What is life insurance?
Life insurance is a contract with between an individual and an insurance company, in which the insurance company provides financial security in return for regular payments(known as premiums)to the insurance company. In case of the policyholder’s death or if the policy matures, the insurance company shall pay a lumpsum to the individual after a period of time or to their family, on basis of the contract Typically, this type of policy is chosen based on your needs and goals.
How insurance can be useful
Insurance can prove advantageous in meeting several financial goals of the individual and his family. Here are some of the important ones:
Financial cover against loss of life, which makes sure your family can support itself in your absence
Child’s education
Child’s marriage
Buying a house
Pension or regular income post-retirement
Post-retirement income for NRIs
These are just some of financial goals you can achieve with the help of life insurance. More importantly, life insurance plans are flexible. This means although you won’t find an insurance plan dedicated to buying a house, you can buy an endowment plan (traditional or market-linked) with the aim of paying for a house at a future date.
Types of Life Insurance
Broadly, there are five basic types of life insurance plans:
Term insurance
Term plans are the most basic form of life insurance. They provide life cover with no savings / profits component. They are the most affordable form of life insurance as premiums are cheaper compared to other life insurance plans.
Endowment plans
Endowment plans differ from term plans in one important aspect i.e. maturity benefit. Unlike term plans which pay out the sum assured, along with profits, only in case of an eventuality over the policy term, endowment plans pay out the sum assured under both scenarios – death and survival.
Unit linked insurance plans (ULIP)
ULIPs are a variant of the traditional endowment plan.They pay out the sum assured (or the investment portfolio if it’s higher) on death/maturity. Since ULIPs invest in stock markets they are well-suited for individuals with appetite for risk.
Whole life policy
A whole life insurance plan covers a policyholder over his life. The main feature of a whole life policy is that the validity of the policy is not defined so the individual enjoys the life cover throughout his life.
Money back policy
This is a variant of the endowment plan. A money back policy gives periodic payments over the policy term. To that end, a portion of the sum assured is paid out at regular intervals. If the policy holder survives the term, he gets the balance sum assured.
How much life insurance do I need
Although, it is not possible to attach a rupee value to human life, it is nonetheless important for you to estimate the value of your life in terms of what it will take for your family members to be financially independent in your absence. In insurance parlance this is the sum assured and the financial estimate of the value of your life is called Human Life Value or HLV.
Calculating the HLV involves two steps:
The fundamental method of calculating the human life value involves two steps:
Add up all expenses like household expenses, lifestyle expenses among others
Calculate future liabilities (like outstanding loans) that your family members will have to pay off in the event of your death.
Once you add the two figures, you get your human life value, which in effect is the sum assured for your life insurance policy.
Points to remember:
There is no one-size fits all life insurance plan. Your life insurance plan does not have to be like your friend’s or colleague’s or relative’s insurance plan. Your needs and goals are different and this must reflect in your insurance plan.
The earlier you start the better it is, since life insurance premiums are lower at an earlier age and begin to rise as you age
Go for term plans – they are the most affordable form of life insurance which means you get a larger life cover at a lower premium
Use life insurance riders effectively to enhance the effectiveness of your life insurance policy. A rider is an add-on to the primary policy, which offers benefits over and above the policy subject to certain conditions.
Feel free to talk to an experienced and competent agent about the policy details and whether it is suited to you.
How do i choose the right Life insurance for me?
Once you have identified the need to take life insurance, you should know about getting some basic steps right to select the best life insurance policy.
Select the best life insurance plan/policy in 3 easy steps
Engage an insurance advisor
While this may seem trivial, engaging a reliable and competent insurance advisor at the initial stage in your quest for life insurance is critical. Most individuals are not capacitated to take a decision by themselves and need the expertise of an insurance advisor.
Calculate the life cover
The insurance advisor will help you calculate the amount of life cover – or the sum assured. He will assess sources of your income, number of your dependents, your debts and liabilities and your expenses based on your lifestyle and arrive at a life cover. He will also decide the best plan be it – a term plan, endowment plan, unit-link plan or a combination of plans, to help provide you with an optimum life cover. You can also check your Life insurance need with a calculator online, which is a quick and easy way to find out.
