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How to choose life insurance policy as per salary?

dateKnowledge Centre Team dateAugust 19, 2021 views234 Views
Buy Best Life Insurance Plan | Life Insurance Plan Online in India

If you plan to buy a life insurance policy to secure the life of your loved ones, important questions you need to answers are:

If you have started looking for a policy and are confused around the above points, you are not alone. Most people are in a dilemma when it comes to buying the right insurance plan. If you are clear with your financial goals, you can get answers to the above questions.

To help you understand how to find answers to the above questions, we will take up a case study. You can replicate the same as per your financial situation and conclude.

Nitin is 34 years, lives in Pune with his wife, two children, who are six years and two years old. Nitin's parents also stay with him, and they both are retired. Nitin is the only earning in the family and earns Rs 1.2 lakh per month.

Assess your Family’s Financial Goals

Nitin has the following visible long-term financial goals:

a) Child Education

Nitin has two children at 2 and 6 years old. He needs funds for their education in the next 12 to 18 years, some lump sum amount every year.

b) Child Marriage

He also needs funds in the next 25 to 28 years for their marriage.

c) Retirement Corpus

He wishes to retire at the age of 60, so he wants to create a retirement corpus and regular source of income for his second inning of life such that he does not have to think about money post-retirement.

d) Foreign vacation

He wants to take his entry family for a foreign trip in the next three to four years.

e) Start a business for recurring income

Nitin has some land in his hometown. He wants to construct a house there and rent it out for regular income. He plans to start construction after 7 to 8 years once the area is developed. He is saving a small portion for this financial goal as well.

Assess your Family’s Immediate Liabilities

He also has two running loans with the following details:

1. Car Loan

a) He has a 5-year car loan of Rs 5 lakh
b) EMI for the loan repayment is Rs 13,500
c) The loan tenure was for five years, and three years are pending

2. Home Loan

a) He has a 20-year home loan of Rs 35 lakhs
b) He is paying Rs 30,000 as EMI
c) He has about 16 years remaining for the loan

He has monthly expenses of Rs 40,000, and the remaining he is saving for different financial goals.

To sum up, Mr Nitin has a loan liability of approximately Rs 38 lakhs (without the interest amount). Along with it, some uncompromising financial goals and some aspirational financial goals.

Now let us look at two scenarios that could happen with him:

i. Nitin Lives a Long and Healthy Life – The Best Scenario

Nitin has about 26 years until retirement. During this period, his income will continue to grow and:

  • He will save and invest his savings towards his children’s goals and his retirement
  • He will pay off all the debt
  • Along with his spouse, Nitin will retire at the age of 60 or 65

ii. Nitin Meets an Unfortunate and Early Death – The Worst Scenario

If Nitin dies in the next few years, none of his above financial goals would complete. Not only this, he will leave with a big loan liability for his family.

iii. Nitin Meets with Accident and is Disabled – Mezzanine Scenario

His earning capacity may be impacted, and he will have to reset his financial plan to the new reality. Plus, the family may have to incur huge medical costs and may have to modify his home.

Nitin’s financial safety needs require the following health and life insurance policies:

a) Term life insurance plan
b) Critical health insurance plan
c) Family Medical insurance
d) Accidental disability cover

These policies will cover about 80% of his life’s financial emergencies caused by an external event. The remaining 20% are temporary contingencies like job loss, etc. Such emergencies will need an emergency fund of up to 6-month income.

How Much Term Life Insurance Does You Need?

Given the known financial goals and needs of Nitin’s life he should have a term life cover that can fulfil the following for the family in his absence:

a) Helps them meet their important life goals, like children’s higher education and marriage
b) Provides for the regular expenses of the family
c) Helps them pay off the ongoing debt

Since all three are based on his income, his income will also decide the term insurance cover. Usually, 10 to 15 times the annual income is an adequate cover, depending on whether you have liabilities.

So, in the case of Nitin, his term insurance policy should be about 15 times his annual income, i.e. Rs. 2 crores.

