A life insurance plan is a contract between an insurance policyholder and an insurance company, where the insurer promises to pay a sum of money in exchange for a premium after a set period or upon the death of an insured person. Life insurance offers you and your family financial
protection. Some policies also offer optional add-ons, such as critical illness benefit, accidental death benefit, and more. The importance of life insurance cannot be ignored in ensuring the financial safety of your loved ones.
Benefits of buying life Insurance
Life insurance protects your family members’ financial interests in your absence. It gives you peace of mind and confidence and helps you save taxes. There are several benefits of life insurance Let us take a look at some of them:
• Financial security: Life insurance products can provide you and your loved ones with financial security. You can financially secure your family by choosing a substantial life cover so that they can maintain their standard of living in your absence
• Wealth creation: These plans help you create wealth over time and build savings. Life insurance plans can be used to save for your future needs. They offer options to cover different types of risks and goals
• Disciplined investment: With regular premium payments, life insurance plans inculcate financial discipline. They offer unique investment opportunities for every risk type with a wide range of products, such as unit linked investment plans, guaranteed savings plans, endowment plans, and more
• Retirement planning: Life insurance products like annuity plans, savings plans, endowment plans, and other help you build a retirement pool. These plans offer guaranteed income on maturity and help you secure your retirement with adequate savings.
• Tax savings: Life insurance plans offer many tax` benefits to facilitate better savings. The premiums paid are tax` deductible under section 80C and 80D of the Income Tax Act, 1961. The maturity benefits also enjoy a tax-free` status under Section 10(10D) in most cases
Different types of Insurance
Types of life insurance in India:
• Term life insurance plan: Term Insurance plans offer your nominee a fixed sum assured amount in exchange of regular premiums, in case of an unfortunate incident during the policy term
• Unit linked insurance plan (ULIP): A ULIP offers investment and insurance under the same policy. A part of your premium gets invested in equity/ debt/ balanced funds as per your choice and the other part is used to secure your loved ones with a sum assured.
• Endowment plan: An Endowment plan allows you to build risk-free savings and protect the financial interests of your family in your absence.
• Annuity plan: An annuity plan is a type of retirement plan that offers you a regular payment in return for a lump sum investment. In simple words, you pay the life insurance company a premium in lump sum and your money is returned to you as regular income either immediately or after a certain period of time. The life insurance company invests your money and pays back the returns generated from it to you as payouts
Who Needs Life Insurance
Life insurance can be a must-have financial tool for the following people:
• Newly married couples: Life insurance can offer newly married couples peace of mind and financial security. It can help your spouse live their life comfortably and meet all financial liabilities
• Parents with young children: Parents with young children can purchase life insurance to ensure that their children have a financial cushion to fall back on if they are not around to take care of them. Insurance plans can also help parents save for their kids’ future needs
• People nearing retirement with fewer savings: Life Insurance plans allow you to save and invest your money. You can opt for low-risk options and secure your retirement and old age
• Business owners: Life insurance benefits can help your family carry on your business in your absence. The pay-outs can also help them pay off creditors or clear your debts
Factors that affect Life Insurance premium
The premium amount for your life insurance plan can depend on a number of factors. Some of these have been mentioned below:
• Age: Age is one of the chief factors that impact the life insurance premium. As you age, the possibility of the insurer paying the claim also increases. This is why the premium rises with age
• Gender: Women tend to live longer than men $ . Hence, they pay the premium for a longer period. This results in a comparatively lower life insurance premium
• Present health and medical history: You have to undergo a medical test before purchasing a life insurance policy so that the insurer can assess your health status. Having a history of medical issues can increase the premium for life insurance. Family health history and hereditary diseases can also impact the life insurance premium
• Lifestyle: Poor lifestyle choices like smoking and drinking can increase the risk of certain ailments. This impacts the premium amount for a life insurance plan