What Is Life Insurance Policy?
Life insurance in India can provide financial assistance to your loved ones on the unfortunate happening of the policyholder. It provides your family with the financial support of means of living or paying off certain debts and ensures their smooth living.
In other words, Life Insurance in India is a legal contract between the insurance company and policyholder that guarantees to pay lump sum amount and other beneficiaries to the policyholder family, when the policyholder passes away. It is given in exchange for premiums paid by the policyholder during their lifetime.
The policyholder can decide how much the policy will payout? Usually, it pays out lumpsum amount but one can also change it to pay out in regular amounts over time.
This complete guide to life insurance will let an individual understand the importance of life insurance, what factors to consider while choosing a life insurance policy, how one can make the best use of a life insurance policy, and so on. Also, find out the common mistakes that people often make while applying for life insurance and get the maximum payout benefits with complete knowledge about life insurance.
What Are The Types Of Life Insurance?
➡️ Term Life Insurance
Term life insurance is termed as simplest life insurance policy in India. This policy lasts for a number of years, having a fixed date of expiry. But if the policyholder passes away before the end of term insurance, then a fixed amount of money that is known as Death Benefit is paid to a designated beneficiary. The death benefit can be received by beneficiaries in a one-time lump sum amount, monthly or annually according to the choice of the policyholder.
Term life insurance in India is quite affordable than other types of Life Insurance, having low premium costs.
➡️ Whole Life Insurance
Whole Life Insurance in India does not get expired and is known as permanent life insurance. It has a death benefit and cash value that makes it a little complex than other life insurance policies.
Cash value is like an investment that ensures a predetermined a fixed rate of interest on the amount. A certain portion of your premium is deposited into the cash value, which grows over time. The cash value can be withdrawn when it has enough accumulated amount or can be used for a loan.
Whole Life Insurance offers coverage as long as you are able to pay premiums.
➡️ Universal Life Insurance
Universal Life Insurance is just like whole life insurance in which there is a cash value with a twist that you can change the premium and death benefit amount without getting a new policy.
You have to stick to a minimum premium amount to keep the policy running. One is also allowed to use the cash value to pay that premium. Cash value can be used to skip premium payments or letting the accrued interest do the work until the cash value is depleted.
The interest rate that is provided on cash value is sensitive to the current market rates. This flexible nature of Universal life insurance policy looks attractive so a specific set of people, otherwise, it bit confusing and not in high demand to opt.
➡️ Variable Life Insurance
Variable life insurance can be used as a great investment option as compared to other life insurance policies. In it, the cash value goes for investment in mutual funds like sub-accounts where a policyholder can expect a decent amount of growth or profit but also takes a risk of money loss depending upon the situation of the market.
The investment done in this Life insurance policy has a higher potential of tax-deferred growth. Variable life insurance in India is not a good option if people who don’t have knowledge about the stock market so it becomes difficult for them to manage so many variables simultaneously effectively. This makes it a limited investment option and limited coverage option.
➡️ Final Expense Insurance
Final expense insurance is right for those who are looking for coverage for medical care, funeral, and burial costs. In this type of life insurance, the coverage cost of anything that is associated with death is included.
It is suitable for old age people who don’t have any other life insurance coverage, don’t have savings for their funeral, or might be their term life insurance policy have been expired. Adult children can also look for this option for their old age parents and don’t want the burden of such types of expenses.
Final Expense Insurance has a higher premium amount and the relatively low coverage amount.
➡️ Group Life Insurance
Group life insurance is also called group term life insurance. It is an employee benefits life insurance that is provided by some employers. This kind of life insurance in India is offered by employers to employees at no extra cost and is of great benefit to employees.
Group life insurance does not provide protection to your family members. Choosing a life insurance policy from the options given above is more beneficial than this. However, it provides enough coverage to employees in many cases.
Why There Is Need Of Life Insurance?
Going through significant changes in our lives it good to be prepared for future changes in our lives. One has to accept that the worst can happen in the future so you can ensure you loved ones before any unfortunate event happens. For the following major reasons, you might feel the need of life insurance-
➡️ Looking After Your Family
If your family is dependent on you for financial assistance then life insurance is much-needed factor for you. Life insurance lows down the financial burden upon your family by taking care of your child’s education expenses and financial security to family members.
➡️ Securing Risk Of Unemployment
As of you may have encountered the uncertainty of unemployment and might want to play safe. Securing the dreams and long-term goals of your family life insurance sound a must to you. Keep spare income on a side that ensures the future survival of your family.
➡️ Helps To Achieve Long Term Goals
Achieving long term family goals is possible with life insurance today. Since it secures your premium amount or investment for the long term that can be withdrawn on the maturity of the policy or on the happening of a misfortunate event. If you want your life insurance plan to pay out maximum then secure coverage at low rates when you are young and healthy. Maintain this coverage through changes in all the phases of life be it changes in job or lose employer coverage.
