Six tips to maximise life insurance benefits

Keep these in mind to gain maximum benefit from your life insurance policies that you may already have or are planning to buy

Decisions that have long-term impact require thorough thinking so that you could minimise the possibilities of mistakes. Same is true for life insurance, the ideal financial instrument to meet your life stage needs and provide protection against life risks. It is important to know your needs for life insurance and also review such needs annually or when there is a life-changing event so that you can plan for your changing financial requirements.

Thus, while you may have invested in an insurance policy years ago based on your needs at that time, it is always prudent to review it along the way to gain maximum benefits.

Have a clear view of your long-term needs

"Learn from yesterday, live for today, look for tomorrow." Charles Schultz in Charlie Brown’s Little Book of Wisdom. This quote has a message for financial planning of individuals. While don’t sacrifice your today for tomorrow, it is important to understand that you must keep an eye on future. Because if you don’t start planning for it today, when you will reach there tomorrow you will not be prepared for it.

It is important to identify your short-term and long-term needs separately and also view the liabilities you are carrying from your past. It is also important to understand that the financial instruments for both these needs are also different. Life insurance clearly is meant for long-term needs and to inculcate the habit of saving regularly for those needs.

Evaluate your insurance needs from time to time

A life insurance policy should cover your life risk and meet your long-term financial goals. You may have bought a policy or multiple policies to meet your financial goals of child’s education and marriage or retirement. It is important to review them periodically because your aspirations and needs might have significantly changed over the period of time. Your earning capacity has a direct impact on the lifestyle and hence the quantum of life cover needed to ensure that your family does not have to compromise on living standard in case of some eventuality.

Similarly, once you marry and have a child, it is important to invest in a child plan in addition to your term plan to cover his/her education, marriage and to ensure that your family’s financial comfort continues even if you are not there.

Maintain a long-term view

Life insurance policies are designed to work best and give maximum benefits over the long term. Often, due to lack of proper guidance, people are led to believe that they can reap benefits at the end of five-year tenure. Life insurance policies, especially market driven ones like ULIPs, are designed to provide the dual benefits of both saving and protection and give maximum benefit over the long term.

It is always beneficial to read and understand the advantages you will have if you hold the policy throughout its tenure, i.e. until maturity. It is also important to start early so that you can get the maximum benefit of the power of compounding.

Follow financial discipline

You can never stop reinforcing the value of financial discipline when it comes to investing. Making sure you are investing regularly that will help you attain your life goals with ease. It is important to pay premiums regularly to keep your policy active. Missing the deadline for premium payment may result in the lapse of the policy.

Consequently, your risk coverage may stop or you may get reduced insurance coverage, resulting in financial loss and increased financial risk for you and your family.

Consider the benefit of riders

Another advantage that you may have overlooked in your insurance policy is the option of adding riders. Riders provide added benefits and help in customising life insurance as per your requirement. For example, if you have a traditional life insurance plan but are now also mulling to invest in an accidental death plan, one option is to check the availability of an accidental death benefit rider. There are various riders like critical illness cover, accident and disability cover, waiver of premium, etc.

While they are mostly chosen at the beginning of the policy, some life insurers also allow you to opt for them later as well. Riders are ideal for enhanced financial protection at a low cost.

Review your tax implications periodically

Life insurance is a great tax saving tool and reviewing the tax-saving features of your life insurance policies and riders is important to make the most of the tax benefits on offer. You can claim deductions on the premium paid for life insurance by you for your spouse or premium paid for your child’s policy in addition to any premium paid for rider add-ons.

A periodic review at the beginning of the year is therefore important to plan for your tax liabilities for the year.

Keeping these points in mind, you can derive maximum benefits from your insurance policy. What is important is to review your policy periodically, understand its features and tax benefits and keep a long term view. This will go a long way in helping you attain your life goals easily.

Illustration: Uttam Ghosh/Rediff.com

Parag Raja is EVP and Head of Agency, Max Life Insurance