You have no idea about what tomorrow will bring, but you can deal with it today. Hence, we are talking about life insurance today.
Most of the people relate life insurance with tragedy and death. But, it is meant for the living. The sudden death of the sole breadwinner without a life insurance can leave the family without any sufficient financial resources to sustain their life.
Hence, life insurance should be an important part of your financial planning and every household should consider it.
What is Life Insurance?
Life insurance is a contract with an insurance company, wherein; the company pays a lump sum payment, known as a death benefit, to the beneficiaries on the death of the insured person, in exchange for a premium.
Why do you need a Life Insurance?
Life insurance helps to take care of the financial needs of your loved ones in case of your untimely demise. The money is paid to the beneficiary chosen by you, who can use it for any purpose, such as:
Covering daily expenses
Replacing lost income
Paying off debts and mortgage
Investments for future savings
What are the types of Life Insurances?
Here are the different types of life insurance policies that are available in the market:
• Term Insurance: It is the most basic and affordable form of life insurance. In thecase of term insurance, only life cover is provided with no saving component. Hence, only the death benefits are payable on the death of the insured person. So, if the person survives through the policy term, then no amount is payable to him.
• Endowment Plan: Unlike term plans, maturity benefits are payable on the expiry of policy terms in case of endowment plans. Hence, it pays out the sum assured under both the situations, i.e. death and survival. These plans are costlier than the term plans due to the liability of maturity benefits associated with them.
• Unit Linked Insurance Plans (ULIP): ULIPs are the combination of mutual funds and insurances.They are similar to the endowment plans, but, the performance of ULIP is linked to the stock market. The value of an investment depends upon the value of underlying assets that can be debt, equity or a combination of both as chosen by the insured person.
• Whole Life Policy: The insured person enjoys the life cover throughout his life in the case of whole life policy. There is no defined time limit of the coverage under this policy. The policy expires on the demise of the insured person and the life benefits are then paid to the family members.
• Money Back Policy: This is also an endowment policy, wherein, if the insured person survives, he receives the sum assured in installments at regular interval over the policy term. In case the insured person dies during the policy term, full sum assured is paid to the beneficiary.
When is the Right Time to Buy a Life Insurance?
When you apply for a life insurance, the risk of dying at a certain age is assessed. The older you are, the risk of getting any life-threatening disease increases. The premium and life cover depend upon this risk.
Hence, if you buy a life insurance at a young age, the premium will be low since there is a lesser risk of contracting any critical disease at this age. As you grow older, the premium is likely to increase and in some case, you can even be denied coverage.
How much Cover do I Need?
Life insurance coverage totally depends upon one’s personal needs. You should answer the following questions to decide your ideal life insurance coverage you need:
How much financial support do you provide for the family presently?
Who all aredependent upon you financially?
What are the mortgages and/or loans that you need to pay off?
How much will be your final expenses relating to funeral, etc?
What will be the educational expenses for the children?
How will inflation affect the future expenses?
Tips for Buying Life Insurance
You should keep the following things in mind while buying life insurances:
• Be sure about why do you need a life insurance so that you can wisely choose the life insurance plan that suits your requirements.
• Determine the amount of sum assured accurately so that you buy sufficient coverage that can help your family live a financially independent life.
• Choose the best insurance provider and broker.
• Do not add any unnecessary riders to your life insurance which will increase the cost of thepremium.
• Make sure to share only truthful information in the application form.
• Insurance is not investments. So, keep them separate.
• Try to buy a life insurance at a young age to get a comprehensive coverage at anaffordable premium amount.