Review your insurance cover periodically to reflect life changes

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

While you may have invested in an insurance policy years ago based on your needs at that time, it is prudent to review it along the way to gain maximum benefits. Here are the top five things to keep in mind to gain maximum benefit from your life insurance policies that you may have or are planning to buy.

Have a clear view of your long-term needs: While you shouldn't sacrifice your today for tomorrow, it is important to understand that you must keep an eye on future. It is important to identify your short-term and long-term needs separately and also view the liabilities you are carrying from the past. It is also important to understand that the financial instruments for both these needs are also different. Life insurance is meant for long-term needs and to inculcate the habit of saving regularly for them.

Evaluate your insurance needs from time to time: It is important to review your cover 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 should 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 a 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: 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: 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, accident and disability covers, 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.

The writer is executive vice-president & head of agency, Max Life Insurance