“I don’t call it “Life Insurance,” I call it “Love Insurance.” We buy it because we want to leave a legacy for those we love.” ~ Anonymous.
Let us assume that you are a 35-year-old engineer working in a reputed organization and earn a 20 LPA. It means you are making over 1.66 lakhs per month, and it is a decent amount to run a household having your parents, spouse, and two children.
Life is a bumpy road with unpleasant hiccups, so you meet with an untimely death. As you were the sole breadwinner, the family has fallen short of income. Even though you had some savings, that isn’t enough for the long run as the earned money was also used for parents’ medicine, running the household, paying for the school fees of two children, and other expenses.
It is where life insurance slides in as it comes with many benefits that are enough to cater to your family’s needs even in your absence. And, mind you, life insurance is a vast world with something for everyone.
This blog will help the reader in learning about,
- What is life insurance?
- What are the different types of life insurance policies in India?
- What are the features and benefits of life insurance?
Hold on because you will get down to the world of the insurance market to understand the nitty-gritty.
What is Life Insurance?
Life insurance can be accounted as a superhero without a cape. It works as a platform that helps save, invest, financial aid when confronted with health issues, and other added benefits that change as per the selected plan.
You can consider it as one of the most effective tools that allow us to enjoy such benefits is an insurance policy. It is critical to grasp the significance of insurance and improve our lives. The aim of insurance may differ depending on your circumstances and economic situation. It would be best to comprehend the importance of insurance and how it applies to you specifically.
You cannot live your life how you had it back in your early twenties because one must manage their finances accordingly to have a buffer-free ride ahead chart out their finances based on different requirements and future objectives.
The objectives can be long-term or short-term, but having a direction in handling the finances is mandatory, and life insurance comes into play. And it is why financial advisors say that one must start investing in term insurance when they are in their twenties as it is the prime earning age where one can multitask and earn from multiple sources and pay lesser premiums.
Now, let us go through the features of life insurance, and they are as follows:
Life insured: Also known as the policyholder. It refers to the person who bought the life insurance from the insurance company. They are designated to pay the premiums to keep their chosen policy alive.
Premium: As mentioned earlier, it is the amount that a life insured pays to a life insurance company to cover their life.
Maturity: It is the phase where the insurance policy is completed by the life insured. And, in most of the life insurances, the life insured shall receive maturity benefit if they manage to live through the term plan.
Sum Assured: As per the benefits under the chosen life insurance, certain perks come with some amount, and that guaranteed money is known as sum assured. It could be death benefit (paid if the life insured meets with untimely death), survival benefit, maturity benefit, and many more.
Beneficiary: Also known as the nominee. The person chosen by the life insured shall avail the benefits once the policyholder is no more.
What are the Benefits of Life Insurance?
To prepare an economic haven for your family’s safer future: Every parent wants their children to be cared for even when not present. Owning life insurance ensures that your loved ones are not financially harmed in your absence. Even though none can compensate for the loss of a loved one, planning with life insurance might assist in meeting the family’s financial needs.
Achieve your financial objectives: Life insurance policies assist you in achieving those objectives by helping you build a financial corpus with the protection of a life cover. Life insurance policies instill the habit of diligent saving. Paying a small sum periodically takes you towards reaching your future objectives. Wealth creation is one of the many benefits of life insurance.
Tax Benefits: Premium payments are your cue to save taxes in the insurance world. You can decrease their tax responsibilities by investing in insurance-specific instruments under Section 80C of the Income Tax Act (1961). The premiums paid by the life insured are entitled to a maximum tax deduction of Rs. 1.5 lakh as per the tax law. Furthermore, any payouts from your insurance coverage are tax-free under Section 10(10D). Moreover, if the policyholder chooses any health-related rider, they can claim tax breaks under Section 80D.
Support to manage Liabilities: To realize your objectives and achieve your goals, you may have needed some financial assistance in the shape of loans or other sorts of debt. While you may have the cash to pay off a portion of your loans now, your family may struggle to manage such responsibilities in the event of your untimely death due to a loss of income. Because apart from running a household, you also need to pay for hospital bills, emergencies, school or college fees, and many more. The source of income might be one, but the area of expenditure is multiple.
Death Benefit: You can purchase life insurance to safeguard their families when the policyholder shall meet with an untimely death when the term plan is active. In this case, the insurance company pays the sum promised, plus any applicable incentives, in the amount stipulated in the contract.
Riders: They are added benefits that come at a nominal price and can be added to your life insurance policy to increase its coverage. Many riders, ranging from critical illness, accidental, total, and permanent disability, and many more such types, are available to make your policy more inclusive.
Types of Life Insurance Policies in India
Term Life Insurance: The attractive benefit of this plan is that it pays out a death benefit to the beneficiary/nominee if the insured dies within a specific time frame. If the policyholder lives until the end of the time or term, the insurance coverage expires, and no payout or death claim can be filed. Term life insurance can also be defined as an insurance plan that acts as income replacement for selected years, and it is one of the most cost-effective forms of life insurance.
Unit-linked Insurance Plan (ULIP): One of the most unique and preferred types of insurance is a comprehensive combination of investment and insurance. But, it also holds a risk factor as the investment numbers are borne to get manipulated as per market fluctuations. ULIP plans allow the insured to invest in several funds offered by the insurer based on their risk tolerance. The insurance company then invests the collected funds in various money-market products such as stocks, equities, and many more.
Whole life insurance offers coverage throughout the policy’s term. It holds a cash value component, which grows over time. Here, the life insured can withdraw your cash worth or borrow against it at your leisure. Furthermore, if you pass away before repaying the debt, the death benefit granted to your beneficiaries would be decreased.
Endowment plans can be named conventional life insurance policies that combine insurance with savings. In an endowment plan, the insurance company pays the policyholder a maturity benefit if the life guaranteed lives longer than the policy duration.
Retirement Plan: If you want to secure your aged phase, this is the cue. It assists the life insured in accumulating a retirement corpus. When the corpus reaches maturity, it is invested to generate a regular income stream known as a pension or annuity.
Child Insurance can be considered an investment and savings plan weaved to meet their child’s future milestones. This plan helps your children pursue their aspirations and allows you to begin investing in the children’s plan as soon as they are born, with provisions to withdraw the money once the child enters adulthood.
Group life insurance provides comprehensive coverage covering a group of people under a single umbrella policy. These types of life insurance are typically offered as part of an employee benefits package. It differs from individual life insurance plans in that the coverage lasts throughout the policy.
There are multiple life insurances available, and all are curated for people from different walks of life. Insurance is a mandatory asset that everyone must own, but before jumping into it, you should always use a premium calculator to understand the cost one must pay practically.
It is advised that one should make a wise decision first rather than jump to catastrophic conclusions.