When Sachin Kumar (name changed), a businessman, suddenly passed away due to a heart attack, his family was left in the lurch with huge unpaid loans that he had taken. To settle his liabilities, they had no choice but to sell off their properties. Sachin Kumar had a life insurance policy of Rs 1 crore, which would have been sufficient to cover all his liabilities, but unfortunately, his family wasn’t aware of it, as he had never informed them about the purchase.
Life insurance is an important tool to secure one’s family financially from adverse circumstances, making it a must for all those with dependents. However, while buying life insurance, many people ignore some basic things, which can lead to complications later, especially when a claim arises.
Here are some important pointers to keep in mind while purchasing life insurance
Are You Buying Adequate Life Insurance?
Underinsurance is as bad as having insurance at all. Ideally, your life insurance cover should be adequate to cover all your liabilities, as well as make a financial provision for your loved ones for at least 10 years or more, or, till a certain goal is achieved, say, for example, till the education of children are completed.
As a rule of thumb, your life insurance cover should be at least 15-20 times your annual income. So if your annual income is Rs. 5 lakh, your life insurance cover should be around Rs. 75 lakh to Rs. 1 crore.
Are You Upgrading Your Life Insurance Cover At Different Stages Of Life?
When you are single and/or have no dependents, you don’t need a high life insurance cover. But when you get married and have children, your financial responsibilities also increase. Hence, it is important to keep your life insurance cover updated with changing responsibilities in life.
Have You Informed Your Spouse/Dependents About Your Life Insurance?
The objective of purchasing life insurance is to provide financial security for the family in one’s absence. However, this objective goes for a toss, if the family is not aware about the insurance policy, and thus, is unable to make any claim.
According to media reports, published in July 2021, a massive sum of Rs 82,000 crore is lying in unclaimed bank accounts, life insurance, mutual funds and PF accounts across India. The major reason for this is lack of proper nomination, or failure to notify the legal heir or successor about the investments.
Hence, it is important to notify your spouse or your loved ones about all investments made by you, including life insurance, so that they don’t miss out on what they rightfully deserve in your absence.
Life insurance is a must for all those with dependents. At the same time, it is equally important to buy adequate life insurance, as well as keep upgrading your cover as and when your financial responsibilities increase. It is also necessary to keep your loved ones informed about your investments, so that they can use them to maintain their existing lifestyle.
The author is CEO and principal officer, Bonanza Insurance Broker Pvt. Ltd.
(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)