With a term plan like iSelect Star Term Plan from Canara HSBC Oriental Bank of Commerce Life Insurance, Nitin can also choose an increasing cover to account for future growth.

How Much Health Insurance You Should Have?

Nitin will need two types of health insurance plans – one which looks after the cost of healthcare, and another, which assists financially in the case of a major illness.

While Mediclaim will include the entire family, the critical cover should be available to both Nitin and his wife. If Nitin buys the iSelect Star term plan he will automatically have the critical illness insurance cover. He can also add his wife under the same plan, even if she does not have a direct income.

Term life insurance and health insurance covers are not the only essential insurance plans you want to have. You also want to protect your children’s goals from any shortcomings due to your early demise or other contingencies.

You can create your financial goals, check your liabilities, and based on the data can pick the term plan, decide the cover amount and choose other plans to accomplish your other goals.

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Frequently Asked Questions (FAQs) Related to Life Insurance Policies

The premium is one of the most important factors to consider before buying a life insurance policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the premium calculator available in the 'Tools and Calculator' section of

Life insurance plans come with several riders which increase the efficiency of the policy for the buyer. For instance, if you have a history of terminal illness in your family it would be advisable to opt for terminal illness rider with your term insurance plan. Riders or add-ons help in customising the standard policy benefits for the requirement of different families. The iSelect term insurance plan comes with a built-in cover for terminal illness, and option for protection against accidental death or disability. You can also opt to cover your spouse's life under the same policy by paying an additional premium.

Life insurance companies calculate the premiums based on several factors such as age, gender and occupation.

Age: It is one of the biggest factors that influence life insurance premiums. Premiums tend to be low when the life insured is younger as the chance of contracting diseases is low. Young people also opt for the best life insurance policies with longer tenures and pay premiums for a longer duration, which makes the policy cheaper for young people.

Gender: The insurance premium for women is generally lower when it comes to life insurance plans. Women live longer and pose a lesser risk of a claim leading to lower premiums for them.

Lifestyle habits: The premiums for people who smoke or drink is always higher due to higher health risks.

Policy term: Policy terms are also taken into consideration by insurers while deciding the premium amount. Life insurance policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the best life insurance policy also determines how much you will have to pay for the plan. People who buy life insurance policies online have to pay lower premiums as compared to offline policies.

Occupation: The nature of your work is an important factor that influences the premium amount. Certain occupations like shipping and mining are considered more dangerous as compared to jobs in services industries. The insurance premium rises with the risk profile.

Processing life insurance claim is a transparent and smooth process with Canara HSBC Oriental Bank of Commerce Life Insurance.

In case of the death of the life insured, the nominee will have to intimate the company by filling a Death Claim Form and sending it to the nearest branch office.

Once the form is received, the claim is registered by the insurer.

After the registration of the claim, the company will send the claims pack along with the related forms such as physician’s statement form and employer certificate that need to be filled.

Along with the duly filled forms a few documents such as original [policy document, death certificate, copy of bank passbook, hospital or treatment records, photo identification and address proof have to be provided.

The claim is processed on the submission of relevant documents. Once the documents are verified, the claim amount is released post all due diligence.

Household expenses rise with age. The cost of children's education increases along with other lifestyle expenses. The iSelect term plan offers an option to increase the cover according to the life stage. If opted, the insurance cover increases by 25% at every 5-year terminal till the 20th policy year.

Even though a life insurance policy is bought to protect your family in your absence, there are chances of the claim being rejected due to several factors.

False information: If the policyholder provides false information or conceals important information while buying the life insurance policy, the insurer has the right to reject the claim after his/her death.

Type of death: Deaths due to suicide in first policy year, intoxication or pre-existing disease is not covered under life insurance plan.

Premium payment: The payment of premiums on time is of utmost important to avail the benefits of life insurance. Life insurance policy may lapse on the failure to pay the premiums

Nominee details: A life insurance company can put the claim on hold if the nominee details have not been filled or not been updated by the policyholder.

