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Life Insurance is the only financial tool, which offers the combined benefit of Long term Savings, Protection and Tax benefit.

With the economy continuing to dominate the headlines, one wonders what is the best way to save for one’s future. For any kind of financial strategy it is important to consider carefully what works best for your own financial goals and needs. And thus your hunt starts for a financial tool that offers the most competitive return and stability.

Life Insurance is the only financial tool, which offers the combined benefit of Long term Savings, Protection and Tax benefit. It plays the role of an income replacement by offering financial protection. Insurance provides stability and completeness to an individual’s financial planning, which has been drawn taking into account the present and future value of assets and liabilities. Life Insurance thus becomes a must and first step towards financial planning. But, what you may not know is that a life insurance policy is much more than protection against the unknown. It can provide you with cash value that accumulates over time or, in the long run, supplement your retirement income.

But before you make a decision on what life insurance policy to purchase, first time buyers should ask themselves these questions:

1. Understand Why You Need It

Do not buy a policy because your friend or relative says so. Life insurance is designed to provide families and individuals with financial security in the event of the death of a partner or parent. It can help pay for mortgages, children’s education and also fund your retirement. In short, if others depend on your income, you should strongly consider life insurance. Even if you do not have any of these needs right away, you still may want to consider purchasing a small "starter" policy, if you anticipate you will have them in the future. The younger you are, the less expensive your policy will be.

2. Determine the amount of coverage you need

To determine the proper amount of life insurance, you need to estimate your annual salary income, monthly expenses, and any future, on-going expenses such as a mortgage or school bills your family will still need to fund after your death. Then you need to decide how much you can afford to pay now.

3. Find the right type of policy

Once you have completed your calculations, it is time to think about the type of policy that best fits your needs. Today, life insurance comes in many varieties, but there are four insurance policy types which might suit a first time buyer:

Term – which provides death benefits during a specified period of time; Whole – life time coverage; Endowment – where the policy benefit is paid either on death or on a specified date; and Annuity – life insurance that carries, as an additional benefit, payments to the insured when he or she reaches a specific age, such as retirement

4. Know what you are buying

Any discussion of insurance will probably include words such as cash value, premium, maturity and more.

To help you navigate through the sea of jargon, here are some useful terms to know when taking out a policy:

Illustration: a document used to show a life insurance policy’s future values, including cash values and death benefits,

Benefit: the contractual cash pay-out and amount of insurance coverage agreed to by the insurer for the policy holder

Premium: the payment made to an insurance company, in exchange for the agreement to pay the policy benefits.

Beneficiary: The individual or entity that will receive the benefit – cash payment - upon the death of the insured.

Claim Amount: The stated amount of the benefit that is payable upon death.

Cash Value: the total of premiums paid to date plus accumulated interest, that is payable in the event of death or maturity, less expenses and administrative charges.

Maturity Date: the date upon which the policy pays the insured its full cash value.

Life Insurance being a long-term contract, it is important that before purchasing any insurance product, you should clearly articulate your financial objectives, assess the amount of annual investment required to meet your potential long-term needs, and then assess your risk-taking ability to decide what sort of a product is more suited to your requirements and circumstances. The basis of a sound financial management strategy should be a well thought out insurance plan.

Finally, it is important to repeat this exercise annually, so that you can plan for your changing financial objectives and requirements over a period of time.