The Why, How, and What of Life Insurance
What is Life Insurance?
Life insurance is a contract between an insurance policy holder and an insurance company in which the insurer promises to pay an amount of money in return for a premium upon the death of an insured person or after a certain length of time.
What is Insurance Premium?
The insurance company requires an individual or business to pay a set amount of money as a premium on a regular basis to get and maintain their insurance policy and coverage.
Who should buy Life Insurance?
If you are an earning member of the family, with dependents who rely on you for their living expenses/ education/ lifestyle, then there is need to cover your life. The ideal amount would be the present value of all such future expenses. The exception to this rule is the insurance for children which are geared to cover their education expenses, in case of an unfortunate event to the life of the earner of the family. Financial planners foremostly advise to get a risk coverage
Benefits of Life Insurance Policies
Tax benefits. Enrolling in a life insurance policy might provide you with tax advantages. The policy premiums you pay entitle you to tax exemptions of up to 1.5 lakhs of your taxable income under Section 80C of the Income Tax Act. Likewise the sum assured received at the time of death are totally tax deductible under ITA Section 10(10)D.
Guaranteed returns. Life insurance products ensure that you will get a certain sum after a specified time period, as the rate of return is decided at the start of the policy term for selected insurance policies.
Risk mitigation and coverage. These policies provide the essential risk coverage in the form of monetary compensations to minimize and cover risks following the death of the policyholder.
Provision for loan. Certain insurance policies provide a lending option that allows you to borrow money. This implies that if you need to borrow money for a child's schooling or marriage, you may use the life insurance policy as collateral.
Health expense coverage. Most of these insurance cover all medical and treatment costs that may arise. If the policyholder becomes ill, you can pick riders to extend the insurance policy's coverage to safeguard your finances while you are still living.
Things to Keep in Mind Before Selecting a Life Insurance
Evaluate your life insurance objectives
Determine the ideal insurance coverage that you require
Determine the amount you must spend as a premium and choose the policy that offers the best deal
Choose the appropriate policy term
Do not hide information from your life insurance provider
Carefully read the final policy paperwork
Purchase life insurance at a young age
Eligibility criteria
Age. The age range for applying for life insurance (especially term cover) is 18-65 years. The age at which you apply for insurance determines the premium you must pay.
Citizenship. Anyone seeking insurance must be a resident of India at the time of purchase. However, if you move abroad for studies or a job after obtaining a term plan, your eligibility will remain the same.
Medical tests. Underwriting is often required by insurers in order to obtain a medical test to better understand your health. It is advised that you be entirely honest with them regarding any medical history you may have. This factor is also important in determining your premium.
Income. There is no specified income group or restriction for term insurance eligibility. However, you will be asked for your income slips or bank account information in order to determine the term cover and verify that you can pay the premiums on time.
Job profile. Along with your salary, your employment profile is taken into account. If you work in a high-risk setting, you will be required to pay a higher premium for your term insurance policy.
Habits of smoking Your premium is affected by whether you smoke or not. Smokers pay much higher rates.
Types of Life Insurance Policies
Term Life Insurance
This type of life insurance pays out a predetermined sum of money to the policyholder's family only if the policyholder dies within the term of the policy. If the insured individual lives until the conclusion of the insurance period, there will be no claim. This insurance is essentially active for a set period of time and is one of the most economical products in the market.
Whole Life Insurance
Whole life insurance, as the name implies, offers coverage throughout your life while the policy is in effect. This covering period might last up to a 100 years. This insurance also provides the policyholder with financing options.
Unit-Linked Insurance Plan
A unit linked insurance plan (ULIP) is a multi-faceted policy that provides insurance coverage as well as investing exposure in stocks or bonds. Policyholders must pay recurring premiums for this plan. Part of the premiums are used to fund insurance, while the remainder is pooled with assets from other policyholders and invested in stocks, bonds, or a mix of the two.
Endowment Plan
Endowment policies vary from term insurance policies in that the insured receives a lump sum amount of money if he or she survives until the maturity date. The policy provides both insurance and savings. They also have riders that may be utilised to expand the policy's coverage. In the event of death, the endowment insurance assures that, in addition to the money, a participation profit is paid in accordance with the terms of the policy.
Money-Back Policy
The fundamental distinction and benefit of a money back insurance is that it provides the policyholder with various survival benefits that are connected to the policy's term. Unlike other insurance, this one pays out within the policy duration. If the policyholder dies, regardless of the instalments paid, the family receives the whole money.
Universal Life Insurance
Universal life (UL) insurance is perpetual life insurance (lasting the insured's lifetime) with an investment savings component and low premiums similar to term life insurance.
Variable Universal Life Insurance
A variable universal life insurance policy is a form of permanent life insurance policy. With cash value, investment diversity, customizable premiums, and a flexible death benefit.
Guaranteed Issue Life Insurance
Guaranteed acceptance life insurance is a form of whole life insurance policy that does not require you to answer health questions, take a medical exam, or enable an insurance company to check your medical and prescription records.
Simplified Issue Life Insurance
Simplified issue insurance is a type of life insurance policy that may be authorized with few health questions. This sort of insurance is primarily aimed towards customers who need life insurance immediately and/or do not want to submit to a medical evaluation.
Group Insurance
Group insurance plans provide coverage for a group of people under a single insurance policy. Organizations can purchase these policies to provide coverage to their members.
Return of Premium Life Insurance
Return of premium (ROP) term life insurance offers a death benefit to your beneficiaries if you die during the term of your policy but refunds your premiums if you outlast the policy term.
Survivorship Life Insurance
Survivorship life insurance is distinct in that it is written on two lives. However, before a death benefit is given, both insureds must die - that is, benefit is only received after the death of the second insured.
Please seek advice from a financial consultant before making any money management decision .