Life Insurance is an understanding, a contract between two parties, namely the insured
and the insurer. As a part of this understanding, the insured will pay premiums
for certain duration of time and the insurer will pay the sum assured (a predefined
lump sum amount) in case of the insured's death. The type of insurance that a person
can and should pick largely depends on his requirements and expectations. The conditions
and outcomes of the life insurance also change along with the type of life insurance.
We will discuss a bit more about those a little later. The only thing which is common
to all types of life insurance is that proceeds from death benefits are tax-free
and that you also get tax rebate under Section 80C on the premiums paid.
Why do you need a life insurance?
Most of us think we are invincible during our younger days. Well, it is quite good
to be confident, but being ignorant is not wise. If everything goes on smoothly,
your risk pays off. But if something wrong happens somewhere down the line, that
is when you get into a deep financial crunch. Something like a severe and damaging
accident, a critical illness or the worst of it all, death.
These incidents can overthrow all your plans for future. Sure, a life insurance
will not buy you a shield against such incidents, but will surely provide you with
financial aid so that you or your loved ones are financially protected and can move
ahead with their lives. An insurance then is a tool for managing risks; risks that
are unforeseen and can be pretty damaging in nature. Having a life insurance in
your portfolio would ensure that you lead a life without constantly having to worry
about the future of your loved ones in your absence.
What are the different types of life insurance?
Life insurance is an umbrella, of which there are a few categories of products.
It is then essential to understand or at least be aware of these different types
to help you make an informed decision. After all, at the end of the day it is your
money and your life, who can be a better decision maker other than you? The following
are some of the most common ones.
Term life insurance: Term Life insurance is the easiest insurance that you
can opt for. It comes with straightforward conditions. You pay the insurer a fixed
premium and in turn the insurer provides life cover for a certain predefined number
of years. Should something untoward happen to you within the term period, your loved
ones or the nominees will receive the sum assured amount as claim. Its uncluttered
approach and ability to secure large sum assured by paying very affordable premiums
make term plans a favorite choice for all. If you opt for a vanilla term insurance
you do not stand to benefit financially if you see the term through. However, insurers
have come up with new add-ons which offer some benefits if you live through the
term of the plan.
Endowment life insurance: An endowment life insurance covers you from insurance
as well as savings perspective. It being an insurance product at the core, of course,
provides you with a life cover. The savings component of the insurance adds value
and guarantees a lump sum amount on the maturity of the policy. The usual practice
is to keep the maturity as close to retirement as possible so that you can use the
maturity benefits for your retirement planning.
Money back life insurance: Most of the insurers have a money-back policy
in some form or the other. Essentially the plan covers the insured with a predefined
life cover and the benefits are passed on to the insured at regular intervals. The
intervals for the interim payment are usually 3-5 years and the policy is ideal
for people looking for an additional payment source.
ULIP: A ULIP or Unit Linked Insurance Plan gives an insured the best of insurance
as well as investments. A portion of the premium amount that you pay fetches a life
cover for you while the other portion is invested in instruments that can garner
good market linked returns for you. ULIPs have a greater level of customization
built into them as you can decide your exposure to debt or equity instruments depending
upon your risk taking ability.
Getting the right life insurance product in your portfolio is very important; as
it helps you proceed with all your plans with a backup to support the family in
case you are not present when they need you the most. So, factor in all your life
insurance investments needs and then choose type of insurance's that would suit