Insurance is one of the best ways if one wishes to manage their life risk. Life insurance is an essential investment which one needs to make in order to secure the future of their family. Forbes Advisor India also suggests to avail of insurance before one starts with their financial planning as it is an important necessity for several reasons.
Here’s a comprehensive guide that explains all about life insurance, its meaning, types, and benefits.
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What Is Life Insurance?
Life insurance is a contract between a policyholder and an insurance company, where the policyholder pays the premium and receives a sum of money, upon the death of the insured or after a certain period.
The sum of money which is known as the life cover helps to secure your family’s future needs by paying them a lump sum amount in case of a death of the policyholder. However, in many life insurance policies, the insured are paid an amount called maturity benefit which is generally provided at the end of the policy term.
Main Types of Life Insurance
Pure Protection
The perfect example of these kinds of life insurance policies are term insurance plans which are the purest form of life insurance policies. They are designed to provide financial protection to your family when you are not around. Pure plans pay the lump sum amount to the insured’s beneficiary at one go upon the death of the insured. The premium paid is comparatively low as compared to other life insurance policies.
Protection and Savings
A protection and saving life insurance policy includes life cover along with a savings component which supports you to plan for your long-term goals such as children’s education or their marriage. Such plans offer the benefits of both life cover and wealth creation. Examples of Protection and Savings plans are:
- Savings and Endowment Policy: Insurance and savings.
- Unit-Linked Insurance Plans (ULIP): Insurance plus investment opportunities.
- Money Back Plans: Insurance and periodic returns.
- Child Plans: Helps in achieving your child’s goal such as marriage and further education.
- Retirement Plans: Post-retirement income.
- Whole Life Plans: Whole life coverage to the insured.
Why Do I Need A Life Insurance Policy
Life is full of uncertainties. Everyone wishes to secure their own future along with their loved ones, especially those who are entirely dependent upon them for their financial requirements.
A life insurance policy helps to secure your own financial obligations and provides a sum of money to your nominees, once you are not around. Other than acting as a safety net, a life insurance policy is also loaded with other benefits as well. It also helps you to provide guaranteed income after a set period of time along with tax advantage. The premium paid under a life insurance policy can be claimed as tax deduction under section 80C of Income Tax Act, 1961.
So, a life insurance policy is worth buying, and anyone who have one or more dependents must invest in a life insurance policy, as in case of the demise of the only income earner, a life insurance policy plays a major role in helping your loved ones pay for huge unattained financial obligations and even day-to-day expenses. Undoubtedly, it is one of the most affordable ways to financially protect the people who are financially dependent on you such as your spouse, parents or children.
How to Choose the Right Life Insurance Policy Type
Assess Your Financial Goals: Financial goals differ from one person to another person. For instance, if safeguarding your family is your primary goal, then term insurance is a perfect choice for you. As it pays a huge sum of money to your nominees when you are not around. However, if your goal is long-term such as buying a home or funding a children’s education, then you can consider insurance policies such as ULIPs or savings or endowment policy.
Assess Your Life Insurance Cover: It has been advised that life insurance cover should be at least ten to fifteen times of your annual income. One must assess their life cover as per their financial obligations and other financial goals. You must assess the need of family annual expenses, outstanding debts, children’s education and wedding to arrive at an adequate life insurance cover.
Choose the Correct Policy Term: Always select the correct policy term. The term of the policy should ideally be the years that your family is going to be financially dependent on you.
Reveal All the Facts from Your Life Insurance Provider: Do not hide the relevant facts such as medical history, financial obligations, lifestyle habits from your insurer. Such factors influence your claim settlement process in the future.
Always know the lock-in period: The lock-in-period or free-look period matters the most when you are not satisfied with your current policy. There are many insurance companies which provide a lock-in time frame of 15 days where an insured can return the policy and purchase another in case they were unsatisfied with the initial purchase.
Purchase Life Insurance At A Young Age: It is always beneficial to buy a life insurance policy when you are young as premiums of life insurance policy is comparatively very low. You can always start with low coverage and then gradually add more riders as your income increases.
