How To Buy Life Insurance On A Budget?

When you shop around in the insurance market, you may find that based on your age, occupation, health and other factors, you may be eligible for a certain amount of maximum coverage. The interesting thing is, more often than not, you may not need the highest amount of coverage you are eligible for.

For example, you may be eligible for cover worth Rs. 5 crore, but the exact amount of coverage you need may be just around Rs. 1 crore. The good news is that you need not buy the higher cover, which also comes with steeper life insurance premiums.

But then, how do you actually go about buying life insurance on a budget without overspending? Here are 5 tips to help you budget for life insurance smartly.

Here Are Few Tips To Buy Life Insurance Under Your Budget

👉Determine What Type Of Life Insurance Plan You Need
The life insurance market is no longer home to just one or two kinds of insurance products. Today, there are several categories of life insurance products, each with its own sub-categories as well. So, just like you would when you go shopping for clothes or for food, it is always a good idea to take a step back and figure out what your options are.

To give you a better idea of the plethora of life insurance plans available today, let's take a quick look at the common kinds of policies.

• Term life insurance:

Term life insurance is an affordable kind of life cover, and it easily fits into any budget. This budget life insurance typically offers sizable coverage at very pocket-friendly premiums!

The cover offered by term plans lasts for a specific period or term. In case of the policyholder's demise during this term, the insurer pays out the sum assured under the plan to the nominee.

Savings plans:
Also known as endowment plans, savings plans are life insurance plans that give you insurance coverage and also help you save up in a disciplined manner over the policy term. At the end of the policy term, you will receive the maturity benefits.

Unit Linked Insurance Plans (ULIPs):
ULIPs help you enjoy the dual advantage of insurance and investment. You can invest in a variety of ULIP funds like debt funds, equity funds, money market funds and even hybrid funds. Plus, over the policy term, you can also switch your funds based on how your goals change and how the market moves.

Child plans:
Child plans are life insurance plans that can help you save up for the big goals in your child's life, like their education or their wedding. You can choose a timeframe that aligns with your child's college-going age or marriageable age, so the payouts from your life insurance plan coincide with the relevant life stages.

Retirement plans:
Lastly, retirement plans - another category of life insurance - help you plan for the retirement phase of life. The payouts from these plans can be a lump sum amount, periodic payments, or a combination of the two. This way, you can rely on these financial benefits in the absence of a primary source of income. These are the common categories of life insurance plans you can choose from. The more benefits a life insurance plan offers, the higher the insurance premium is going to be. In addition to the base plan, you can also choose from a variety of different insurance riders, which come with an additional premium.

So, take a look at all your options and decide on the kind of life insurance plan you want to buy. That way, you will not be using your insurance budget on a plan you don't need.

👉Decide How Much Life Insurance You Need
The amount of life insurance cover you should buy depends on various factors, including the type of plan you choose and your financial objectives. Term life insurance, for instance, typically covers a specific period and is suitable for providing financial protection for dependents or paying off debts. In contrast, whole life insurance offers lifelong coverage and can serve as an investment vehicle alongside providing a death benefit. Assessing your financial obligations, including outstanding debts, future expenses, and income replacement needs, will help determine the appropriate level of coverage.

👉Figure Out How Much You Can Afford
It is also important to figure out how much you can afford to pay for a life cover at this stage in your life. If you buy a life insurance plan that is way out of your budget, you will have a tough time keeping up with the premiums.

If you miss a premium payment, your insurance cover will lapse after the grace period, and you will lose all the benefits offered by the plan. So, your best bet is to first figure out how much you can afford to pay each month or each year for your insurance cover.

To arrive at this number, deduct all your current non-discretionary expenses from your current income. The amount that remains is your disposable budget for the month. The cost of your life insurance plan should be able to comfortably fit into this budget.

Here's an example to drive home this point better. Let's take up some hypothetical numbers.

So, you need to ensure that your life insurance premium is well below Rs. 15,000 per month. That way, you have some funds left over to invest in other schemes for your future life goals too.

