, we know some people who feel trapped and cheated because of the insurance agent. Thus, we want to choose best life insurance policy ourselves.
I do understand that you want the best life insurance policy which can give you high return along with the tax saving. The insurance would be added benefit. You may be searching a policy from the LIC as it is the most trusted insurance company of India.
This post is dedicated to your this concern. In this post I am not going to tell you the name of best LIC plan. Rather, I would help you in the selection of most suitable life insurance policy for you. So let us start from the basic question.
Need of a Life Insurance Policy
These questions are basic but very few of us ask to ourselves. Why do we need an insurance plan? Do we need insurance scheme to save tax? Is insurance plan required for high return? Do we need insurance policy for financial security of our family?
In fact, people takes an insurance policy to fulfill any or all of the above objective. However, your approach may not be right.
If you think an insurance policy as an tax saving instrument, you are wrong. If you consider an LIC plan for high return on investment, you are again wrong. The primary objective of life insurance plan is to give financial security to the family in your absence.
You take an auto insurance to mitigate the financial loss in case any untoward incident happens to your car. You take health insurance to bear the medical expense in case there is an emergency hospitalization. Similarly, home insurance, fire insurance, travel insurance are taken to compensate the sudden financial loss. If there is no loss, you are not going to get a penny. Indeed, Insurance gives you safety from sudden financial loss.
Similarly, the life insurance should also give financial security to the family if the breadwinner dies untimely. This should be the primary objective of a life insurance plan. If you want to give financial security to your family, you must take a life insurance plan. For high return and tax saving there are other plans.
Understand Your Requirement
Of course! you might also want to save tax and invest. But why limit yourself to the insurance policy. Should you not also evaluate other investment and tax saving options available in the market. You deserve best tax saving plan and best investment plan. What is harm in checking them out. Right!
Following investments can be a good alternatives for decent return and tax saving. Go through this list. By following the link you can learn more about these investment schemes.
Alternatives of Insurance Plan
PPF account – Risk free, interest better than bank FD. 15 year lock in. Saves all round tax.
VPF (voluntary provident fund) – You can get good return with tax saving by increasing your contribution towards the EPF account. Most of private company employee contribute 12% of the basic salary to the EPF scheme. You can voluntarily increase this contribution.
NPS – The national pension scheme is good option to build wealth for retirement life. You can choose the schemes of your liking. You can go for fixed investment as well as equity investments. The investment in NPS is eligible for tax deduction.
NSC – 5 year lock in. Interest better than bank FD. Fixed return. Get it from post office. Investment saves tax under section 80C.
Senior citizen saving scheme– It also saves tax. only for senior citizens. Gives regular income.
ELSS – It is equity mutual fund scheme. Money gets locked for 3 years. Saves all round tax.
Home purchase – You get tax deduction of home loan EMI. The principal and interest part of the EMI are separately eligible for income tax deductions.
Besides these schemes, there are some more ways to save tax.
Now you know other alternatives of life insurance policies. Think over these and then look towards the insurance schemes. Let me clarify that a life insurance policy is necessary for death cover not for investment or tax saving.
Types of Life Insurance Plans to Select
After the proper assessment you can choose the insurance plan of your liking. There 5 different types of Life insurance plans. Note, all insurance plans give you benefit of the 80C tax saving.
If you want insurance plan only to give financial security to your family, the term plan would be best for you. These are cheapest plan. You can have 1 crore life cover by spending as low as 8 thousand per month. It is really very cheap. These plans also saves tax.
Know more about term life insurance plan
Traditional Endowment plans
If you want to invest some money along with the life cover, you can go to specially designed insurance plan. The endowment insurnace plans are such options. These plans also saves tax. Because of the insurance and investment combination, the premium of such plans are very high.
Traditional Endowment Policies give you death cover during the insurance period. After the maturity, you also get the maturity amount. This plans gives you a guaranteed amount after the maturity.
Money Back Plans
Money Back plans gives some money during the policy period as well. Thus, It gives death cover, some amount during policy and maturity amount. Because of this triple benefit, the premium of such plans are highest. Ultimately, it is your money which is distributed.
Whole Life Plans
The plans runs throughout your life. The nominee of policyholder gets the maturity amount irrespective of the deceased person’s age. This extra insurance cover comes at a cost. You have to pay far higher premium than the term plan.
This plans are also a mix of insurance and investment. But it does not give a guaranteed amount at maturity. Rather, your money is invested in mutual fund schemes of your choice. The maturity amount of ULIP depends upon the performance of your schemes.
Choose Best Insurance Scheme
Once you choose the type of insurance, go for the best insurance company. Every life insurance company has schemes of all the given types. Suppose, you want to take term plan, you would find many term plans of different companies. While choosing best life insurance scheme you should consider following factors.
This ratio shows the financial strength of an insurance company. To pay your claims, the financial condition of the company should be sound. At the time of calamity when there are several death happens in short span, weak insurance companies may default. That is why big and sound company matter while you buy an insurance scheme. IRDAI publishes solvency ratio of every life insurer in the annual report annexures.
Premium rates of insurance schemes differs widely. The LIC term plan charges 200% premium of many smaller life insurance company. The premium for LIC e-Term policy of 1 crore (age 30 years, duration 30 year) is about 16,000. While you can get term plan of Reliance life insurance for the premium of 8000. Thus, Premium is also an important factor. However, You must consider the reputation and financial condition of the company.
Riders give you added advantage along with the death cover. Such as accidental death benefit rider gives double of the sum assured. Critical illness rider takes care of expense of treatment. You have to pay extra premium for the rider. Rider may be important if you have any specific need. Learn more about the Life insurance riders.
Normally, Premium and sum assured remain fixed for the whole policy tenure. However, some life insurance companies gives you an opportunity to top up sum sum assured. You even get the option to pay premium for a limited period. Such flexibility might be useful for some people. If you are the such person, you should search for the insurance policy with these features.
Go for Online Scheme
Since you are reading this post, I assume that you can deal with online form and transaction. Hence, you should also go for the online plans of insurance scheme. The specific online plans are cheaper than the offline plans. You don’t give commission to the agent in an online insurance policy. The online term plans are 20-30% cheaper than the offline plans.
These were the steps to choose the best insurance plan. Working on these steps I have also chosen best term plan for you. You can check out my list.