Life insurance is a safeguard against financial deficiency at the time of insured Individual’s death. Practically, life insurance grants you and your family the financial security. It also provides you assurance to deal with any unforeseen events. Life insurance is preferred according to the needs and goals of the insured.
Things you absolutely need to know about Life Insurance Policy.
- Insurance is NOT an investment
This is the first thing you need to acknowledge and accept that insurance should never be considered as an investment. Insurance is a vital part of financial planning. But a lot of people consider it as an investment.
This is primarily because there are some life insurance plans in India that double up as investments. For example, Endowment Policies have a lump-sum maturity benefit, Money Back Plans have regular payments during the entire policy tenure as pre-defined schedule and Unit Linked Insurance Plans have an opportunity to choose your investments even in equity! But what you need to keep in mind while choosing your Life Insurance Policy is the coverage amount you wish to purchase for your family. Insurance is synonymous to protection and that is the primary and most important objective of ANY life insurance product. They should not be evaluated on the basis of their return, bonus, etc.
- Required Coverage amount
The required coverage amount for your insurance policy is the most important aspect of choosing a plan. It depends on your lifestyle and priorities. You have to consider your standard of living, inflation, needs, liabilities etc. Then, accordingly, decide your coverage amount which would be sufficient for your family.
For instance, if your family’s monthly expenses are say ₹50,000. You need to opt for a Life Insurance coverage of at least ₹ 1 crore so that a post-tax interest earning is enough to provide for the family’s regular monthly expenses!
So, ensure that your coverage amount is sufficient to meet the monthly expense of your family in your absence.
- Policy Tenure
The tenure of Life insurance policies depends on the type of plan you opt for. You can choose any tenure that you think is necessary for you and your family. However, the best way to select an apt tenure for your insurance policy is as long as you are earning and providing for your family. This is typically till the age of 60 or 65 years post which your children will definitely start earning and so your financial dependence will gradually reduce!
- Type of Life Insurance best suited for you
There are varieties of plans offered and available in the market. It all depends on your needs as to which plan you opt for. Some of the insurance plans are:
- Term Insurance
- Whole life insurance plans
- Endowment Assurance Plans
- Money-Back Plans
- Child Plans
- Pension Plans
- Unit Linked Insurance Plan
Out of the above-stated plans, Term Plan is the basic and the purest form of life Insurance. It is the cheapest plan. This plan covers only the death risk and has no maturity benefit. The payment is made in lump-sum amount if the insured person dies during the tenure of the plan.
So, if you need a high coverage at a low cost, term plan is the best choice!
- Claim Procedure:
You and your nominee should be completely aware of the claim procedure so as to expedite the claim as and when the requirement occurs.
- Benefit Offered: Death and Maturity Benefit
There are two types of benefits in life insurance plans.
- One is Death Benefit, where the beneficiaries will receive a lump-sum amount if the life insured dies within the policy tenure.
- The other one is Maturity Benefit, where the claim arises when the policy is matured. It is paid only when all premiums are paid on time.
Maturity Benefit is payable to all life insurance policies except term plans. Endowment Plans are a type of Life Insurance with maturity benefit. Even ULIPs have maturity benefits. These kinds of policies are relatively quite expensive compared to term insurance, but it protects your family with a coverage amount in case the insured dies within the policy tenure. Alongside, these policies have a maturity benefit payable to the policyholder, if you happen to outlive the entire tenure. Hence, the money is not completely foregone in case you survive past the policy term; as is the case with term plans!
- Tax Advantages
Life Insurance plans, apart from providing funds, also save taxes. Under Section 80C of Income Tax Act, 1961, premium amount contributed to life insurance plans are eligible for tax rebate. The limit for premium contribution is up to ₹1,50,000. Also, under Section 10(10D) of Income Tax Act, 1961, amount of sum insured paid on maturity or death or surrender of policy is completely tax-free. So, life insurance is preferred by many as it protects your family and is also tax efficient.
Conclusion
Life Insurance is an important requirement of your financial life. The main aim of life insurance is to protect your family from uncertainties of life in your absence. Therefore, you need to opt for your life insurance plan as soon as you can, as your premium will depend on your age at entry and does not increase thereafter!
However, do keep in mind that Insurance should be your Plan B against financial contingencies in case of untimely demise and hence, should be purchased at the earliest for the safety and security of your family.