What is Life Insurance? Benefits, Types & FAQs
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What is Life Insurance?

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What is Life Insurance?

All you want for yourself and your loved ones is a tranquil and secure future when you think about life and its numerous phases. You want children to be safe with or without you, so you start making plans for that, ensure that they are financially safeguarded, look into their education, take care of your spouse and parents, etc. You may do this by looking at various types of life insurance plans, reading about them online, or speaking with insurers or people who have life insurance to gain a better understanding of what life insurance is and how it works. Let us delve a little deeper into this topic.

What is the meaning of Life insurance?

Life insurance is an agreement between you and your insurer who will pay a lump sum amount in the event of your demise. In return, you pay premiums for a fixed period of time to secure the future of your family. A life Insurance policy helps you get a life cover and also create wealth in the long run for your future.There are different kinds of insurance policies available to suit your financial requirements like term insurance, endowment plan, money-back insurance policy and many more.

Benefits of Life Insurance

Now that you know the meaning of life insurance, let’s take a look at some of its benefits -

Risk Coverage

In case you pass away, the beneficiary of the policy will get a lump sum amount to secure their future, thereby eliminating the need to be dependent on someone else

Tax Benefit

The premiums paid towards insurance can be claimed for income tax deductions under Section 80C of the Income Tax Act of 1961. This reduces your taxable income and aids you in obtaining a life cover instead.

Loan Option

Insurance companies allow you to get a loan against your policy if you are in need. It has lower interest rates when compared to a personal loan and is much quicker in terms of processing. However, the option is available on selected policies.

Health Cover

Life insurances cover expenses related to illnesses or hospitalization, freeing you of the burden of medical bills.

Variety of Policies

There are several varieties of insurance policies available to help you secure your future. You can choose any depending on your needs and purpose.

Riders

This option enables you to add extra perks to your policy. The insurance rider options can cover critical illnesses, disability, waiver of premium, accidental death benefit and much more.

Types of Life Insurance

Term Insurance

Term insurance provides life cover in the event of your demise and don’t have any maturity benefits. This is the simplest form of insurance and is cheaper than most available options present in the market.

Endowment Plan

Endowment plan is similar to term insurance but the only difference is that the lump sum amount is paid out even if you survive the maturity period.

Unit Linked Insurance Plan (ULIP)

ULIPs or Unit Linked Insurance Plans invest some part of your premium towards life insurance and the rest into a financial instrument. The policy has a lock-in period of 5 years and can be continued even after the lock-in ends. You can also choose where you want to invest according to your risk appetite.

Whole Life Insurance Plan

Whole life insurance plan covers you throughout your life where you pay the premiums for a stipulated period of time. The corpus is paid out to your family in case of death and does not have a fixed validity. This plan is perfect if you have financial dependents.

Money Back Policy

Money Back Policy gives you life coverage throughout the policy term and also provides regular payments on survival. The payment made is a percentage of the sum assured which is given during the plan tenure and the rest of the sum assured is paid out on maturity of the policy. In case you pass away during the tenure, the sum assured is paid regardless of the payments made to you before.

Annuity Pension Plan

Pension plan involves paying a lump sum amount to the insurance company where the payments are sent out immediately on a regular basis or in a lump sum form. The wealth can also be left to accumulate according to your risk appetite.

Why Do You Need to Buy Life Insurance?

Though life may seem smooth when you are younger, there could be some health issues in the future that might require medical aid. Also, no one can predict their life span and for how long they will live with their loved ones. If something were to happen, you wouldn’t want your family to wind up paying your loans and clearing the debt. Life insurances help secure the future of your family and also help them sustain themselves through trying times. It leaves them with enough wealth to be independent and lead a comfortable life.

What Should My Life Insurance Cover Be?

The sum assured, or the lump sum amount offered is usually the driving force behind the purchase of an insurance policy. However, before making a final decision to acquire insurance, it is necessary to consider the following aspects in order to select the best coverage for you.

Age Factor

Although the age limit for life insurance is a critical criterion for selecting the amount of coverage you require, it should not be used as an excuse to put off getting a policy. Your age and health will determine not just the amount of insurance you should get, but also the length of time for which you should retain it. The life insurance age limit begins at the age of 18, so you can buy a policy as soon as you start working.

Lifestyle & Family

If you want to carefully prepare for your family’s future and lifestyle, it is recommended that you select the finest insurance policy that meets your demands.

Pending Debts

After you pass away, your loved ones can use the insurance proceeds to pay off debts such as college loans, vehicle loans, credit cards, and personal loans. If you owe any of these bills, you should purchase a comprehensive insurance coverage.

Budget Bracket

Your life insurance coverage will lapse if you are unable to pay the premiums. Because a more comprehensive life insurance policy will require a higher premium, choose a plan that matches your budget.

How to choose Life Insurance?

Life Insurance plans make dealing with life’s volatility much easier in terms of financial stability and security. Your life insurance policy is determined by your financial objectives and responsibilities, debts, loans, and the needs of your family in the event of your death. Hence, before deciding on the ideal amount, you must analyse all conceivable factors. Let’s look at how we can get one of the greatest life insurance plans to protect your family’s future.

  • It’s vital to examine life insurance options online simply because there are so many out there. You can pick between life insurance kinds that require a single premium payment or monthly premium payments, depending on your needs.
  • Examine the plan’s coverage before purchasing it. Riders can be added to cover additional needs.
  • You should purchase your policy from a trustworthy insurer who is approachable. The insurance firm must have a high claim settlement ratio and a respectable ranking.
  • Check the list of hospitals covered by your life insurance to receive treatment in a facility that is appropriate for you.

FAQs

1. What is life insurance?

A contract between a policy holder and a life insurance firm is known as life insurance. If an insured person dies or the policy matures (depending on the policy contract), the insurer agrees to pay a specified sum of money (sum assured) to the beneficiary in exchange for a premium. Payment can also be triggered by other circumstances, such as a terminal sickness or a critical disease.

2. Why is life insurance useful?

Life insurance is beneficial in providing financial stability to your family in the event that you are unable to work due to unforeseen circumstances or if you pass away prematurely. It ensures that your family is financially secure even if you are not present. Life insurance policies also enable you to save on a regular basis, ensuring a corpus for your future.

3. Is life insurance important?

Life insurance is a wise investment, especially if you have a dependent spouse and children. It provides financial assistance to your family even after your death and comes with a slew of benefits and flexibility when it comes to your investment.

4. How do I decide on the amount of life insurance?

The amount of life insurance you require is determined by your way of living, income, spending habits, or the objective for which you wish to save (for example, your child’s schooling or marriage), among other factors.

5. How much does a life insurance policy cost?

The cost of life insurance is determined by the type of policy you purchase, the amount insured, your age, health status, policy maturity benefits, etc.

6. Do I have different options for premium payments?

Yes, you have a variety of alternatives for paying your premiums. Your premiums can be paid monthly, quarterly, half-yearly, or annually. You can also pay it all at once. A monthly premium is generally the most convenient because the amount is relatively little, and it is easier to track and plan the premium payments.

7. What if I don’t make my premium payments on time?

When your premium is overdue, you normally get a grace period of up to 30 days (15 days for monthly mode) to pay it. If you do not pay your premium after the grace period, your insurance will become void and you will be unable to collect any benefits. You can, however, revive your policy by paying all of your past-due payments, subject to certain policy terms and conditions.

- A Consumer Education Initiative series by Kotak Life

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