Life insurance can be an essential financial planning tool for protecting loved ones and providing peace of mind knowing that financial obligations will be met in the event of the insured’s death. It’s essential to carefully consider one’s financial needs and goals when choosing a life insurance policy. Consulting with a financial advisor or insurance agent can help individuals select the most suitable coverage for their circumstances.
Life insurance policies provide protection against unforeseen circumstances such as the policyholder’s death or incapacity.Â
For availing life insurance policy the person needs to provide some details like age, medical history and any type of smoking or drinking habits.
As there are many requirements of persons for availing a life insurance, the requirements can be needs of family, education, investment for old age, etc.
Types of Life Insurance:
Term Life Insurance: Provides coverage for a specific period, typically 10, 20, or 30 years. If the insured dies during the term, the policy pays out a death benefit to the beneficiaries. Term life insurance is usually more affordable than permanent life insurance.
Whole Life Insurance: It Covers the policyholder’s entire life. Offers coverage for the insured’s entire life as long as premiums are paid. It also includes a cash value component that grows over time, which the policyholder can access through loans or withdrawals. Premiums are paid regularly until death. Pays out the corpus to beneficiaries upon death; policy doesn’t have a predefined tenure.
Universal Life Insurance: Similar to whole life insurance but offers more flexibility in premium payments and death benefit options. It also accumulates cash value, which earns interest based on prevailing market rates.
Variable Life Insurance: Combines death benefit protection with an investment component, allowing policyholders to invest in various sub-accounts similar to mutual funds. The cash value and death benefit may fluctuate based on the performance of the underlying investments.
Endowment Plans: Pays out sum assured along with profits in case of death or survival. Higher premiums compared to term insurance due to savings component. Profits are generated by investing premiums in asset markets (equities and debt).
Unit Linked Insurance Plans (ULIP): Combines investment and insurance. Pays out sum assured or investment portfolio value (whichever is higher) on death/maturity. Performance linked to markets; policyholders can choose investment allocation.
Money Back Policy: Provides periodic payments over the policy term. Part of sum assured paid out at regular intervals; balance paid if policyholder survives term. Full sum assured paid to beneficiaries upon death during the policy term.
Retirement Plans: Offers regular income post-retirement. Requires regular savings during working years; corpus used to provide monthly income post-retirement. Provides a death benefit to the nominee upon the policyholder’s demise.
Savings Plans: Combines insurance and savings. Offers maturity benefit as lump sum savings to meet future financial needs. Helps achieve financial protection for families.
Child Plans: Provides financial support for a child’s future needs. Death benefit goes to the child, used for education or wedding costs. Ensures child’s financial security even if the policyholder is no longer there.
Group Insurance Plans: Covers a group of individuals, typically employees. Provides life cover and financial security to families. Issued to a group manager for a specified period.
Savings and Investment Plans: Provides life cover and channels savings into long-term investment. Premiums invested in chosen portfolio for market returns.
Offers higher returns or guaranteed returns options.
Who should buy a Life Insurance Policy?
Parents: To provide financial support for their children’s upbringing, education, and other needs.
Breadwinners: Individuals who financially support their families and want to ensure their loved ones are taken care of in the event of their death.
Debt Holders: People with outstanding debts, such as mortgages, loans, or credit card balances, to ensure that their debts are paid off if they pass away.
Business Owners: To protect their business interests, ensure business continuity, and provide funds for business obligations.
Married Couples: To cover shared expenses, mortgage payments, and future financial goals, providing financial stability for the surviving spouse.
Single Individuals: Even without dependents, to cover funeral expenses, outstanding debts, or provide a legacy to beneficiaries or charitable organizations.
Elderly Individuals: To cover final expenses, medical bills, or leave a financial legacy for loved ones, and as an estate planning tool.
Anyone with Specific Financial Goals: To save for retirement, fund a child’s education, or leave an inheritance while providing life cover.
Learn a few terms about Life Insurance
Premium: The amount of money paid by the policyholder to the insurance company to keep the life insurance policy in force.
Death Benefit: The amount of money paid out to the beneficiaries upon the death of the insured individual. This is also known as the face amount or sum assured.
Beneficiary: The person or entity designated by the policyholder to receive the death benefit in the event of the insured’s death.
Policyholder: The individual who owns the life insurance policy and pays the premiums to the insurance company.
Term Insurance: A type of life insurance policy that provides coverage for a specified period, known as the term. If the insured dies during the term, the death benefit is paid to the beneficiaries.
Whole Life Insurance: A type of permanent life insurance that provides coverage for the insured’s entire life, as long as premiums are paid. It also includes a cash value component that grows over time.
Cash Value: The savings component of permanent life insurance policies, such as whole life or universal life that accumulates over time. Policyholders can access the cash value through loans or withdrawals.
Underwriting: The process used by insurance companies to evaluate the risk of insuring a potential policyholder, including assessing factors such as age, health, lifestyle, and occupation.
Rider: An optional add-on to a life insurance policy that provides additional coverage or benefits, such as coverage for critical illness, disability, or accidental death.
Grace Period: A period of time after the premium due date during which the policyholder can make a premium payment without the policy lapsing.
Life Insurance is a contract between a insurance policy holder and a life insurance company. Where the insurer promises to pay a designated beneficiary a sum of money (sum assured) in exchange for a premium, upon the death of an insured person  or maturity of the policy (depending on the policy contract) .Other events such as terminal illness or critical illness can also trigger payment.
The primary difference between a term insurance and traditional life insurance plan is that a term insurance plan only provides death benefit in case of demise of the insured within the term period, whereas a life insurance policy offers both death and maturity benefit to the insured.
- This policy provides a death benefit in case of your death during the term
- You get the flexibility to choose the term
- Your premiums are duly returned to you if you outlive the policy tenure
- It acts like an automated savings plan which encourages you to add to your savings every month
- You can avail loan against your plan in case of a financial emergency
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The beneficiary is the person who gets nominated for the insured amount in case the policyholder dies.Â
No-claim bonus refers to a benefit insurance companies offer to those who haven’t claimed insurance during the preceding year of cover. It lowers the premium for the following year.Â
Co-insurance is a policy usually offered by health insurance companies. In this policy, you share the coverage with the insurance policy in a percentage of the policy value after the deductible. Usually, the split is 80%/20% where the policyholder has to pay 20% while the insurance company pays the 80% of the covered amount.