It is common knowledge that life insurance is a crucial part of financial planning. Whenever you think of building a future, you must think about life insurance. However, it can get pretty overwhelming to find the right life insurance policy for yourself. This article will help you understand how life insurance works and how you can go about purchasing a policy for yourself.
Purchasing a Life Insurance Policy
The first step is always the decision to buy a life insurance policy. Usually taken to protect your family and loved ones, life insurance should be bought after considering their financial requirements in the long run. A lot of thought must go into which policy to buy. Some crucial parameters to factor in are policy tenure, cover amount, premium paying options and the claims process. It is equally important to keep in mind your reason for buying life insurance.
Among the options available, which is the right policy for you?
Life insurance plans create a financial safety net for your family in your absence, and hence, buying a policy that fulfils all their needs should be your top priority. Life insurance plans come with multiple options such as pure term insurance, whole life insurance, retirement and pension plans, ULIPs or Unit linked insurance plans, and more. There are riders as well that you can choose. This is why, it is important to consider your current family income, their lifestyle and expenses, any debts or liabilities, and other savings you may have. As a general rule of thumb, your life cover should be at least 10-15 times your annual income1. Going beyond the thumb rule can also help you in planning for retirement, savings, children’s education and other contingencies like serious ailments.
Types of Life Insurance Plans
As per your financial goals, you can choose between two types of life insurance plans available in the market
Term InsuranceTerm insurance stays in place for a specific period of time with the premium remaining constant across the policy term. This type of life insurance is highly affordable, offering large covers for low premiums. The sum assured is paid to the nominee if you pass away during the policy term. Otherwise, the policy simply lapses
Whole Life InsuranceWhole life insurance offers lifelong coverage. The premiums in this case are understandably on the higher side when compared to term insurance. The sum assured is paid to the nominee on your demise
ULIPULIP or a Unit Linked Insurance Plan is an insurance plan that offers the dual benefit of investment to fulfil your long-term goals, and a life cover` to financially protect your family in case of an unfortunate event. The premium paid towards a ULIP is divided into two parts, one part contributes to your life cover, and the remaining is invested in the fund of your choice
Retirement PlansRetirement Plans are a category of life/annuity plans that are specially designed to meet your post-retirement needs such as increased medical and living expenses. To ensure that you can enjoy your golden years with financial independence, these plans help cover your expenses and secure your future
Savings PlansSavings plans are financial products designed to enable disciplined savings while delivering steady returns that help you achieve your financial goals. As they are primarily a life insurance product, these plans also ensure the financial security of your loved ones in case something happens to you
Health InsuranceHealth insurance plans reimburse you for your medical expenses, including treatments, surgeries, hospitalisation and the like which arise from injuries/illnesses or directly payout a certain pre-determined sum to the customer. A health insurance policy offers coverage for any future medical expenses of the customer
Premiums in Life Insurance
The premium is the amount you pay in exchange for the sum assured that the insurer provides. It varies as per your age and health condition as well as the policy type and policy tenure. All insurance policy benefits are tied to the premium payments; hence, the failure to pay can have serious consequences.
How is Premium Decided?
The premium for your life insurance policy depends on various factors that include your sum assured amount, gender, age, occupation, income, medical history and lifestyle habits. The premiums can increase if you have added any riders to the base plan. The life insurance premiums are usually set higher if you’re a smoker or drink alcohol. Additionally, these premiums can vary from insurer to insurer.
Claims in Life Insurance
In case of the unfortunate demise of the insured within the term of the policy, a predetermined sum is paid to the insured's chosen nominee as a death benefit. The process to make the claim for this, is relatively simple. A claim can be made by filing it online, via SMS, e-mail or by calling the call centre of the insurer or physically at a branch office. It is advisable to intimate the insurer as soon as possible when all the necessary documents are ready to help process the claim faster. Documents can include the claim statement form, death certificate, any medical/hospitalisation documents and the claimant’s ID and address proof.
Before purchasing a life insurance policy, do find out about the claim settlement ratio of the insurer. This gives the likelihood of your claim being settled.
Now that you know how life insurance works, choosing one should be an easy task. Remember to factor in all the parameters before finalising the policy and read the fine print for complete understanding.
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` Life cover is the benefit payable on the death of the Life Assured during the policy term.