Life insurance is a contract between an insurance policy holder and an insurance company. As per the contract, the insurance company promises to give a certain amount to the beneficiary in lieu of a certain premium in case of death of an insured person or policyholder. Depending on the type of insurance, payments can also be made in case of other incidents such as incurable disease or serious disease. The policyholder usually pays the premium, whether regularly or in the form of a lump sum amount.

Insurance is also seen as an effective planning tool for your future, retirement and children’s higher education needs.

How does the life insurance plan help?

Life insurance can help you in the following ways:

• Helps in securing the financial future of the family in the event of untimely death of the insured. The family of the insured person gets the death benefit, they can meet the expenses with the help of this amount and maintain the standard of living.
• It provides you with a huge amount of money, and helps you plan the financial aspects of your retirement.
• It helps you leave a legacy by creating additional property for your family.
• Some policies also facilitate payment of medical expenses to you in case of chronic or fatal diseases.
• It also facilitates partial fund withdrawal on an emergency or major occasion such as your child’s marriage, new home purchase, etc.

Why do I need life insurance?

You need life insurance for the following reasons:

You should have life insurance to continue earning money from another source even after the death of the insured person.

• To get tax benefits
• To help pay for the major opportunities of your life
• To help your child plan for education
• To plan for your retirement

What are the benefits of taking a life insurance plan?

Life insurance helps you secure the future of yourself and your family. Some of the benefits are as follows:

Providing life cover – Life insurance in this world full of uncertainties provides financial security to your family even in your absence. It helps them maintain exactly the same lifestyle that you offer them.

Planning for different stages of life – You can meet your needs on the major occasions that require money in your goals and life, such as children’s education and marriage. Plan your retirement and leave a legacy to the next generation.

Long term savings – Life insurance is also a medium of long-term investment that can help meet your financial goals and future needs.

How do I ensure what life insurance I need?

Each person’s insurance requirements vary. It is a person’s requirement, so you should consider your life goals and the current inflation rate before determining the money.

A concept called ‘Human Life Value’ provides a proper assessment of how much life insurance would be right. It is calculated as a sum of money, which, if invested in a fixed deposit, will provide an income equal to your current income.

A basic rule is that 10-12 times the amount of your current annual income is your human life value. In this way, you need to understand your current financial conditions, your future aspirations, current liabilities and risks that you want to wipe out from your life, so that you can decide on your life insurance requirement.

How does life insurance work?

Buying a policy is the first step, and then monthly or annual premiums should be paid on time regularly. In the unfortunate event of your death, the insurance company gives a predetermined amount to your family or beneficiary. At the time of issuance of life insurance policy, an maturity equal to sum assured is created. Unlike other forms of investment, insurance is the only form of investment that promises you money at the time of signing the contract.

Should life insurance be part of my investment portfolio?

Yes. A diversified portfolio helps you reduce the risks of investing. Besides investing in various financial instruments, investing in life insurance is also very important from the point of view of financial security, meeting financial goals, and tax planning.

What are the different categories of insurance available in the market?

The three major categories of insurance are

1. Life insurance
2. Health insurance
3. General insurance

General insurance (non-life) includes all things that are not related to life insurance, such as motor insurance and liability insurance. The health insurance plan pays the medical and surgical expenses to the insured person.

Is life insurance an investment?

Yes. Life insurance is also a kind of investment to meet various financial goals. It tends to make disciplinary savings, and thus helps to create a sum of funds for future financial security. It can help you achieve various financial goals, such as paying for your child’s education, buying a home, retirement and other things.

What is a Term Insurance Plan?

Term insurance plans are simple and affordable and they only provide life insurance coverage. The insurance company promises to provide a pre-determined lump sum amount to the beneficiary in case of untimely death of an insured person. By the way, if the insured lives till the time period of his policy, then no payment is made. In other words, the term plan does not have any survival or savings benefits. Term insurance is a good option for those who want a large sum assured at a very low premium.

What are the different types of term insurance plans?

There are four types of term insurance plans:

Pure term plan – The nominee gets the claim amount only in case of death of the policyholder during the period of the plan. However, no payment is made to the insured person in case of maturity.

