Life insurance is financial product that provides the policyholder financial protection in the event of an unfortunate death. Anyone who is working and has dependents like children, spouse, retired parents etc needs life insurance because an untimely death will deprive the family of income and cause financial distress. If you have debt e.g. home loan, car loan etc, then life insurance becomes an even more critical financial need.

How does life insurance plan work?

A life insurance policy will provide your dependents financial protection over a certain period of time (the policy term) in the event of an unfortunate death. The amount of financial protection is known as sum assured or cover; sum assured is the amount your dependents will get in the event of an unfortunate death during the policy term.

How much cover should you buy?

It depends on your income and the needs of your family. The income from your life insurance cover should be able to meet the needs of your dependents for a long period of time or at least till the time, when your dependents themselves become financially independent e.g. your children start working. Additionally, if you have debt e.g. personal loan, home loan etc your cover should be large enough to repay those loans in the event of an unfortunate death. A common rule of thumb is that your life insurance sum assured (cover) should be at least 10 to 12 times of your annual income.

What is the cost of a life insurance policy?

The cost of an insurance policy is known as premium. The insurance premium is payable annual (or other intervals like monthly, quarterly etc) throughout the policy term or a shorter period, as specified in the policy document. There are also single premium policies, where the entire premium is paid up front. Since the entire premium is up front (lump sum), the insurer will provide you a discount on the premium. The insurance premium will depend on a number of factors, the most important of which are the sum assured, your age, pre-existing medical conditions (e.g. diabetes, hypertension etc), lifestyle habits (e.g. smoking), additional riders e.g. accident, critical illness etc.

Why get life insurance?

Life insurance can give you lasting peace of mind in terms of the assurance that you have provided a legacy. That’s because the right coverage can offer a valuable combination of benefits, many guaranteed by the claims-paying ability of Life Insurance ,so that you and your loved ones know exactly what you’re getting. Of course, you have to make a long-term commitment to paying premiums and keeping the policy in force. Some of the most common reasons for buying life insurance include:

• Guaranteed protection :: If you have a family, a business, or others who depend on you, the life insurance benefit of a whole life policy acts as a financial safety net. When you die, your beneficiaries will receive a lump-sum payment that is guaranteed to be paid in full (provided all premiums are paid and there are no outstanding loans). It’s essential protection that you can count on to be there for your loved ones when needed.
• Income replacement :: Imagine what would happen to your family if the income you provide suddenly disappeared. With whole life insurance, you can help make sure that your loved ones have the money they need to help:
  1. Pay the mortgage
  2. Afford childcare, health care, or other services
  3. Cover tuition or other college expenses
  4. Eliminate household debt
  5. Preserve a family business
• Tax free benefit :: Your beneficiaries will be able to enjoy every penny you leave them. That’s because the benefit of a life insurance policy is generally passed along federal income tax free.
• Guaranteed cash value growth :: As you pay your premiums, your Whole Life policy builds cash value that is guaranteed to grow—tax deferred—and can help meet a variety of financial goals:
  1. Supplement retirement income
  2. Fund a child or grandchild’s education
  3. Pay off a mortgage
  4. Protect existing assets
  5. Establish an emergency fund
• Bonus potential :: A bonus in life insurance is the extra sum of money that the insurance company may give you if you have a certain type of policy, called a Participating Policy. This bonus is like a reward or benefit that you receive based on the insurance company's profits.
• Optional riders :: There are several ways to tailor a whole life policy to meet your individual needs. For an additional cost, you can use riders to purchase additional protection without further underwriting, to pay your premiums if you become disabled, to use some of your face amount to pay for chronic illnesses, or to purchase coverage for your children. Your agent can help you decide if any of these riders are right for you.

Different Types of Life Insurance Policies in India :: Following are the types of life insurance available in India:

• Term Insurance
• Term insurance with return of premium
• Unit Linked Insurance Plans
• Endowment plans
• Moneyback policy
• Whole life insurance
• Group life insurance
• Child Insurance Plans
• Retirement Plans

DISCLAIMER -

Insurance is the subject matter of the solicitation. While every effort has been made to ensure that the information given is correct, the author does not hold himself liable for any consequences, legal or otherwise, arising out of use of any such information.