Life Insurance is a protection against the loss of financial income that would result if the insured passed away. The named beneficiary receives the proceeds and is thereby safeguarded from the financial impact of the death of the insured.
What is Life Insurance?
The goal of life insurance is to provide a measure of financial security for your family after you die. So, before purchasing a life insurance policy, you should consider
- your financial situation and the standard of living you want to maintain for your dependents or survivors
- For example, who will be responsible for your funeral costs and final medical bills?
- would your family have to relocate?
- Will there be adequate funds for future or ongoing expenses such as day-care, mortgage payments and college?
It is prudent to re-evaluate your life insurance policies annually or when you experience a major life event like marriage, divorce, the birth or adoption of a child, or purchase of a major item such as a house or business.
Life Insurance Policy Types:
- Term Insurance
- Endowment Policy
- ULIP - Unit Linked Insurance Plan
- Money Back Life Insurance
- Whole Life Insurance
i) Term plan – Pure life Insurance:
Term insurance is pure insurance as there is no savings involved. Term life insurance gives coverage till decided term to the insured for decided sum insured. In case of death of insured within the decided policy term, insurance company pays sum insured to the nominee / beneficiary / legal heir of the insured. If the insured attains that age or crosses term period, the policy is terminated and premium paid is not returned to the insured. As there is no commitment of paying back any money at the time of maturity, premium for term life insurance is very low. Now a days, policies are available for 15, 20, 25 years and so on. It can also be purchased till one attains the age of 65, 70, 75, 80, 85. Few companies have come up with whole life policy also, where insurance cover is given till age of 99 / 100 years.
ii) Traditional Plan – Insurance cum Investment Policy:
Here the premium paid for life insurance policy is divided in two parts, one for insurance and other for investment. In traditional plan, insured / beneficiary get lump-sum benefit to the extent of sum insured + return on savings done from the premium paid either on death or on maturity of the policy. This return is paid in the form of money back or bonus. If a traditional plan is bought for long term, it serves as a good tool to create corpus which can be utilized for major capital expenses like child graduation / post-graduation, marriage and as retirement planning. Buying traditional plan develops habit of compulsory savings, which is very important in current scenario of spending economy. There are various types of traditional plans:
A. Unit Linked Insurance Plan – ULIP:
This is investment oriented plan, where premium paid is partly used as a risk cover for life and remainder is invested in capital market, bond, debt fund, balance funds, hybrid funds etc. to generate maximum profit to the policy holder. Policyholder can select type of investment and fund in which money is to be invested.
ULIP is considered to be one of the best option in current scenario where it offers life insurance + investment in one go as well as it gives autonomy to select the investment type as per risk appetite of insurer. Insured can also withdraw money as and when required, but after completion of lock-in period, generally 5 years. Sum insured varies from 10 times to 100 times of the annual premium.
B. ENDOWMENT PLAN:
Endowment policy is long term savings cum insurance plan. Generally it is taken for longer tenure and primary objective of the policy is to accumulate corpus for family in case of death or for retirement in case of maturity. Here the amount paid at the maturity or death of the insured is much higher due to long tenure of investment and continuous addition of money every year. Now a days endowment plan with shorter premium payment terms but longer life coverage or maturity terms are also available.
C. MONEY-BACK PLAN:
As the name suggest this plan is taken with an objective of getting money back after some time on regular basis. The money returned may reduce the sum insured or may be given as profit from the amount invested, keeping intact sum insured. Here premium is paid for decided tenure and money is returned back after completion of certain years. There can be various options in Money-back plan:
- Premium payment is stopped after paying for decided tenure and money starts coming back to policyholder for decided term in decided interval – Insurance cover may or may not be available once payment of premium is stopped.
- Premium payment is not stopped and money starts coming back to policyholder for decided term in decided interval – Insurance cover remains till maturity of the policy. There can be loyalty or guaranteed bonus at the time of maturity / death of policyholder.