Premium Refund Term Plan – The premium is paid to the policyholder in case the plan is sure. However, in case of death of the policyholder during the policy term, the sum assured is paid to the nominee.

Increasing Term Plan – Under this plan, the sum assured continues to increase at a predetermined rate every year. It increases the premium based on inflation or life phase (such as marriage, birth of first child).

Decreasing Term Plan – The sum assured under this plan decreases every year at a pre – decided percentage. These plans are generally good for loan covers.

What are endowment plans?

Endowment plan is a life insurance contract designed to pay a lump sum amount after a certain time – whether on maturity or on the untimely death of the policyholder. One form of endowment plan is the Money Back Plan. It is paid to the policyholder over a regular period during the policy term. The balance sum assured is paid on maturity.

What is a whole life plan?

The whole life insurance plan guarantees to remain effective throughout the lifetime of a policyholder, provided the premium is paid regularly as per the contract of the policy. The death benefit is given only on death, whenever it is. Whole Life Plan can be a limited premium payment or a regular premium payment plan.

What are annuity plans?

Annuity plans known as retirement or pension plans provide you with financial security during your old age. Keeping in mind the costly cost of living, rising inflation and rising healthcare expenses, you can use your annuity/health care expenses. You can live proudly while maintaining your standard of income from the retirement plan.

What are the different types of annuity plans?

There are two types of annuity plans:

1. Deferred Annuity Plan – In which a person keeps investing to accumulate a huge amount of money for his retirement. This step is also called the accumulation phase.
2. Immediate Annuity Plan – Thereafter, the amount accumulated in the accumulator phase is invested in an immediate annuity plan. It provides annuity or pension to the policyholder. This annuity continues till the policyholder survives. In some pension plans, annuity is also provided for spouse.

What is a ULIP?

ULIP means unit linked insurance plan, which provides risk cover to the policyholder, as well as investment options to invest in various funds available with the insurance company. Part of the premium to be paid – is charged for providing life cover. The remaining amount, also known as invested portions, is invested in various funds of his choice based on the policyholder’s risk interest. ULIP funds are a combination of various debts and equity instruments.

What are the different types of ULIPs?

There are two types of ULIP:

1. Type 1 ULIP – The death benefit to be paid is either sum assured or fund value, whichever is higher.
2. Type 2 ULIP – The death benefit to be paid is sum assured + fund value.

What is Bonus?

Bonus is an addition to a policy which is paid out of the profits of an insurance company. Bonus is paid only in any participant (or with profits) policies.

How is a life insurance claim made?

In case of death of the life assured under a plan, his/her nominee/person will be named under a plan. Beneficiary / Beneficiary Claim documents are to be submitted by the assignee to the insurance company at the earliest so that the benefits of the insurance policy can be availed.

How Life Insurance Helps In Tax Planning?

While there are many ways of saving tax, life insurance is one of the most effective tax saving tools. With the help of a life insurance plan, a person can not only save tax but also achieve his long-term goals.

What tax benefits can I get through life insurance?

You can get these tax benefits:

• Under Sections 80C and 10(10D) of the Income Tax Act, 1961.
• Premium payments up to Rs. 1,50,000 are deductible as per the provisions of Section 80C.
• The amount received from the life insurance policy is tax free under section 10 (10D) of the Income Tax Act, 1961. This benefit is subject to the terms and conditions of the Income Tax Act.

Is online purchase of life insurance safe?

Yes. Buying life insurance online is safe, convenient and quick. In case of secure connection of the website, any online insurance is secured. To check this, the first https:// of the name in the address bar of the website.

What are the benefits of children’s life insurance plans?

Child insurance plans are investment plans that mainly offer the following benefits:

• Protecting your child’s financial future
• Providing funds for higher education
• Providing funds for marriage of a child

Author Bio:

I am Nikesh Mehta, owner and writer of this site.

I’m an analytics and digital marketing professional and also love writing on finance and technology industry during my spare time. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business. I can be reached at nikeshmehta@allonmoney.com or LinkedIn profile.