LIFE INSURANCE

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What is Life Insurance?

A life insurance policy is something that provides a dedicated sum of money on the demise of the policyholder or after a certain period of time.

Life insurance is a contract wherein an individual is offered financial coverage by an insurance company in exchange for a payment over a period. The payment made to the insurer is referred to as the premium. In case the policyholder passes away during the policy tenure, the insurance company will offer a lump sum amount to his/her nominee. This lump sum amount is called the sum assured on death or the death benefit. Upon completion of the policy term, the policyholder receives a sum assured on maturity or the maturity benefit from the insurer along with some bonuses.

  • Long Term Saving: Life insurance helps you in saving and building your wealth. It is a systematic way to safeguard you financially and take care of your future plans like a child’s education, marriage, retirement etc. Therefore, you get the dual benefits of savings as well as protection.

  • Life Stage Specific Planning: Life insurance companies offer plans customized for different stages of life. Every family has certain goals which require thorough planning. These goals may include planning for your kid’s education, buying a house, retirement planning, etc.

  • Life Cover: The primary and the most important advantage of a life insurance policy are providing a life cover. The insurance company is liable to pay the life cover to your nominee in case of any unfortunate event. This life cover ensures to keep you and your family secured always in an unfortunate event.

Types of life insurance

  • TERM LIFE INSURANCE:
    A term life insurance policy is one of the simplest and most affordable life insurance plans that you can buy. It provides coverage for death risk for a specified period. In the event of death of the policyholder, the sum assured amount is paid to the nominee in lump sum or as monthly pay-outs. This type of life insurance gives you maximum coverage with minimum premium. You can also widen up the coverage by buying additional riders.

    Some insurance companies have come up with innovative term insurance plans where they offer return of premiums to the insured at the end of the policy term. Term Plan with Return of Premium is one such term life insurance policy that returns you back up to 115% of the premiums you have paid if you survive the end of the policy term (10-15 years).

  • UNIT LINKED INSURANCE PLANS (ULIPS):
    ULIPs give you the triple advantage of insurance, wealth creation and tax-saving investment. In ULIPs the money that you pay as premium is partly invested on funds and partly on risk cover. You can choose the funds to invest depending upon your risk appetite and investment horizon. You can use a ULIP calculator to calculate the amount of corpus you need based on the frequency of investment, amount and tenure.

  • ENDOWMENT PLANS:
    Similar to a ULIP, endowment plans are types of life insurance that offers a mix of insurance coverage and investment opportunity. Sum assured is paid to the nominee or family in case of death or sum assured amount plus accumulated bonus in case the insured outlives the policy term.

  • MONEY BACK POLICY:
    As the term suggests, in this type of life insurance policy the insured receives a specified sum in intervals during the policy term as well as sum assured amount on death or on maturity. Investors also get accrued bonuses on maturity.

  • WHOLE LIFE INSURANCE:
    A whole life insurance covers the insured during the entire lifetime of the individual or in some cases up to 100 years. Sum assured is paid to nominee on death of the policy holder. In the rare event that the policyholder lives more than 100 years, the maturity amount is paid to the insured.

  • CHILD PLAN:
    A child insurance plan helps to build capital for important events in a child’s life such as higher education, overseas studies, marriage, etc. Most child plans provide one time pay-out or annual payments after the child reaches 18 years of age. In case the parent passes away during the policy term, payment is made to the child or family. Some insurance companies waive off the premiums in case of death of the policyholder and make the payment after maturity period.

  • RETIREMENT PLAN:
    This type of insurance plan helps you build a substantial amount of capital to live a worry-free retirement life. You can opt for annual payments or a single pay-out after the age of 60 years. In case of the death of the insured, payment is made to the nominee either based on coverage, fund value or 105% of premiums paid.

Benefits of a Life Insurance Policy:

Life Insurance policies offer several different benefits to individuals. Following are the most important:

  • Risk Cover:
    Since uncertainties are unpredictable and may cause problems to an individual and his / her family at any time, availing a life insurance policy will ensure that your family and dependents continue to enjoy a quality lifestyle in case of your unforeseen and accidental death.

