A life insurance policy is a contract between an individual and an insurance provider. The insurance company provides financial protection to the policyholder in exchange for a monthly fee (called a premium).
Based on this arrangement, the insurance provider pays a lump sum to the individual or his family upon the policyholder’s death or, if the policy matures after a curvacious, there are various types of life insurance available once policies in the market that suit the individual demands and needs of the policy buyer.
What Financial Goals Can You Secure With Life Insurance?
Life insurance plans help meet an individual’s and his family’s financial objectives. Some of the goals of an individual that life insurance policies help to achieve are:
- Financial protection in case of death
- Education for children
- Marriage of children
- Buying/Owning a home
- Pension or regular income after retirement
Life insurance plans help you achieve certain financial goals. Life insurance plans are quite versatile. You can plan for your set life goals and align your insurance to help you achieve them, e.g., you can use the corpus generated from an endowment plan (traditional or market-linked) to pay for a house in the future.
What Are The Different Types Of Life Insurance?
Since life insurance life insurance, you should now know about the major types of life insurance plans:
- Term Life Insurance Plans – Pure Risk Cover
- Unit Linked Insurance Plans (ULIPs) – Insurance along with Investment Opportunity
- Endowment Plans – Insurance and Savings
- Money Back – Insurance along with Periodic Returns
- Whole Life Insurance – Whole Life Coverage for the Life Assured
- Child Plans – Children’s Life Goals like Education and Marriage
- Retirement Plans – Income after retirement
Let’s dig further and understand the nuances of each life insurance plan.
Term Life Insurance Plans
Term life insurance plans are the purest form of life insurance. They provide you with life cover without any savings or profit elements. Term life insurance plans are also the most cost-effective form of life insurance, as the premiums are much cheaper than other life insurance plans.
Unit Linked Insurance Plans (ULIP)
A unit-linked insurance plan is a perfect blend of investment and insurance. A part of the premium paid for a ULIP plan is used as risk cover, and a part is invested in various funds.
Depending on the policyholder’s risk tolerance, they can invest in various funds offered by the insurance provider. The insurance provider then invests the collectdifferentnt in different money market instruments such as shares and equities.
Endowment Plan
An endowment plan is a traditional life insurance policy that is a combination of insurance and savings.
In an endowment plan, if the life assured survives the policy term, the insurance company provides the policyholder with a maturity benefit. In addition, some endowment plans may offer periodic bonuses paid on maturity or in case of the policyholder’s untimely death.
Money-Back
Money-back life insurance plans are a type of life insurance policy in which a part of the sum assured is paid directly to the insured at regular intervals as a survival benefit. This way, the policyholder can achieve short-term financial objectives.
Whole Life Insurance
Whole life insurance plans cover the life assured for the entire life, or in some, the age of 100.
The sum assured is determined when buying a whole life insurance plan. A nominee is mentioned at the time of purchase. In case of any unfortunate event, the death claim and bonuses are paid to them, if applicable.
However, if the life-assured lives beyond 100 years, the insurance provider pays the life-assured maturity benefit equal to the endowment corpus.
Child Plans
A child’s life insurance plan aims to build a corpus for the child’s future growth. It usually helps to provide funds for a child’s education and marriage.
This plan pays a sum after major milestones in a child’s life. If the insured parent dies untimely during the policy term, all future premiums are waived, and policy benefits continue without interruption.
Retirement Plans
Retirement life insurance plans help build a stable financial source for a person’s retirement years. They help a person become financially independent and live without any worries. Most retirement life insurance plans offer annual payouts (in the form of annuity) or a one-time lump sum payout (through commutation of the accumulated amount up to the prescribed limit) upon completion of 60 years.
The insurer pays insurance benefits to your family in case of an eventuality during the policy term.
What Are The Benefits Of A Life Insurance Plan?
After knowing the meaning and types of life insurance, you should know about the three major benefits of a life insurance policy. The 3 major benefits of a life insurance policy are as follows:
Security
Life is unpredictable and can be full of uncertainties. It is difficult to reduce the possibility of an unfortunate event such as death. In such situations, the family faces financial difficulties due to the lack of a consistent income.
Investing in a life insurance policy early in life is a safety net in case of such an eventuality. The life insurance provider must pay a pre-determined sum assured to the nominee or beneficiary. As a result, the policyholder’s family is protected even in his absence.
Long Term Savings
If looking to make long-term investments, it is important to consider life insurance. Such insurance plans help you make systematic savings and build a corpus that can provide various procreating options, such as buying a new home, funding your child’s education, and paying for your children’s wedding expenses.
Also, some life insurance policies offer monthly payouts in the form of annuities, which is an ideal way to aim and achieve retirement goals.
Investment Options
Life insurance providers offer Unit Linked Insurance Plans (ULIPs), primarily investment instruments.
These market-linked life insurance products provide significant benefits at maturity, hence making ULIPs a reliable investment tool.
How Much Life Insurance Do You Need?
Apart from understanding the meaning of life, it would be best to evaluate how much life insurance you need. While it is impossible to find the exact value of a human life in terms of money, it is still important to measure your worth. You can measure your Human Life Value (HLV) by estimating how much money your family would need to be financially stable in your absence.
In life insurance jargon, the sum assured is the monetary estimate of the policyholder’s life’s value, called the Human Life Value (HLV).
The basic method of calculating Human Life Value involves two steps:
- Add all expenses, such as household expenses and daily living expenses
- Calculate future liabilities/obligations (such as outstanding loans)
Adding the above figures gives an estimate of humanue, the sum insured by your life insurance policy.
How to Choose the Right Life Insurance Policy?
Once you have understood what life insurance is and identified its need, you should know about these simple steps to choose the best life insurance policy. Choose the best life insurance plan available with these steps:
Contact An Insurance Consultant/Provider
While it may not be sensitive initially, involving a trusted and knowledgeable insurance advisor or provider is crucial when buying life insurance. Many people cannot make their own decisions and need the expertise of an insurance advisor.
The insurance industry’s customers are more inclined towards digital media but still expect communication and recommendations for such important activities.
Evaluate Life Insurance Cover
A life insurance provider will provide a life cover amount (sum assured/insured).
A life insurance provider can help you calculate the cost of your life insurance plan. They calculate the preferred life cover by evaluating your source of income, number of dependents, liabilities, and expenses.
Life insurance providers also help you choose the best life insurance plan from the various types available in the market. This ensures that you get an optimum life cover. Also, you can check your life insurance needs with our online calculator.
Compare Life Insurance Plans
There are many insurance providers in the market offering a variety of life insurance policies. You need to ensure that you carefully choose the most suitable life insurance plan from the available options. Choosing different life insurance plans to find the best insurance policy available to meet your financial needs would be best.
For this, one can choose the most suitable plan by comparing life insurance plans from different insurers, considering all the needs and criteria.
Get Insured To Stay Protected
Buying a life insurance policy is a necessity at the time. While many people buy different life insurance plans, not everyone knows the numerous benefits they offer. In your absence, a life insurance policy supports your family in difficult times and gives them financial support. Not only this, investing in a life insurance policy encourages a disciplined habit of saving. Thus, it enables one to build a significant corpus.
