How to choose life insurance policy

Direct tax code is going to come into implementation from 2012 financial year. After the introduction of this, there will be considerable changes in insurance policy related matters. Till now people used to take insurance policies to get tax benefits. According to the new direct tax code, tax benefits are only possible when the policy value is at least twenty times more than the premium paid. It is therefore important to analyze carefully before taking insurance policies for obtaining tax benefits.

Life insurance policy gives financial assistance to the family which depends on a single earning member in unfortunate situation. Therefore insurance amount should be decided which can give protection to the family for at least few years. Before deciding the insurance value one has to take the financial status of the family and the responsibilities into consideration. Depending on the income, policy values should be determined. Usually an insurance policy should be taken ten times the annual income of the person or 200 times the monthly expenses of the family. One should not forget to add loans and debts to the monthly expenses. Insurance policy value also depends on the age of the policy holder. Many life insurance policies are available in the market that offers more protection with fewer premiums.

Factors to be considered before deciding the policy value

Number of dependents
Properties and investments
Savings
Loans and debts
Capacity to pay the premium

Policies at different stages of life

There are many stages in the life of a human being. Insurance policy should be taken according to the requirements in each stage. For this the policy holder should analyze whether the existing policy is sufficient for the requirements for every three to four years.

Personal accident policy is needed when the person is young, because if he meets with an accident, he may not be able to go for job. Term policies that are available with low premiums should be selected at this age. If the age of the policy holder is less, the premium to be paid will also be less.
When a person gets married and has children, the responsibilities increase. At this stage, it should be analyzed whether the existing policy will be sufficient for the family requirements even when the person is not physically present. If the wife is also an employee she also should take a policy. If already she has a policy the policy amount should be increased.

Loans and investments:

As loans for vehicles and houses are available with easy installments, many people are taking them. Though the vehicle loan duration will be short, housing loan duration will be more than 20 years. Before deciding the policy amount, such loans should also be considered. Those who take housing loans should also take ‘Loan cover term insurance policy’ which is available for fewer premiums. Many people think that there is no need of taking insurance policies if there are investments. But life insurance policies should not be neglected. No other investment gives the feeling of security like life insurance policies. Policy expenses, income and duration of the policy should be considered before taking the policy.

Usually insurance companies introduce new policies every year in the month of December to attract customers who want to get tax benefits. Insurance agents force the customers to take the policies. If a decision is taken based on their advice, one may have to suffer in the future.

Policy analysis

It is important to analyze policies from time to time. Traditional policies that provide less income should be converted to ‘Paid up’ policies. Premium being paid and income expected should be compared from an insurance policy. One must estimate how money back and endowment policy bonuses increase in future.

Endowment policies should be continues for at least three months. Individuals should take the decision whether to continue the policy after that or not. If taking a new policy is not possible, it is better to continue the endowment policy.

For ULIPs that are taken after 1st September, 2010, a minimum five year premium has to be paid. If the premium is not paid, one has to wait till the completion of lock-in period to get back the

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