Life is full of uncertainties, and you never know what tomorrow has in store for you. The COVID-19 pandemic has been a rough phase in everyone's life, but it has also been full of lessons on relationships, self-care, and financial security.
So, if you are the sole breadwinner of the family, make sure you must have optimal life insurance cover for the financial security of your spouse, children, or other family members in the event of your death. Life insurance death benefits depending on the policy amount, can help beneficiaries pay off a mortgage, cover college or tuition fee or help fund retirement.
What Is Life Insurance?
Purchasing life insurance allows you to provide a safety net for your loved ones in case you pass away. Life insurance is a contract between a life insurance company and a policy owner. A life insurance policy guarantees the insurer pays a sum of money to one or more named beneficiaries when the insured person dies in exchange for premiums paid by the policyholder during their lifetime. For a life insurance policy to remain in force, the policyholder must pay a single premium upfront or pay regular premiums over time.
Types of Life Insurance
Many different types of life insurance are available to meet all sorts of needs and preferences, depending on the short or long-term needs of the person to be insured. Some of these are:-
- Term Life: Term Insurance plans provide a death benefit for a fixed tenure. This is the most basic and also the most important type of life insurance policy available in the market. It is the cheapest plan. This plan covers only the death risk and has no maturity benefit.
- Endowment plans: These are savings-oriented life insurance plans having both death benefit as well as maturity benefit. Death Benefit is paid to the nominee if the life insured dies within the policy tenure and Maturity Benefit is paid to the policyholder if he survives the entire policy tenure.
- ULIPS: Unit Linked Insurance Plans are investment oriented insurance plans. Under these plans, the premiums paid are invested in the capital market.
- Child Insurance plans: Child Plans are life insurance plans created specifically for providing financial stability to the child. The parent or the child is the life insured under the plan. Usually, the parent is covered in a child plan.
- Whole life plan: Whole Life Plans are unlimited Term Plans. These plans cover individuals till 99 or 100 years of age.
- Pension plans: Pension plans are retirement-oriented life insurance plans. Under these plans, the policyholder creates a corpus from which regular annuity payouts are given till the insured is alive. Pension plans come in two variants - Deferred pension plans and Immediate annuity plans.
Key things to know about life Insurance
Life Insurance or Protection should be oneâ€™s primary importance. Theoretically, everyone knows about it, but rarely do we understand the real importance of the same. Life insurance is a safeguard against financial deficiency at the time of insured Individualâ€™s death. Practically, life insurance grants you and your family the financial security. It also provides you assurance to deal with any unforeseen events. Life insurance is preferred according to the needs and goals of the insured. So, buying a life insurance policy is important.
However, before you invest in a life insurance plan, here are things that you absolutely need to know: -
Insurance is NOT an investment: This is the first thing you need to acknowledge and accept that insurance should never be considered as an investment. Insurance is a vital part of financial planning. But a lot of people consider it as an investment.You need to keep in mind while choosing your Life Insurance Policy is the coverage amount you wish to purchase for your family. Insurance is synonymous to protection and that is the primary and most important objective. They should not be evaluated on the basis of their return, bonus, etc.
Required Coverage amount: The required coverage amount for your insurance policy is the most important aspect of choosing a plan. It depends on your lifestyle and priorities. You have to consider your standard of living, inflation, needs, liabilities etc. Then, accordingly, decide your coverage amount which would be sufficient for your family.Ensure that your coverage amount is sufficient to meet the monthly expense of your family in your absence.
Policy Tenure: The tenure of Life insurance policies depends on the type of plan you opt for. You can choose any tenure that you think is necessary for you and your family.
Type of Life Insurance best suited for you:
There are varieties of plans offered and available in the market. It all depends on your needs as to which plan you opt for. Some of the insurance plans are:
- Term Insurance
- Whole life insurance plans
- Endowment Assurance Plans
- Money-Back Plans
- Child Plans
- Pension Plans
- Unit Linked Insurance Plan
Claim Procedure: You and your nominee should be completely aware of the claim procedure so as to expedite the claim as and when the requirement occurs.
Benefit Offered: Death and Maturity Benefit:There are two types of benefits in life insurance plans.
- One is Death Benefit, where the beneficiaries will receive a lump-sum amount if the life insured dies within the policy tenure.
- The other one is Maturity Benefit, where the claim arises when the policy is matured. It is paid only when all premiums are paid on time.Maturity Benefit is payable to all life insurance policies except Term plans. Endowment Plans are a type of Life Insurance with maturity benefit. Even ULIPs have maturity benefits. These kinds of policies are relatively quite expensive compared to term insurance, but it protects your family with a coverage amount in case the insured dies within the policy tenure. Alongside, these policies have a maturity benefit payable to the policyholder, if you happen to outlive the entire tenure.
Tax Advantages: Life Insurance plans, apart from providing funds, also save taxes. Under Section 80C of Income Tax Act,1961, premium amount contributed to life insurance plans are eligible for tax rebate. The limit for premium contribution is up to â‚¹1,50,000. Also, under Section 10(10D) of Income Tax Act, 1961, amount of sum insured paid on maturity or death or surrender of policy is completely tax-free. So, life insurance is preferred by many as it protects your family and is also tax efficient.
Know these important aspects of life insurance and then choose the right plan for the Financial Security of your Family.