👉Do A Bit Of Research To Find The Best Fit For You
Based on the kind of life insurance plan you want, the amount of coverage required, and the budget you have, you can then find the plan that fits your needs best. Shop around a little and check the following aspects before buying a life cover.

• The Life Insurance Premium Rates
  Check the different premium rates offered by different insurance providers and shortlist the ones that give you budget life insurance options. This way, you can ensure that you don't overspend.
  

What Customers Have To Say
The reviews of existing customers can give you some great insights into how good the insurance provider's customer service and ancillary facilities are. You can also find out if the application process is easy, if the helpline is functional and other such details.

👉Customise Your Policy With Utmost Care
Consider tailoring your life insurance policy to match your unique needs, as customisation options like policy term, premium payment mode, and riders can impact the overall cost. Opting for an annual premium payment could be more cost-effective compared to more frequent payments. Evaluate your requirements carefully and select only the riders that are essential for your situation. If certain riders aren't necessary for you, it's perfectly fine to skip them altogether. By customising your policy thoughtfully, you can ensure it aligns perfectly with your needs while optimising affordability.

👉Get Life Insurance While You're Young And Healthy
Lastly, to ensure that you don't have to pay exorbitant insurance premiums, make it a point to get your life insurance plan when you are young and healthy. The cost is typically on the lower side at this stage because of the low mortality risk in young, healthy people.

On the other hand, if you want to purchase a life cover when you are older, the cost of life insurance also becomes higher. Furthermore, if you have any poor lifestyle habits like smoking or drinking, you need to wean off those practices because they could increase the premium charged for a life cover.

When Should You Consider Buying Life Insurance?

Life insurance serves as a lifeline for your loved ones, ensuring financial security when you're no longer around. But it's more than just that. It can also be a tool for long-term savings, helping you reach milestones like retirement, funding your child's education, covering wedding expenses, etc.

Deciding when to purchase life insurance can be tricky. Some say getting it while you're young is best, while others prefer to wait until they're older. However, the key is to align it with your goals and needs, rather than focusing solely on age.

Take term life insurance, for example. It's designed to protect your family financially if something happens to you. It can cover things like debts, daily expenses, and more. If you have dependents relying on your income, it's wise to consider term life insurance sooner rather than later. But if you're single and financially independent, you might not need it at all.

The ideal time to purchase life insurance hinges on your individual objectives and needs.

👉If You Have A Clear Financial Goal In Sight,
Say you want to save for retirement or buy a home; an endowment plan could be just what you need. It's like hitting two birds with one stone – you get life insurance coverage along with a savings component. This means you can set aside money gradually to reach your financial milestones. The ideal time to consider an endowment plan is when you're mapping out your financial goals, laying the groundwork for a secure and stable financial future.

👉If You're Looking To Build Wealth For The Future,
You can consider investing in a Unit-Linked Insurance Plan (ULIP) while you're young. ULIPs offer the chance to invest in the stock market, potentially leading to significant returns over time. It's like planting seeds early on that can grow into a substantial financial portfolio at maturity. Regular contributions to your ULIP can serve as a stepping stone toward reaching your financial goals, whether it's funding your child's education, purchasing a home, or even securing a worry-free retirement.

👉If You're Looking For A Policy That Offers Regular Payouts,
A money-back plan might be just what you need. It's like having a safety net that not only provides life insurance coverage but also offers periodic payouts that can help cover expenses like EMIs, rent, etc. The best time to consider a money-back plan is when you start juggling financial responsibilities like periodic payments, making it a smart choice for managing your financial obligations effectively.

Conclusion

Purchasing life insurance on a budget necessitates careful planning and evaluation. Determine your coverage needs, compare insurance quotes for cost-effective options, and customise your policy wisely. Starting early can yield lower premiums and long-term financial security. Ultimately, make a well-informed decision that ensures a balance between ample protection and affordability, offering peace of mind to you and your loved ones.