Suicide: If the life insured commits suicide within 12 months of buying the life insurance policy, the insurance companies generally pay 80% of the total premiums paid.

Buying the best life insurance plan online is not only safe but a better option. Online life insurance policies have lower premiums and the individual is not required to visit the insurer's branch or a bank. The best life insurance policies online insurance offer higher benefits. Customers should, however, buy online life insurance policies only from credible insurers and should check for SSL certificate on the website to ensure that the website is legitimate.

The cost of life insurance policies varies depending on factors like age, gender and occupation. The average cost of life insurance plans, especially term plans, is very low compared to the amount of coverage offered.

An individual is allowed to have multiple life insurance policies. People opt for more than one life insurance policy to increase the cover or avoid claim rejection. In case of multiple life insurance policies, even if the claim is rejected by one insurer, the beneficiaries may receive the benefit from a different insurer.

Life insurance policies are of different types. In case of unit-linked or endowment policies the policyholder receives the maturity benefit at the end of the policy term. However, in the case of term insurance plans, there are no maturity benefits. The death benefit is only paid out after the death of the life insured.

When you buy a life insurance policy, the insurance company asks for the nominee details. Only the person named as the nominee in the life insurance plan can cash out in case of death of life insured.

A life insurance policy is generally taken for a specified period. After the policy duration of a term plan gets over, the policy simply terminates and ceases to exist. However, in case of unit-linked plans or endowment, you can use the policy as a tool for retirement planning and the accumulated corpus is used by the insurer to pay you monthly amounts for your entire life.

If a policyholder purchases a term plan for 25 years and dies during the policy term, the beneficiary receives the death benefit. In case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment option is chosen, the policy works as a source of regular income.

It is a popular misconception that life insurance plans are only for accidental deaths. A term life insurance plan like iSelect Star Term Plan also covers terminal disease along with death. A terminal illness cover is important as health insurance pays only for the cost of treatment and hospitalization, but a terminal illness cover pays you a lump-sum amount which takes care of other expenses. On the other hand, unit-linked policies such as Invest 4G cover death and also provide decent returns for other financial goals such as buying a house of child's education.

It is ideal to buy a life insurance plan in your early 20s because it is the time when people have just started with their professional life and so there are lesser responsibilities and financial liabilities to take care of. Also, if you buy the best life insurance plan at this age, you will be paying relatively lower insurance premiums since it’s a due fact that mortality rate in case of young people is low. And that is why life insurance companies offer lesser premium rates to younger people as they think that they are most likely to be fit and healthier with less chances of filing a claim in future.

Once you have cancelled your life insurance policy, you will instantly lose your life insurance cover. Afterwards, your insurance company will get in touch with you and ask for valid reasons regarding the cancellation of your policy. In case you cancel your life insurance policy within the grace period, i.e. 15 to 30 days, depending on your insurer, then insurance company will reimburse the premium amount paid by you. But, no refunds will be paid to you if the policy is cancelled after the grace period.

Yes, you can take life insurance under Married Women’s Property (MWP) Act, 1984 only if you are a married man and a resident of India. Buying a life insurance plan under MWP Act would be helpful in saving your family’s financial well-being when you are not around. As per this policy, only wife and children would be eligible to receive the death benefits. You can also buy a policy if you are a widower or a divorcee. However, in that case, you can give your child’s name as your beneficiary. It is very simple to buy a life plan under MWP Act. All you need to do is to fill up an MWP addendum while purchasing an insurance policy.

Yes, there are different payment options for you to pay premiums. Here’re some of them

    1. Regular premium payment option – This premium payment option allows you to pay premiums equal to your policy term either monthly, quarterly, half yearly or annually.

    2. Single payment option – Through this premium payment option, you can pay the lump-sum amount in one single payment.

    3. Limited payment option -In this premium payment option, you can pay premiums for a specific period of time less than policy term either monthly, quarterly, half yearly or annually, but benefits of insurance can be enjoyed for a longer period of time.

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