Likewise, if you have other needs like planning for your child’s education or marriage, pension for your retirement or a woman’s insurance plan for women, trust your advisor to do the math and come up with an ideal solution.
Compare insurance plans
Since there are many insurance companies in the market offering a variety of plans, you need to be sure you select the most suitable one. The insurance advisor will do the homework by comparing life insurance plans from various insurers across relevant parameters recommending the most apt plan based on your needs.
What are the Benefits of Buying Life Insurance?
Life insurance offers three major benefits, namely protection, long-term savings, and investment. Here is an insight into each of these advantages.
1.Protection
Life is unpredictable and full of uncertainties. The risk of an untoward incident such as death cannot be eliminated. In such a situation, your family will have to face financial constraints caused by the loss of your regular income. Investing in a life insurance plan provides the safety net during such times. Your insurance provider is liable to pay the beneficiary or nominee the pre-determined death benefit, thus keeping your family protected even in your absence.
2.Long-term savings
It is important to consider life insurance if you are seeking to make long-term savings. Such a product helps you to save systematically and build a corpus for your future. The accumulated amount may be used for multiple purposes, such as purchasing a new home, funding your child’s future education or meeting his marriage expenses, among many others. What’s more, life insurance plans also offer regular pay-outs in the form of annuities, and is therefore, an excellent method to meet your retirement goals.
3.Investment
Unit-Linked Investment Plans (ULIPs) offered by life insurance providers are primarily investment instruments. This market-linked product acts as a tool to create wealth. ULIPs offer significant returns on the premiums paid towards the insurance policy. Most life insurance plans provide considerable returns during maturity, thus making it an attractive investment vehicle.
Besides the major aforementioned advantages, life insurance plans offer a host of other benefits. You may claim tax deductions under Section 10, 80C, and 80CCC of the Income Tax Act, 1961 on the premium paid towards your insurance policy. You may also borrow a loan against your insurance plan in case of a financial crunch.
Buying life insurance plan is a necessity. While many invest in such a plan, not all are aware of the numerous benefits it offers. Life insurance plans help your family tide over difficult times and provide them with financial support in your absence. Besides, availing of an insurance policy inculcates the habit of disciplined savings, thereby enabling you to build a good corpus. You may, therefore, opt to invest in a life insurance plan and fulfill your obligations in the best possible way.
Why should i buy Life insurance online?
Buying Life insurance online is fast, efficient and cost effective. Companies have assessed the needs to their clients over the years and have now made insurance available online. Below are some of the advantages of buying insurance online:
1.) Direct Buying– Customers deal with distributors when buying insurance online. Buying offline, they save the commission that would be paid to the distributor and hence it is cost effective. You eliminate the need of a third party and hence end up saving time and money.
2.) Informed deal-Whenever you decide to buy a plan, you always have an option to compare the plans in terms of benefits offered, coverage, features, claim process, renewal etc. This way one can easily weigh the pros and cons and finally can choose the right insurance plan that meets his/her needs.
3.) Access to online reviews– Customers always leave an online review about their experience with the company. You can have access to these reviews and ensure you have all the details about the product and the company before making a decision.
4.) Automated services– The online platform isn’t restricted to sale only, instead, it is a fast and competent servicing channel at the same time. The policyholder can avail the online services like download the policy document or brochure, get prompt insurance quotes online, when the policy lapses, renew it online, pay the annual premium online, track your investments, make claim whenever required etc. You can do this independently and swiftly.
5.) Customer Support- You get access to 24×7 customer support when you buy insurance online. The company has a chat option on their website where you can ask the staff anything. You can get clarity to doubts, or look for the policy options and pretty much have access to any information online.
In conclusion, it makes sense to explore the option of buying insurance online, so that you save time and money and have easy access to more options. It is not cumbersome as offline process, is easier and quicker. All your paper work is also saved in the account online hence eliminating the need for print outs etc.
