Life Insurance provides a financial coverage to specified beneficiaries upon the death of the insured individual. It involves a contract providing for payment of an assured sum of money to the person insured.
Why you need life Insurance?
First and foremost point is that life insurance isn't for you, it’s for your family. Some people believe that buying life insurance is like planning for their death, the fact is that life insurance is not about death, it's about realizing a peace of mind prepared to face any financial crisis that would hit the family in case of your untimely demise.
It provides you with a sense of security that no other form of investment provides. Life Insurance is considered one of the most popular savings/investment schemes that provides sound returns as well as protection and also serves as a Tax saving mechanism.
Life Insurance Policies :
Term Policy : Term life insurance is called "term" because it provides coverage for a specific period or term, it is that Policy which provides life coverage only. On the death of the insured it pays the face amount of the policy to the named beneficiary within the Term. However, once the term is over and if the policy is not renewed, the coverage ceases & if death occurs after that, you don’t receive any Cash benefits.
It is the most straightforward type of Life Insurance, It is also called Pure Insurance since the policy has no financial investment value & most of your premium goes to pay for coverage.
Children Insurance Plans : The Children Plans are designed to secure your child's future by giving your child (the beneficiary) a guaranteed lump sum, on maturity or in case of your unfortunate demise, early in the policy term. There are two types of Children’s Policy, under the first Plan; the child himself is insured although the premium is paid by the parents. In the second Plan, it is the parent who is insured but in case of his untimely death, or at time of the maturity of the policy, the child gets the benefit.
Annuities and Pension : There is an increased need for Retirement Plan due to Increase in Life Expectancy & Increase in the Cost of Living (Medical Expenditure). In an annuity, the insurer agrees to pay the insured a stipulated sum of money periodically. The main purpose of an annuity is to protect against risk as well as provide money in the form of pension at regular intervals.
There are two kinds of Pension policies:- The Immediate Annuity and The Deferred Annuity. In the former, you have to invest a lump sum and start receiving pensions immediately. In the latter, you start building a corpus at a young age & on retirement; you receive annuities out of this corpus.
Whole Life Policy : It is probably the simplest policy to understand. Every year you pay a fixed premium based on your age and other such factors. And then, as the years go by, you earn a certain interest on your policy's cash value. The policy continues into your old age for the same premium you started out with. This policy provides protection that is permanent and also accumulates handsome returns. Whole Life Policy is an insurance cover against death, irrespective of when it happens.
This policy, however, fails to address the additional needs of the insured during the post-retirement years. It doesn't consider a person's increasing financial needs either. While the insured buys the policy at a young age, his/her needs typically increase over time. By the time he/she dies, the value of the sum assured might be too low to meet his/her family's needs. As a result of these drawbacks, insurance firms now offer either a modified Whole Life Policy or combine in with another type of policy.
Endowment policy : Endowment policy is the most popular policy in the world of life insurance as it is the combination of risk cover with financial savings. An Endowment Life Insurance policy provides more of an investment. One can earn more capital for specific purposes and is also protected against the insured's premature death. If the insured dies during the tenure of the policy, the insurance firm has to pay the sum assured just as any other pure risk cover. Endowment Life insurance is mostly used by many for anticipated financial needs, like children's education or ones' retirement. Premium for an Endowment Life policy is much higher compared to a Whole Life policy. The cost of such a policy is higher but worth its value.
Money Back policy : This is more of an Endowment policy as part of the amount assured is paid at fixed periods, before the maturity date, in the form of survival benefits. These policies are structured to provide sums required as anticipated expenses over a stipulated period of time. The premium is payable for a particular period of time. If the insured survives till the expiry of maturity date of the policy, the survival benefits are deducted from the maturity value.