Check the Claim Settlement Ratio (CSR): CSR is a percentage which refers to the number of claims settled by the insurance company against the total claims received in that particular year. It is advisable to go with life insurance companies that have a high claim settlement ratio.
Benefits of Life Insurance
- Life insurance policy provides life coverage to the insured and its family in form of financial compensation in exchange of premium paid.
- Insurance companies offer a variety of plans to the insured depending on their need for insurance. One gets the advantage of purchasing the insurance plans as per their need and financial goals.
- Insurance policies also cover hospitalization expenses and critical illness treatment.
- Life insurance policies also promote savings and thus help in wealth creation over a long period of time.
- The insured can also avail loan facility on certain life insurance policies.
- Insurance policy also provides tax benefits as insurance premium is tax deductible under section 80C of the income tax Act, 1961.
How Does Life Insurance Work
Life insurance policies provide life cover which helps your near and dear ones financially when you are not around. At the same time these policies also aid in achieving numerous financial objectives of an individual and his family. These are some of the below-mentioned goals of an individual that the best life insurance policy helps fulfill:
- First and foremost, financial protection against loss of life.
- Education for Children.
- Child’s Marriage.
- Buying a House.
- Post-retirement pension or regular income.
The best thing about life insurance policies is that they are very versatile. You can easily achieve long-term financial goals with the help of life insurance plans. For instance, the policyholder can utilize their corpus created out of an endowment plan to pay for a house at a future date.
Life Insurance Claim Settlement Process & Documents Required
- On the occurrence of any unfortunate event, the beneficiary is required to send a claim submission form to the insurance company as soon as possible.
- Claim intimation should contain details such as date, place, and reason of death.
- On successful submission of claim intimation form, an insurance company can ask for additional information such as death certificate, copy of policy, etc.
- The insurance company verifies the claim and settles the same, if all the submitted documents get proper approval.
Best life insurance companies in India
- Life insurance corporation of India
- SBI Life Insurance
- Reliance Life Insurance
- ICICI Prudential Life Insurance
- HDFC Standard Life Insurance
- Bajaj Allianz Life Insurance
- Max Life Insurance
- Aditya Birla Sun Life Insurance
- Tata AIA Life Insurance
- Kotak Life Insurance
To know the list of the best life insurance policies available in the market, read our detailed article on Best Life Insurance Policy In India for more information.
How To Buy Life Insurance Policy Online
Life insurance policies can be very easily purchased online by following a simple and hassle-free process. One can buy a life insurance plan online from any insurance company by following the below mentioned steps:
Step 1: Log on to the official website of an insurance company and then click on “calculate premium”.
Step 2: Enter your personal information such as name, contact information, date of birth, annual income. Click on “calculate now”.
Step 3: Enter the life cover amount, premium payment term as per your need and then click on “proceed”.
Step 4: Select various riders, if you wish to and then click on “proceed”.
Step 5: Select your online payment method and click on “pay”. Payments for policies can be done online via credit/debit cards, net banking or UPI payment.
Step 6: You will soon receive your life insurance policy via email or WhatsApp.
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Price
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Frequently Asked Questions (FAQs)
At what age shall I purchase my life insurance policy?
The earlier the better is a mantra for purchasing a life insurance policy. Experts always advise you to buy a life insurance policy as soon as you start earning your stable income. You should also consider additional factors such as your current income, number of dependents, before you make the purchase.
Is there any age limit for life insurance?
The life insurance plans can be bought by any individual over the age of 18, however, depending on the policy terms and conditions, the maximum age limit may vary.
What do you mean by nominee in a life insurance policy?
A nominee is the family member or relative of the main policyholder, who receives or who will be entitled to receive the insurance benefit post the unfortunate demise of the policyholder.
How many nominees can I add in my life insurance policy?
You can add any number of beneficiaries to your policy. Accordingly, the benefit is passed to that person mentioned in the policy as your nominee or nominees. However, when you have more than one nominee, the income payout which they receive gets divided amongst them equally in a legal manner.
Can I encash my life insurance policy prior to death?
Yes, you can surrender your insurance policy or opt for a loan against your policy. You can also cash out your policy by leveraging cash value withdrawals.
