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How To Choose The Best Life Insurance Policy In India As Per Salary?

Life Insurance is one of the most vital investments an individual can make for their families and loved ones. The purpose of getting life insurance is to provide monetary support to the beneficiaries in case of an unfortunate death of the policy holder during the policy period.

Over and above the death benefits, there are several life insurance plans in India that offer savings and investment options. You can get guaranteed or market linked returns which are eligible for tax benefits by purchasing these life insurance policies.

Different types of life insurance plans in India:

There are broadly 8 different types of life insurance plans in India, each offering different benefits to meet an individual’s financial goal: 

  1. Term Insurance
  2. Whole Life Insurance
  3. ULIPs
  4. Endowment Plans
  5. Moneyback Plans
  6. Child Insurance Plans
  7. Retirement Plans
  8. Group Insurance Plans

Each of these plans differ on benefits and cost of premiums. Hence, no single plan can be termed the best life insurance policy in India. However, you can buy multiple life insurance policies based on your salary to create a combination that best fits your insurance needs.

Process to evaluate your insurance needs based on salary:

Insurance needs can be evaluated by assessing your family’s financial goals and your existing financial liabilities.

Let’s understand this with an example:

Ravi is currently 35 years old and he lives in metro city and earns a salary of Rs 1 lakh per month. He is married and has a child whose age is 5 years.

Ravi’s family goals:

 

  1. Child Education – Ravi wants his child to get educated from a decent school and college within his city. For the next 20 years of his child education, he wants an insurance cover that pays a lump sum amount every year towards the fees in his absence.
  2.  Retirement corpus – Ravi further wants to save some amount on a regular basis to generate adequate retirement corpus in the next 25 years.
  3.  Purchasing a land in homeloan – Ravi wants to buy a land and build a small house in his hometown in the next 10 years.
  4. Foreign trip with family – Ravi wants to save money for a foreign trip with his family in the next 3-5 years.
  5. Tax saving – Ravi wants to save money on taxes.

Ravi’s current financial liabilities:

 

  1. Car loan of Rs 5 lakhs with EMI of Rs.15000 for next 5 years.
  2. Home loan of Rs 35 lakhs with EMI of Rs. 30000 for next 15 years.
  3. His other monthly expenses (including child’s education fee) are about Rs. 40000

Summing up Ravi’s finances:

  1. He has Rs. 25000 after deducting his expenses on daily needs and loan EMIs.
  2. He has some uncompromising family goals (Child Education, Retirement corpus, tax saving) and some aspirational goals (Purchasing a land in hometown, foreign trip with family)

Determining Ravi’s insurance needs:

 

To determine Ravi’s insurance needs, we will be considering three scenarios to choose the best life insurance policy in India for him:

Scenario 1: If Ravi lives a long and healthy life:

This is the best case scenario as Ravi would have 25 years of working life during which his annual pay would continue to grow and he would be able to clear all his current liabilities, fulfil all the short and medium term family goals like planning a foreign trip with his family or buying a land in his hometown. He would even clear a long term family goal by paying for his child’s education. Now his only goal would be to have an adequate retirement corpus.

In this scenario, the best life insurance policy in India for him would be Savings and Investment plans offered by life insurance companies in India such as Moneyback plans, Endowment plans, ULIPs, Retirement plans.

Recommendation on best life insurance policy in India under Scenario 1:

Below are few life insurance plans in India we recommend for Ravi:

  • LIC’s New Jeevan Anand
  • Aditya Birla SunLife Insurance Secure Plus Plan
  • ICICI Pru Savings Suraksha
  • HDFC Life Super Income Plan
  • ICICI Pru Cash Advantage
  • Kotak Premier Money Back Plan
  • SBI Life Saral Pension Plan
  • Aditya Birla Sunlife Empower Pension Plan
  • Bajaj Life-Long Goal Pension Scheme
  • HDFC Click 2 Wealth
  • Bajaj Allianz Future Gain
  • LIC’s New Endowment Plus

Scenario 2: If Ravi Mets with an accident and is disabled:

Ravi’s earning capacity may get affected by disability and he might have to adjust his family goals with reality and also reduce his current liabilities by cutting daily expenses or selling loaned assets. 

Having a health insurance policy would help him in getting the medical expenses covered. However, his life insurance needs shall change. 

In this scenario, the best life insurance policy in India for him would be Term insurance plan and ULIPs

Recommendation on best life insurance policy in India under Scenario 2:

Below are few life insurance plans in India we recommend for Ravi:

Term Insurance Plans:

  • Max Life Smart Secure Plus
  • LIC Tech Term Plan
  • Bajaj Allianz Smart Protect Goal Term Plan

ULIP:

  • HDFC Click 2 Wealth
  • Bajaj Allianz Future Gain
  • LIC’s New Endowment Plus

Scenario 3: If Ravi meets an unfortunate early death

All his family goals would be shattered plus a huge debt will be left behind for his family if he does not have adequate life insurance cover.

In this scenario, the best life insurance policy in India for him would be a Term insurance plan with a high sum assured.

Determining how much sum assured should Ravi have in his term plan based on his salary?  

Ideally, the total sum assured should be sufficient to pay for the uncompromising family goals like Child Education and current liabilities.

Since, insurance companies allow 10 to 15 times of annual salary as the maximum sum assured. Ravi can maximum have up to Rs. 1.5 CR as the sum assured.

Conclusion

Most people in India buy a life insurance policy to cover for the worst case scenario of an unfortunate death and hence Term Insurance policies are the most popular life insurance plans in India. However, the common mistake that most individuals make is not getting an adequate life cover and are either over insured or underinsured. It’s best to consult an IRDA certified Insurance Advisor for purchasing a life insurance policy that matches your insurance requirement at different stages of life.

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