What Is Life Insurance & How Does It Work. If one wants to manage their life risk, insurance is one of the best options. Insurance is a great option to help your families. Finance Personals worldwide also suggests insurance before starting their investment plan as it is an important requirement for several reasons.
Here’s a comprehensive guide that explains everything about life insurance, including what it means, types and benefits.
What Is Life Insurance?
Life insurance is a contract between the policyholder and the insurance company, in which the policyholder pays and receives the money, either after the death of the policyholder or after a specified period of time.
The amount of money known as a life award helps to secure the future needs of your family by paying a lump sum in case of death of the policyholder but many life insurance policies provide an amount called maturity benefit to the insured they are usually paid at the end of the policy period. What Is Life Insurance & How Does It Work.
Main Types of Life Insurance
Pure Protection
A perfect example of such a life insurance policy is a term insurance policy which is the purest form of life insurance policy. It is designed to provide financial security for your family in your absence. Pure plans pay a lump sum to the insured’s beneficiary once the insured dies. Given the premiums offered are relatively low compared to other life insurance policies.
Protection and Savings
- A safety deposit life insurance policy includes a life premium with a savings component that enables you to plan for long-term goals such as children’s education or their marriage. Such plans offer life premium and wealth creation benefits.
- Savings and Endowment Systems: Insurance and Savings.
- Unit-Linked Insurance Plans (ULIP): Insurance and investment opportunities.
- Refund Scheme: Insurance and Periodic Refunds.
- Children’s Program: Helps a child achieve goals such as marriage and higher education.
- Retirement plan Income after retirement.
- Whole Life Policy: Whole life coverage for the insured.
Why would I need a life insurance policy?
Life is full of uncertainties. Everyone wants to secure their future with their loved ones, especially those who are completely dependent on them for financial needs. What Is Life Insurance & How Does It Work.
A life insurance policy helps you meet your personal financial responsibilities and provides income for your beneficiaries, when you are no longer around. In addition to practical protection, other benefits are embedded in life insurance policies. It also helps to generate guaranteed income over time including tax benefits. Premiums paid under a life insurance policy can be claimed as tax deduction under Section 80C of the Income Tax Act.
Therefore, buying a life insurance policy is worth the investment for anyone who has one or more dependents, as life insurance plays an important role in helping your loved one happen to be the income earner only die paying expensive uncovered financial obligations and daily expenses. It is definitely an inexpensive way to financially protect people who are financially dependent on you like your spouse, parents or children. What Is Life Insurance & How Does It Work.
How do you decide on life insurance?
Assess Your Financial Goals: Financial goals different from a person. For example, if protecting your family is your primary goal, then term insurance is the one for you. Like paying big bucks to your nominees in your absence. But if your goals are more long-term like buying a home or funding your children’s education, you may want to consider an insurance plan like a ULIP or a savings or endowment plan.
Assess Your Life Insurance Cover: It is recommended that the life insurance should be at least ten to fifteen times your annual income. Their lifetime cover should be evaluated against their financial obligations and other financial goals. To get the right life insurance, you need to analyze the family’s annual expenses, outstanding debts, children’s education and marital needs.
Choose the Correct Policy Term: Always select the correct system password. The timing of the plan should well be the years when your family will be financially dependent on you.
Reveal All the Facts from Your Life Insurance Provider: Do not hide relevant facts such as medical history, financial responsibilities, lifestyle and so on from your insurers. Such factors affect the future of your claim. What Is Life Insurance & How Does It Work.
Always know the lock-in period: A closing time or an open observation period is crucial when you are not happy with your current policy. Many insurance companies offer a 15-day lock-in period in which the policyholder can return the policy and purchase a new one if he or she is not satisfied with the original purchase.
Purchase Life Insurance At A Young Age: It is always advantageous to buy a life insurance policy when you are young as the premiums for life insurance are very low. You can always start with a low premium and then slowly add more riders as your income increases.
Check the Claim Settlement Ratio (CSR): the CSR is a percentage of the amount settled by the insurance company to the total claims for that particular year. It is best to go with life insurance companies that have high premiums. What Is Life Insurance & How Does It Work.
Benefits of Life Insurance
- A life insurance policy provides life expenses to the insured and his or her family in the form of monetary compensation in exchange for premiums paid.
- The policyholders are offered as per the insurance requirement. Purchase benefits are available based on insurance plans needs and financial goals.
- Insurance plans also cover hospitalization and treatment of critical illness.
- Life insurance policies also encourage savings and help build long-term wealth.
- The insured may also have credit facilities in some life insurance policies.
- The insurance policy also offers a tax advantage as insurance money is taxable under Section 80C of the Income Tax Act.
How Does Life Insurance Work
A life insurance policy provides life coverage that helps your near and dear ones financially in your absence. At the same time, these programs also help the individual and his or her family achieve multiple financial goals. These are some of the personal goals below that a good life insurance policy helps to accomplish: What Is Life Insurance & How Does It Work.
First of all, providing financial protection against loss of life.
- Education for children.
- Children’s marriage.
- Buying a house.
- Post-retirement pension or regular income.
The best thing about life insurance is that they are versatile. With the help of life insurance policies, you can easily achieve your long-term financial goals. For example, the policy holder can use his corpus built up with the endowment scheme to finance the house in future.
Insurance Claim Settlement Process & Documents Required
- Insurance settlement process and required documents
- In the event of an unfortunate event, the authorized person is obliged to send the application to the insurance company as soon as possible.
- The report should include date such as the details, place and cause of death.
- After successfully submitting the claim form, the insurance company may request additional information such as death certificate, copy of the policy, etc.
- The insurance company will verify and handle the claim if all submitted documents are properly approved. What Is Life Insurance & How Does It Work.
India Insurance Companies
- Life insurance corporation of India
- SBI Life Insurance
- Reliance Life Insurance
- ICICI Prudential Life Insurance
- HDFC Standard Life Insurance
- Bajaj Allianz Life Insurance
- Max Life Insurance
- Aditya Birla Sun Life Insurance
- Tata AIA Life Insurance
- Kotak Life Insurance