Life Insurance

Understanding The Basics Of Life Insurance

Nov 17, 2021

Understanding The Basics Of Life Insurance

Life insurance is a modern-day boon. It allows you to ensure your own life and keep your loved ones financially secured, even if you die unexpectedly. In return for this assurance, you need to pay the premium for your life insurance policy. There are many benefits to buying life insurance. If you are in the process of buying a new life insurance plan, you need to understand the basic concepts behind life insurance. This will help you to understand which plan to buy and how to stay protected in the most wholesome manner. Take a look at this article to know all about life insurance and how it can benefit you.

Types of life insurance 

Life insurance is not a single, one-size-fits-all product. Life insurance is very diverse and has many, different varieties. Each type of life insurance is designed to offer specific benefits to the policyholders. You need to understand what each type of life insurance covers to understand which plan is the best option for you. Here are some options to choose from:

  • Term insurance - This is an affordable form of life insurance that offers a pure life cover. If you die within the policy period, your beneficiaries receive the death benefit. If you outlive the policy period, there is nothing to expect in return. It is a no-frills form of life insurance and hence is among the cheapest as well.
  • Whole life insurance - This is a form of life insurance that gives you the opportunity to stay covered until the very last day of your life. Whole life insurance plans are more expensive as compared to the term insurance plans.
  • Endowment insurance - The endowment plans are among the best-selling types of life insurance in India. They offer a combination of insurance and investment. The risks are low and the life cover is sufficient. The plans are affordable as well and offer a maturity benefit and these factors add to the popularity of the endowment insurance plans.
  • ULIP - The Unit Linked Insurance Plans, or ULIPs as they are better known, are insurance plans that heavily combine the components of insurance and investments. A part of the premium you pay stays fixed in a life fund, while the other part gets invested in the financial markets. You can choose your investment in a ULIP and opt for a riskier option such as an equity fund or a low-risk option such as a cash bond, based on your risk appetite.
  • Retirement Plan - The next handy form of life insurance is the retirement plan. A retirement plan, also known as an annuity plan, allows you to build up a corpus over the years and pays you out periodically after you retire. This is known as deferred annuity insurance. In the immediate annuity plans, you can pay a lump sum amount and start the payouts immediately after you retire. The annuity plans offer this benefit while keeping your life secured for the entire duration of the plan.
  • Child Plan - The child plans allow you to build up a financial backup solely for the benefit of your children. In a child plan, your life is insured but for the benefit of your child. If anything happens to you, your child will receive all the financial help needed to complete his or her education and maintain the current lifestyle, from the insurance company. 

These are some of the most common types of life insurance that are widely sold in India. You can buy any one plan, or have a combination of a few, depending on what your needs are.

Benefits of life insurance

Now that you know the different types of life plan, let us take a look at the benefits you get when you buy any life insurance policy:

  • Life cover - The biggest advantage of a life insurance policy is that you receive a life cover. If you die, your dependent family members receive a sum assured which helps them to stay financially sound. 
  • Affordable - Life insurance is very affordable. The term plans, in particular, are very inexpensive and this gives everyone a chance to stay covered. The different types of life insurance plans are differently priced, so you need to assess your needs and see which option is well suited for you.
  • Easily available - Life insurance is very easily available these days. You can go online and buy a life insurance plan in a matter of a few minutes. The life insurance companies have made it very simple by keeping the documentation and other formalities minimal.
  • Simple premium paying terms - You can choose from many premia paying terms. You can pay your life insurance premium annually, bi-annually, quarterly or monthly. These options make it easier for you to budget your premium expenses and make the payments with ease.
  • Tax benefits - You get an income tax rebate of up to INR 1.5 lakhs a year when you pay your life insurance premium. Also, the sum assured received by your family after your demise is completely tax-free.
  • Riders available - Riders are available with all life insurance plans. Riders are add-on covers that allow you to make your plan all the more flexible and effective. You can choose from riders such as the critical illness rider, the accidental death benefit rider and so on.
  • Easy claim process - The claim process is very simple for most life insurance plans. The documents need to be ready and the premium needs to be updated. Once these factors are taken care of, and the death doesn't happen because of any policy exclusion, the beneficiaries receive the claim in a fast and hassle-free manner.
  • Plenty to choose from - Many life insurance companies offer the life policies in India. This gives you a vast pool to choose from. You can compare the life insurance quotes and then select a good plan from a good insurance provider at a very good rate.

Buying a life insurance plan

As mentioned above, buying life insurance has become very easy these days. You can go online and buy the plan directly from the website of your preferred life insurance company. If you are old-fashioned, you can buy a plan through an insurance agent as well. Alternatively, you could visit your insurance provider’s office and directly make a purchase from there as well. The options are many, making it even simpler for you to have a good and useful life insurance cover. 

Conclusion

As you can clearly see from the points mentioned above, life insurance is a wonderful financial product that helps you in not one, but multiple ways. However, to get the maximum value out of the policy you buy, you first need to analyse your needs, understand the covers available and then make a suitable choice. When equipped with the best plan, you as well as your family will indeed benefit immensely.

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