Key Things You Need To Know About Life Insurance

• Reduce taxable income by up to Rs. 1,50,000 deduction under section 80C**
• Convenient payment options - annual, half-yearly, quarterly or monthly premium payments
• Do more with plans that offer pure protection, retirement planning and investment options

That life insurance is a must-have is an indisputable fact. The idea behind life insurance is to ensure that dependents are financially taken care of, especially if the primary or sole breadwinner of the family happens to pass away suddenly. In this case, the burden of financial responsibilities like running the household, repaying debts/loans, securing investments, etc., fall on the dependents, who may not be financially equipped to handle them. A life insurance policy is a contract between the insurer and the insured wherein the insurer provides life cover to the dependents of the insured in exchange for a cost known as premiums. If the insured happens to pass away before the end of the designated policy term, their nominee/dependents are provided with the sum assured amount.

Types of Life insurance plans

1. Term insurance – These are pure risk protection plans which provide life cover for a fixed period of time, offer a high sum assured, and can be purchased at very affordable premiums. In case the insured dies before the end of the policy term, the death benefit is paid to the nominee. There is no survival benefit.
2. Endowment plans – These plans are similar to term plans, but with a few differences. They offer a maturity benefit if the insured survives the policy term.
3. Unit-linked insurance plans (ULIP) – ULIPs are a sub-type of endowment plans and offer the combined benefit of insurance and investment. The sum assured is paid out not just on death but also in case of plan maturity.
4. Whole life plans – As the name suggests, whole life plans provide cover for the entire life. They are relatively more expensive than other types of plans given the longer coverage period.
5. Money back plans – Under these plans, the sum assured is offered in a combination of lump sum and periodic payments. In this case, a set percentage of the sum assured is paid in lump sum, while another portion is paid regularly at intervals. On surviving the policy term, the insured gets the remaining sum assured.

Who is it ideal for?

When it comes to life insurance, it is not something which everyone needs. It is essential for those individuals who are financially supporting dependents like aged parents, a spouse, siblings, or children. However, it is not necessary for individuals who are not married and do not have to financially provide for any dependents. For example, ideal candidates for a life insurance policy would be young individuals who are married with/without children, single parents, and retirees/senior citizens.

What to consider when deciding coverage

Deciding the coverage amount for life insurance can be a challenging part as it involves assessment of not only financial but also lifestyle-related aspects of your life and family. Some of the most important things which you must consider are:

• An approximate estimate of the amount your family will need to sustain their standard of living, not only when you’re around, but also when you’re not.
• Your current assets like bank savings, investments, FDs, PPF, existing insurance policies, etc.
• Current debts like loan payments, credit card dues, etc.
• Whether your spouse is a stay-at-home parent, in whose absence you will need a full-time nanny or caretaker for the children.
• Any additional expenses which you are taking care of at the moment like medical care for an aging parent, a special needs child, etc.

Factors affecting life insurance premiums

When it comes to life insurance, there are a number of factors which influence the premiums which the insurer sets for you. It is commonly known and advised to buy insurance while you are young, in order to avail lower premium rates. Younger age is associated with better health, and hence lower risk. Besides age, there are a number of other factors which affect premiums. These include:

• Current state of health and medical history
• Your family’s medical history,
• Your gender – Women are usually quoted lower rates as they are known to have better life expectancy than men.
• Whether you are married or single
• Your city of residence
• Your lifestyle habits
• Driving record
• Occupation

How can life insurance be useful

The primary purpose of life insurance is to provide risk protection. The first and foremost goal of having life insurance is providing financial protection to your loved ones, in the event of a misfortune. In addition to that, life insurance policies can also be used to fulfill a number of other purposes like leaving behind an inheritance/legacy for your successors, provide for your child’s education & marriage, to buy a house, receive post-retirement income, transferring wealth, etc.