➡️ Safeguard Your Business in Future
Life insurance isn’t only meant for you or your family but also for your business. Your business partner can purchase your business portion without any difficulty by entering in a buy-sell agreement. The payout of this kind of life insurance will go directly to the nominees of the deceased partner, without giving them stake in the company.
➡️ For Retirement Planning
Who doesn’t want to secure their retirement by taking safer steps today?
Start keeping some amount aside from your monthly income today and plan for your retirement with life insurance policy. Putting your money in life insurance premiums is like a pension plan with extra benefits. How life insurance can help in retirement planning?
- Provide coverage for all expenses associated with death like funeral or burial expenses.
- Bare for all medical expenses or terminal diagnosis expenses
- Withdrawing from your life insurance in emergency is possible with life insurance
When My Life Insurance Policy Will Pay Out?
Life Insurance policies offers payout in two ways. Firstly, if the policyholder passes away before the completion of the tenure of the policy then the death benefits are paid to the specified beneficiaries. On the other hand, if the policyholder survived till the competition of the plan then the insurance company pays out maturity benefit and bonuses to the insured. One must be aware with the insurance policy payout when the right time comes.
Various Life Insurance Policy Payout Options Available
Insurance companies offers commonly two kinds of payouts-
➡️ Lump Sum Payouts
In this kind of payout is made in a single payment to the decided beneficiary in the form of death or maturity benefits. This lump sum amount may also include loyalty additions and bonuses. It enables the nominee to invest this lump sum amount in other instruments or low down their financial burdens like loans, repayment of debts etc.
➡️ Periodic Payouts
Insurers may offer you a second alternative way of periodic life insurance payouts. Only one portion of benefits is paid out a lump sum and the rest of the amount is converted into annuities or installments which is paid to the nominee in installments according to the predetermined period. Periodic payout allows a recipient to enjoy the steady income that is helpful in dealing with regular expenses like rent, utility bills, EMI’s, etc.
How to File a Life Insurance Claim?
Filing a claim is the first step to obtain Life Insurance payout. There are three ways to do so: –
- File a claim through the policyholder’s web portal online
- Contact the insurance company agent directly to file a claim
- Visit the insurance company branch office and file a claim by submitting a written request
Extra Benefits Along With Life Insurance Policy In India
➡️ Tax Benefits
Life insurance policy comes with extra tax benefits under section 80 C, the premium paid for life insurance policy can attain maximum tax deduction up to Rs 1.5 Lakh. Individuals can reduce their tax liabilities by investing in specific instruments. Under section 10 D the pay we received from the life insurance policy is absolutely tax-free, the condition is premium does not exceed 10% of your sum assured, annually.
➡️ Critical Illness Cover
Life insurance policy can provide you financial support if you are encountered with a serious illness during the term of the policy. Some insurance policies offer additional financial coverage for Accidental, death, or critical illness depending upon the type of the policy and insurance company.
➡️ Loan Availability
Life insurance policy is advantageous in case you need a loan facility. Almost, all top insurance companies in India offer the facility of loan available to the policyholders. One can borrow a certain percentage of cash value or sum assured based on the policy provisions. But make sure to read all the policy terms and conditions regarding loan facilities before buying the life insurance policy.
➡️ Remote GP Services
Remote GP services means that you can receive unlimited advice, reassurance, diagnosis, medication or a referral when you need it, from wherever you are in the world. It is available 24 hours a day, 7 days a week, 365 days a year.
What is the Right Time to Take Life Insurance in India?
The best time to buy a life insurance plan is when you have dependents on your income. One should consider his/her age as a major factor while buying a life insurance policy. It is suggested to choose a plan when you are young and healthy. So, the right age to start paying life insurance premiums is in the 20s to 30s. in this age, there are least chances of your unexpected demise and the lowest possible for the insurance company to pay the death benefit. Hence, the premiums are low at this age, otherwise, it starts getting expensive with age. If you don’t have dependents then it is also very cost-effective to have an early start.
How to Choose the Best Life Insurance Policy In India?
Choose right & best insurance policy on the basis of following factors-
- Choose Life Insurance Company that is Financially Strong
- Assistance Provided by Insurer
- Amount of the premium whether its affordable or not
- The reputation of the company
- Sum assured must be optimal enough to cover your family’s financial needs
Also Read: Top Life Insurance Companies In India
The future is uncertain, so it is always good to be prepared for future uncertainties. The life insurance policy offers that cover of protection to your loved ones when the policyholder passes away. This complete guide must have made you aware of the importance of life insurance and how to select a perfect life insurance plan for your family.
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