From today’s article we will know about Life Insurance. Many people have many questions about life insurance. So through today’s article we will know the answer to every question related to life insurance.
For example – What is life insurance, what is life insurance premium, why do life insurance, what are the types of life insurance, requirements and disadvantages of life insurance etc.
If you also want to know the answers to all these questions, then continue reading today’s article. Hope this article clears all the questions related to ‘Life Insurance‘ from your mind.
What is life insurance?
Life Insurance is a financial protection against adverse circumstances related to human life like death, disability, accident, retirement etc.
Human life is at risk of death and disability due to natural or accidental causes. Loss of family income occurs when a person dies or becomes permanently or temporarily disabled.
If the insured person dies or becomes disabled due to an accident during the term of the life insurance policy, the specified insurance company or the insurance company, pays a fixed amount to his family.
What is life insurance?
Life insurance is a written contract between an individual (the policyholder) and the insurer (the insurance company).
In this contract, in case of death or accident of the insured, the insurance company promises to pay a pre-approved amount to the insured.
In return for this commitment, the insured agrees to pay a certain amount of money (monthly fees) to the insurance company for a specified period and at specified time intervals.
What is life insurance premium?
After you take insurance from a company, you have to pay a fixed amount to the company, monthly or annually. This is called life insurance premium.
That is, how much money are you paying monthly or yearly premium for life insurance?
Why do life insurance?
- If you have life insurance, your personal family will get some financial support on your death.
- Life insurance is needed to finance your children’s education and other needs.
- One can take life insurance to have a savings plan for the future. So that you have a regular source of income after retirement.
- Life insurance may be needed to ensure your additional income if your income is reduced due to serious illness or accident.
- Life insurance also comes in handy to meet other financial situations and lifestyle needs.
What are the types of life insurance?
There are generally 8 types of life insurance. These are discussed in detail below.
1. Term Life Insurance
Term insurance is considered to be the simplest form of life insurance. It is a pure cover plan that provides protection for a fixed period of time. If the life assured dies within that period, the nominee gets the pre-determined death benefit.
The most distinctive feature of a term insurance plan is the high amount of coverage offered at a very nominal premium rate. Fixed term plans also offer maturity benefits, i.e. the policyholder returns the premium on expiry of the policy.
One can increase the amount of coverage provided by the term plan by opting for additional riders such as accidental death benefit or child support riders.
2. Whole-Life Insurance Plan
Unlike term insurance, where the insured only has coverage for a specific period of time, whole life insurance provides coverage until the death of the policyholder.
You can choose a participating or non-participating policy as per your financial needs and risk appetite.
Although the premium for participation in whole life insurance is relatively high, the policyholders are paid dividends at regular intervals.
The premium rate is lower for a non-participating policy, but the policyholder usually does not get the benefit of regular dividends.
3. Unit Linked Insurance Plan
Among the various types of life insurance policies available, ULIPs enjoy a high amount of popularity due to their versatile nature.
ULIPs bring the dual benefits of both investment and insurance. A portion of the premium paid for ULIPs goes towards securing insurance coverage, while the rest of the premium is invested in a bouquet of investment instruments.
Which may include market-backed equity funds, debt funds and other securities. ULIPs are highly flexible instruments as investors can easily switch or redirect their premiums among the various funds available.
ULIPs are also claimed to have an edge over other market instruments in terms of tax-saving benefits, since their income is exempt from LTCG (Long Term Capital Gains).
4. Child Insurance Plan
A child insurance plan offers different types of life insurance. Such a plan is designed to meet a specific goal: to ensure financial security for the policyholder’s children in the event of the policyholder’s unfortunate death.
This is ideal to ensure that the child’s future needs are taken care of even in the absence of the life insured.
Parents can invest in the best child insurance plans to meet their financial requirements for their child’s education, marriage or to meet the many financial goals that their child may have.
5. Endowment Plan
This is another type of life insurance policy that acts as an instrument for both insurance and savings.
