Summing Up Life Insurance

Life insurance is one of the best instruments to manage one’s personal finance. Though life insurance is sold across the globe and has got universal applicability, there still remains a great deal of confusion as well as scepticism among people, when it comes to buying a policy.

The confusion and scepticism around life insurance are mainly rooted in our ignorance. Perhaps it is the structural complexity of the insurance products, the attitude of the insurance agents, or our reluctance to think of our own death, which makes us insurance sceptics.

Life insurance, unlike what most people think, is not a contract that is beneficial only for the insurance providers and agents. If your perception of life insurance has always been like this, it is time to change your views.

The concept of life insurance can be summed up in three simple words- responsibility, protection and savings.

Life Insurance Means Responsibility - If there is at least one person in your life, who depends on you financially, you need life insurance. Life insurance is a contract between you and your insurer, which promises to take care of your loved ones in the event of your untimely death. The premiums you pay throughout the policy tenure are pooled by your insurer and the sum assured is paid out to your nominee in case of your unfortunate demise.

There are four primary players in a life insurance policy – the insurer, the insured, the policyholder and the nominee. The insurer is the insurance provider that is responsible for paying out the death benefit in case of the policyholder’s death. The insured is the person upon whose life the policy is based. The policyholder is the one who has to pay the premiums to the insurer. The policyholder is the owner of the insurance. The nominee or the beneficiary is the one who receives the death benefit on the death of the policy owner.

Whoever buys a policy becomes the owner of the policy. In most cases, both the insured and the policyholder are the same person. However, some child insurance policies allow both you and your child to be the insured while you alone remain the owner of the policy. As the nominee of the policy, you can nominate anybody you love – your spouse, child or your dependent parents.

If you are the only breadwinner of your family, it is your responsibility to take care of your dependents financially. What if an accident or a life-threatening disease takes you away from your loved ones forever? It is your dependent family that will suffer the most, both emotionally and financially. In order to prevent them from landing in a financial crisis and a consequent debt trap, the best thing you can do is to get your life insured before it is too late.

Life Insurance Promises to protect our loved ones financially - Financial security is what everybody wants in life. The best way to ensure the future financial security of your family is to buy the right policy at the right time. Life insurance can be of different types- term plan, endowment plan, and whole life plan etc. Let us define the most popular types of life insurance plans in detail.

Term Plan - is quite simple in structure. The policyholder first chooses a policy term of 10 / 20/ 30 years. The policy owner will then pay the premiums throughout the tenure of the policy. If the insured dies during the tenure of the policy, the insurer will pay the lump sum assured to the nominee. A term insurance plan is the most popular variety of life insurance policy as it offers comprehensive life coverage at affordable premium rates.

An endowment plan - is a type of life insurance plan that offers both the death benefit and the maturity benefit. While the death benefit is paid out to the beneficiary of the policy, the maturity benefit is paid out to the policyholder after the completion of the policy tenure. An endowment plan can be either with profit or without profit. Some endowment plans allow you to choose the income replacement maturity payout mode, which will protect your family income even when you are not earning.

Whole Life Plan - offers both the death and the maturity benefits. But the special feature of this plan is that, it offers comprehensive life coverage for as long as the insured lives. For instance, if the insured dies at the age of 100 years, the nominee will immediately receive the guaranteed death benefit, no matter how many years ago the premium payment term ended.

Life Insurance Means Savings - Life insurance is not only a great risk management tool, but a good investment instrument as well. A number of insurers offer unit-linked insurance plans (ULIPs) that invest your money in the capital markets. ULIPs are considered risky as the return you will receive depends largely on the performance of the market. However, if you are risk-averse, you should opt for an endowment plan than investing in ULIPs. An endowment plan is a good option for long-term savings and offers income tax benefits as well.

Endowment plans can be of two types- participating and non-participating. If you go for a participating endowment plan, you will receive additional bonuses with the sum assured amount and this will help enhance your future savings.

Both non-linked pension plans and child insurance plans come under the traditional endowment plans. Whatever your future financial goal(s) is- saving for your child’s higher education or marriage, or saving for your own retirement, the best way to achieve it is by investing in a traditional endowment plan. It will not only provide you with the option for saving for future but will also provide life coverage for any unfortunate future event.

To Sum Up - Life insurance is the combination of responsibility, protection and savings. Different life insurance companies in India offer different types of insurance plans to cater to the various needs of their customers. But it is the nagging attitude of the insurance agents that is responsible for most people’s reluctance to buy life insurance products. So, if you want to avoid those agents, you can directly take help of a web insurance aggregator to compare and select the best-suited life insurance product for yourself and your family.