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What is Life Insurance?
'Life insurance' is a contract between the policy holder and the insurer, where the insurer agrees to pay a designated beneficiary a sum of money upon the occurrence of the insured individual's or individuals' death or other event, such as terminal illness or critical illness. In return, the policy holder agrees to pay a premium - stipulated amounts at regular intervals or in lump sum.
Why is Life Insurance needed?
Losing your near and dear ones is a traumatic experience that only time can heel. But if your family is left without sufficient finances or means of income, it presents a big financial crisis for the rest of their future. The family's future needs to be adequately protected to ensure that the basic needs and their future goals are met and not sacrificed or compromised. In present times, getting financial security for your near and dear ones is thereof of utmost importance. It is the foundation of your family's financial well-being and is something that cannot be ignored, compromised or postponed.
Advantages of life Insurance:
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Risk Cover and financial security in your absence- It also helps cover loans taken by the policyholders so that, in case of any unforeseen event, the burden of repayment does not fall on the family.
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Planning for life stage needs - Life Insurance policies can also help build long term investment and help you meet your life goals, like children's education, their marriage or retirement.
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Protection against rising health expenses - Life Insurers through riders or stand alone health insurance plans offer the benefits of protection against critical diseases and hospitalization expenses
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Inculcate savings habit - Being a long-term contract, regular savings is promoted by way of premium payments
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Safe and regulated - Insurance is a highly regulated sector and IRDA, the regulatory body, through various rules and regulations ensures that the safety of the policyholder's money is the primary responsibility of all stakeholders. Also Life Insurance being a long-term savings instrument, ensures that the life insurers focus on returns over a long-term and do not take risky investment decisions for short term gains.
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Protection plus savings over a long term - Since traditional policies are viewed both by the distributors as well as the customers as a long term commitment; these policies help the policyholders meet the dual need of protection and long term wealth creation efficiently.
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Tax Benefits - Insurance plans provide attractive tax-benefits for both at the time of entry and exit under most of the plans
How much Life Insurance to take?
How much life insurance coverage is adequate is a critical question. If the insurance coverage taken is inadequate, the objective of taking life insurance itself stands defeated /unfulfilled. Simply put, the coverage should be such that it should be sufficient to meet all your family's future needs, including any life goals they may have. The term future needs would cover all your living expenses & basic needs while the life goals would cover goals like child education, marriage, buying own home, etc. The coverage amount also has a lot to do with your standard of living and takes into account your surplus wealth, net of liabilities. We advise you to contact your certified insurance advisor to know your actual life coverage need...
Life Insurance products available in market:
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Pure Protect Policies : Pure protection policies are like pure life insurance policies. They provide you with life insurance coverage for a specified term of years in exchange for a premium whereby the policy does not accumulate any cash value. In other words, such plans are pure risk cover plans without (or with limited) maturity benefits. The purpose is to provide a high level of coverage at reasonable cost to the person. Hence the term 'pure' where the premium buys protection in the event of death and nothing else. Another popular term used for pure protection policies is "Term Insurance".
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Endowment Policies : Endowment life insurance plans cover risk for a specified period, at the end of which certain defined and/or accumulated benefits are paid back to the policyholder. Such plans are popular and are in nature of long-term savings plans with build-in life cover.
Generally at the end of the term, the policyholder receives sum assured plus the accrued / guaranteed bonuses declared during the term, as a lump sum, provided all the premiums are paid. Further, in case of the unfortunate death during the term of the plan, the sum assured is paid out along with the accumulated benefits that the policy offers. -
Whole Life Policies : Whole life insurance plans, as name suggests, offer life protection during your entire life. Such plans generally offer the option to pay the insurance premium either during the whole life or for a limited period. Such plans generally do not carry any maturity benefits and pay the sum assured to the family in case of an unfortunate death of the policyholder. The primary purpose is to offer financial protection to family.
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Investment oriented Policies / ULIPs Investment oriented plans or ULIPs (Unit Linked Insurance Plans) : provide you with life coverage and also invest a part of your premium into assets like equity, debt or cash market instruments for creating wealth. Thus, a part of the premium goes towards life coverage and a part in investments whereby units are allocated to the policyholder which have a NAV, similar to mutual funds. The primary purpose of such policies is long-term wealth creation with benefit of life coverage during the term. The policyholder has the generally choice of choosing the preferred asset class for investments.
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Pension Policies : Pension plans have the purpose of providing for a pre-specified amount at regular intervals of time, starting at a defined time. Thus, such products are more suitable for your post retirement planning. Generally the pension plans have two options - (a) Immediate Annuity Plans and (b) Deferred Annuity Plans.
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Child Care Policies : Child care plans have the purpose of providing for monetary support to your child and family in case of any unfortunate death or disability of the parent. Such plans help ensure that your child's financial future and that their goals and dreams are met. Such plans usually offer defined corpus to the child at a certain age in future with premium waiver facility in case of any unfortunate event happening with the parent.