Endowment plans aim to provide maturity benefits to the life insured, in the form of a lump sum payment at the end of the policy term, even if a claim is not made.
Endowment plans are ideal for people who want to have maximum coverage while having a large savings component They help policyholders to develop savings habits, and even provide financial security to their families.
Endowment plans can be broadly classified into two types: with profit and without profit. Policy holders can choose from these two types based on their risk appetite.
6. Money Back Plan
Being one of the best types of life insurance policies, a money-back policy pays the policyholder a percentage of the sum assured in the form of survival benefit at periodic intervals.
When the policy reaches maturity, the remaining sum assured is transferred to the policyholder. However, if the policyholder dies during the term, their dependents are paid the full sum assured without any deduction.
7. Retirement Plan
A retirement plan is a type of life insurance that focuses on providing you with financial stability and security after your retirement.
After you retire, you will lose your regular income from the job. Investing in a retirement plan can help you create a stable regular income stream. If you continue to invest till retirement, the plan will help you take care of your expenses after retirement.
A retirement plan requires you to regularly invest a certain portion of your income during your working life. By the time you retire, the amount you build up over the years will convert into a regular income stream.
Retirement plans also involve death benefits. Thus, if the policyholder dies during the term of the policy, a sum assured will be paid to their beneficiaries.
8. Group Insurance Plan
A group life insurance policy covers a group of people under a single plan. Unlike individual life insurance policies, which cover one person for a period of time, group insurance covers a minimum of 10 members.
Employers, banks, corporates and other similar entities can purchase group life insurance policies for their employees and customers.
While employers want to provide financial security to their employees’ families, banks and lending institutions aim to keep loans from the borrower’s family after their death.
Life Insurance Requirements – Who Can?
Anyone can get life insurance. Life insurance is necessary for a person who needs support for his family and is currently earning money.
Considering the economic value of the contribution of housewives to the family, they also need life insurance.
Life insurance may be considered necessary for children. If their future earning potential is at risk.
How to choose life insurance policy?
The concept of proper ethics varies from person to person. What would be a good option for someone else, may not be as attractive to you. Hence, it becomes important to choose the most suitable policy for you. This is why you do these things.
a) Select according to the target
Different life insurance policies can help meet different goals. You should be clear about the goals you want to achieve with your life insurance policy.
b) Consider the sum assured
Assess the needs and wants of your family members as well as the day-to-day expenses and choose a cover that can meet all these. The general rule is that you choose an assured amount that is at least 10 times your annual income.
c) Tenure of the policy
While some policies are designed to achieve long-term goals and have long tenures, some policies also have shorter tenures. Select a policy that has multiple time frames.
Riders can increase your sum insured and cover incidents not covered in the basic policy. Choose a policy with maximum rider.
e) Check company information
Apart from the policy, also research about the company providing the policy.
Name of some life insurance companies
If you want life insurance, then you can take the plan from the popular and trusted companies in India given here.
- SBI Life
- Aegon Life Insurance
- Kotak Life Insurance
- Reliance Nippon Life Insurance
- Tata AIA Life Insurance
- Life Insurance Corporation of India
- Bajaj Allianz
- Kotak Life Insurance
- IndiaFirst Life Insurance Company
- Bharti AXA General Insurance
- Company Limited
- Exide Life Insurance
- Max Life Insurance
Disadvantages of life insurance
- You have to pay the insurance policy premium regularly.
- For this you sometimes have to reduce your monthly expenses.
- Life insurance can be expensive for you if you are unhealthy or old.
- Usually life insurance is not for oneself i.e. the policy holder, it is for the future of the family and one’s children.
- Make sure your life insurance agent is trustworthy.
- If you feel that you are unable to pay the premium and want to surrender the policy, you may get less or very little amount than the entire amount you paid.
I hope that from today’s article, what is life insurance, what is life insurance premium, why should you buy life insurance, what are the types of life insurance, requirements and disadvantages of life insurance – all these questions have been answered. If you like the article then share it with your friends. Thank you, stay well.