Why You Shouldn’t “Panic Buy” Life Insurance

The Coronavirus (COVID-19) pandemic has increased the demand for insurance, as the number of infections grew throughout 2020. The primary reason for this is that life insurance provides financial security to your loved ones in case of an unfortunate event.

The new trend is “panic buying”, as the pandemic has brought the importance of monetary stability to the forefront. Millions of people testing positive and thousands of deaths have once again made everyone aware that they cannot predict the uncertainties of life. However, “panic buying” insurance coverage is not the right solution, and you must evaluate your requirements before making a decision.

It is important to financially protect your dear ones with a life insurance policy. However, not researching your options may result in unwanted wastage of money. Additionally, there is a possibility that things may go wrong, and your family may face further distress if they are unable to file a claim or there is a delay in receiving the policy benefits.

Here are some things that you need to assess before investing in life insurance:

  • Determine an adequate sum assured (SA)

If you do not find out about your family’s financial needs, the insurance coverage may be insufficient to take care of all their requirements. While determining the SA, consider your current expenses (adjusted for the inflationary increase in the future), outstanding debt liabilities like a home loan or car loan, and future life goals, such as children’s education or spouse’s retirement. Moreover, consider your assets and other investments to determine the shortfall, which ensures that you procure enough SA. 

  • Understand the different types of life insurance policies

You can select from many types of life insurance plans, such as endowment policies, money-back policies, unit-linked insurance plans (ULIPs), term plans, and more. Each of these policies has certain features and benefits. Additionally, financial aspirations change at various stages during your lifetime. Therefore, it is important that you learn about various types of life insurance policies to choose one that best suits your family’s requirements. 

  • Know about the premium and its payment options

Life insurance coverage is available only when you pay the premium on time. Therefore, before you buy the life policy, use an online premium calculator to determine the approximate amount you will pay for the coverage. Additionally, insurers provide flexible premium payment terms, such as monthly, quarterly, semi-annually, and annually. Consider your economic situation to opt for a premium payment frequency that does not result in any liquidity crisis.

  • Consider availing of additional coverage through riders

Insurers offer multiple riders that allow you to enhance the coverage over and above the base policy. Some of the commonly available ones include accidental disability, critical illness, and waiver of premium riders. Before you add one or more of these riders, remember that you have to pay an extra premium for these. Therefore, consider your family’s requirements and pick only those riders that will provide extra benefits to them in your sudden absence.

Although the entire world is affected by the pandemic, there is no reason to stop adhering to good financial discipline. Ensure you have a budget and stick to it, be cautious on your spending habits, and invest regularly to meet your financial goals. Also, avoid any distress, especially when thousands of people have lost their jobs and faced large salary reductions.

It is important to understand what is life insurance, its benefits, and its offerings to make the right decision. Having life insurance in your investment portfolio is only one aspect of your overall financial plan. So, do not overlook other options to maximize the benefits for yourself and your family members.

  • Joe Spencer

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