How to conduct an objective audit of your Insurance needs and policies?

How to conduct an objective audit of your Insurance needs and policies?
by Nutan Gupta 10/04/2016

Buying a life insurance policy is one of the most important financial decisions that a person makes. More importantly, this decision has a long term impact and hence, needs to be reviewed regularly. So even if you have purchased a policy years ago, it makes sense to conduct a regular audit of your insurance needs.

By definition, a life insurance policy should provide a cover that is big enough to take care of day-to-day expenses of the family and also of the long term financial goals like child’s education, their marriage etc. Since over the course of life, one’s financial goals are achieved or change, a re-look at the existing insurance policies and whether they are adequate enough or not, goes a long way in giving peace of mind to the policy holder.

One very important thing to note here is that the policyholder should be very clear about his short-term and long-term needs, separately. Since both needs are addressed by different financial products, the insurance policy to cover both types of goals should also be different and in line with the time horizons.

When people buy their first insurance policy, most of the times they don’t read the fine print and end up overlooking the option of adding riders. Riders are used to provide added benefits that help in customizing insurance as per an individual’s needs. Riders like critical illness cover, accident and disability coverage etc are some of the more useful ones.

Many people purchase insurance to save tax. Though it is a wrong approach, it nevertheless helps a person save some taxes. The policy holder can claim deductions on the premium paid for life insurance. But with time, one’s insurance requirements might change. So if the policy that was purchased solely for the purpose of tax-saving is found to be unsuitable, it’s best to surrender it (or make it paid up) and go for the right policy as per actual needs.

If a policyholder keeps these important points in mind, it will help him/her in getting the maximum benefit from the policies.