- Insurance coverage increases every year till the premiums are paid and decreases once the money back starts. Here also, there can be loyalty bonus or guaranteed bonus at the time of maturity.
There are numerous money-back plans with all insurer with numerous options of how money is returned back and how long insurance cover you want.
D. Child Plan:
Child insurance plan offers financial security for your child’s education and marriage expenses. Here premium paid by parents, secures life of child and lump-sum money is paid to children at decided intervals, but after the age of 18. Even after all money is paid back, cover for the children’s life remains intact. This is the best tool to plan for graduation or post-graduation expense of children. There is a possibility that in case of death of proposer, premium have to be paid by the child which is not possible due to age of child. So companies have come up with waiver of premium add-on. In case this add-on is opted at the time of proposal, all premiums are waived after the death of proposer (parent) and all benefit to the policy remains intact.
E. Retirement Plan:
Retirement plan is knows as Annuity plan or Pension plan. Premium paid during the tenure is accumulated and paid either in lump-sum or in monthly instalment to the policyholder at his retirement age, generally 60 years. In case of death of the policyholder during the tenure of the policy, pre-decided amount is paid to nominee. One can also pay onetime lump-sum premium and get annuity on monthly / annual basis, for lifetime. In this case also, on death of policyholder, lump-sum premium paid is returned to the nominee.
F. Group Insurance:
Group insurance given to the group of people connected under one umbrella. This umbrella may be in the form of employees of a company, customer of a bank or member of an organization / association or client of a business organization. It is a low cost life insurance as number of insured are more and generally is given to elite class of people, where mortality rate is very low. Biggest benefit of group life insurance is that, medical check-up is waived in most cases. So a person who cannot buy individual life insurance due to adverse health condition or adverse lifestyle habits, can easily buy insurance under group. However, in this case, maximum sum insured may be lower than, what he deserves. It serves as a good employee retention tool for employer.
Riders are additional benefit opted at the time of buying the insurance. One can buy multiple riders to suit one’s requirement. These riders are available at cost, but works as an icing on the cake. Various riders available in the market are as under:
A. Critical illness rider
The policyholder is entitled to receive lump-sum financial benefits on being diagnosed with listed critical illness, to the extent of sum insured for critical illness cover. In most cases, claim can be done after of detection of critical illness and insured lives for minimum period of 30 or 60 days. Practically speaking, due to critical illness insured loses its earning capacity but this rider recovers loss due to lost earning capacity.
B. Disability rider
If this cover is opted, the policyholder receives lump-sum benefits on being affected with a permanent disability either due to accident or due to illness. Again this is given to recoup the lost earning capacity of insured due to disability.
C. Accidental death benefit rider
In case of this rider, the sum insured is increased by decided percentage in case of death of insured due to accident. In most of the cases, sum insured gets double, in case of death due to accident. Premium for this rider is nominal and hence it is advisable to add this rider.
D. Term rider
Term rider offers monthly income to nominee on death of life assured. Here instead of paying lump-sum money to the nominee it is given in monthly / yearly installment till decided term.
E. Waiver of premium rider
The policyholder is not required to pay future premiums on the policy in the event of an accident or mishap as defined by the rider. This rider is mostly taken in child plan where liability to pay premium does not fall on child due to death of proposer / parent.
Policyholders can attach riders to any insurance plan be it a term plan or endowment plan or unit-linked plan (ULIP) or money back plan.
The policyholder should select riders based on individual and family needs since they can enhance the life cover and secure the financial well-being of the family more comprehensively.
Benefits of Life Insurance Policy
- 1. Loan Against Life Insurance
- 2. Tax Benefit
- 3. Return of Investment
- 4. Death Benefit
- 5. Life Stage Special Planning
We deal with all Life Insurance Cos. licensed by IRDA. Details of such Insurance Cos. can be obtained from below mentioned link:https://www.irdai.gov.in/ADMINCMS/cms/NormalData_Layout.aspx?page=PageNo129&mid=3.1.9