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First time buying life insurance? Here’s what you should know

2/8/22 6:28 AM


By Anup Seth

A lot has changed since the Covid 19 pandemic struck the world in 2020. In India, it has had a defining impact on the insurance industry, which had long been the underdog of the financial world. The pandemic lifted the fog of ‘nothing can ever happen to me,’ and forced everyone to reevaluate their financial needs and priorities. It created a massive disruption across all quarters – health, income, and life itself. People had to deal with personal emergencies that they didn’t even envision would happen to them. This created a seismic shift in the mind of the customer, making protection a critical requirement. 


The typical life insurance customer also became younger, and the increased presence of digital forced companies to reimagine their distribution and customer experience strategies. Companies that understood the nuances of delivering a differentiated and personalized advisory to this younger segment, became the preferred destination for protection requirements. 

As the pandemic continues to bring in several first-time buyers to the fore, it is important for us to continue informing and educating the general population on factors they need to know before buying any insurance policy. 

So, if you have resolved to buy a life insurance policy this year, here are some guiding points that can help you get started on your protection journey:

Which life insurance plan should I buy?

There are multiple life insurance solutions that can help you address key goal-based objectives like child’s education, retirement, income replacement, wealth accumulation, etc. Before you buy a product, it is advisable you map your future aspirations and the corresponding financial needs. This activity will help you ensure your financial purchases are aligned with your needs.  

It’s not a one-size fits all solution: For years, life insurance purchase has been seen as an expense, instead of an investment in one’s future. Over the years, I have seen people trying to address multiple financial objectives with a single product. This, however, leaves you/dependents exposed to financial risks as you are likely to address your protection requirements only partly. For instance, if you want to create a corpus for your child and build a contingency fund in addition to securing your loved ones, buying a single term insurance plan will not help address all these goals. Simply put, you left at least 2 financial goals unaddressed. 

How can one determine adequate life cover?

Determining an adequate life cover is often confusing, especially when you are a first-time buyer. A thumb rule prescribed by most financial experts is that your life cover should be at least 10 times your income. While it’s a great guiding point, every individual must determine their own multiple basis their financial needs. You must make a rounded estimation of your financial realities – income, debt, savings, lifestyle, etc. – to derive your life cover. 

Keep reviewing your protection needs: As you progress through various life stages, your financial requirements change. For instance, the financial needs of a 25-year-old single female are different from that of a 40-year-old mother of two. Ideally, you must review your financial portfolio annually. But, to minimize the tediousness, I will advise that you compulsorily review your protection requirements at least after every life milestone like marriage, new home, birth of your baby, etc.  

Don’t be discouraged by the increasing term rates: Given the massive disruption caused by the pandemic, term plan rates have been on the rise. However, don’t let these hikes discourage you from buying life insurance as there is no substitute to total financial protection of your dependents. India remains among the countries offering lower term plan rates and these recent increases only reflect the significant impact caused by the pandemic on human life.   

Disclosures: When buying a life insurance policy, it is important that you disclose all relevant and critical information about yourself to the insurer. The goal of this purchase is creating a financial cushion for the future and more often it is for your dependents in your absence. Honest and complete disclosures ensure a smooth claim settlement process, fulfilling the objective you set out for this purchase. 

Do your own research: You can consult a personal finance advisor on which products to opt for, but it is essential that your purchase is rooted in your financial needs. Buying a product for the sake of buying will eventually leave you disillusioned with the purchase, and you are less likely to stick with it in the long term. Doing your research minimizes the likelihood of any misalignment between your needs and the eventual purchase. 

How should I decide which company to buy from?

Irrespective of whether a company is well-known or not, it is important that you do a cursory research on what the company has been in news for, ask people in your community about the said company, and look at key data points like claim settlement ratio. This can help you make an informed purchase from any company you choose. 


As risks to human life become painfully obvious, and more people consider buying life insurance, these basics will play an important role in instituting a good discipline not only for buying insurance, but for managing your finances in general. 


(The writer is Chief Distribution Officer, Edelweiss Tokio Life Insurance. Views expressed are his own)

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