  • Comprehensive Plan for Different Stages of Life:
    Not only does life insurance offer financial support in case of the policyholder’s unforeseen and accidental death, but also serves as a long-term investment in the sense that it encourages you to lay down your objectives, whether it is the education of your children, their marriage, constructing the home of your dreams, or even planning for a peaceful retired life. The planning will be done based on your risk appetite and life stage. Most conventional life insurance plans, such as traditional endowment plans, provide specific maturity benefits and built-in guarantees via a number of product options like Guaranteed Maturity Values, Guaranteed Cash Values, Money Back, etc.

  • Cover for Increasing Health Expenses:
    Whether it is through stand-alone insurance policies or through riders, all life insurance providers offer financial cover against hospitalization expenses and critical illnesses. Since health expenses are increasing constantly, the need for health insurance policies has increased too, as it ensures that the policyholder will have minimal medical costs to deal with.

  • Promotes Savings in the Long Run:
    Since life insurance policies are long-term agreements wherein the policyholder is required to make a fixed periodical payment, it helps the policyholder inculcate the habit of savings. Saving money regularly over a relatively long period of time helps in building a good corpus which will in turn help in meeting your financial requirements at different stages of life.

  • Profitable and Secure Long-Term Investment:
    The insurance industry is highly regulated. The Insurance Regulatory and Development Authority of India has implemented several regulations through which the money of the policyholder is ensured to be safe with the stakeholders, which means that all the money you invest in your life insurance policy will be the responsibility of the stakeholders of the company through which you avail your policy. Since life insurance is a long-term savings product, it also ensures that the policyholder focuses on long-term returns rather than focusing on risky investment decisions that could provide short-term profits.

  • Guaranteed Income via Annuities:
    When it comes to planning for retirement, there are few instruments as effective as life insurance policies. Since you will be saving money over a period of time, life insurance policies will help in providing a steady source of income after you have retired from professional life.

  • Growth via Dividends:
    Conventional life insurance policies provide customers with an opportunity to take part in the economic growth while taking no investment risk whatsoever. While the policyholder split the investment income through yearly announcements of bonus / dividends, the policyholder will earn maturity benefits in addition to contributing to economic growth.

  • Loan Facility:
    Individuals who avail life insurance policies will have the choice of availing a loan against their insurance policy, which could help them meet their unplanned life stage requirements without hampering the benefits provided by the policy they have purchased.

  • Redemption of Mortgage:
    Life insurance policies serve as the best possible tool for the coverage of loans and mortgages availed by the policyholder. If there is ever any unforeseen situation due to which the policyholder is not able to repay his / her loan or mortgage, the bereaved family members will not have the burden of repayment, and the policy can be used to repay the loan or mortgage.

  • Tax Benefits:
    Life insurance policies offer attractive tax benefits and help you save a significant amount of money which would otherwise be spent on taxes.

Points to Consider before you buy Life Insurance

  • Choose the Right Advisor:
    There are many advisors who will push you to buy the product. Some may even offer you benefits. However it is better to choose right advisor who is dependable, knowledgeable and with an experience. Someone who thinks of your benefit rather than his earning. His advices in your interests and hence gives you Sacchi advice.

  • Remember lock-in period:
    There are instances when individuals purchase insurance policies without making an informed decision and later realise that they are unhappy with the insurance policy. In such scenarios, some insurance companies offer a lock-in time frame, which is a short time usually 15 days where a policyholder can return the policy to the insurer and purchase another in case they were unsatisfied with the initial purchase.

  • Consider premium payment options:
    Almost all insurance providers offer premium payment options consisting of annual, semi-annual, quarterly or on monthly basis. It is essential that you opt for Electronic Check System (ECS) payment that will periodically debit your bank account with the required insurance amount. Also, you can choose from a schedule that will allow you to make a premium payment with the convenience of interval payments.

  • Don’t Mask Information:
    There are times where individuals try to hide information when filling out the insurance application form. All personal credentials and medical history must be accurately presented to the insurance company. Misinformation can cause serious issues when trying to make claims later on.

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