Imagine a day when you are no more and along with umpteen things that may get affected by your absence, one of the most substantial ones would be on how your family would move on financially. Whether you’re just a student with an unpredictable future ahead, a professional having made it in this competitive world or someone in between, it’s important to think of long term scenarios and how to futureproof against undesirable situations for those around you. The best way to ensure that your family is taken care of financially even after you are by getting a Life Insurance policy. From the well known LIC to the new Fintech Insurance providers there is a dizzying amount of options to choose from. Hence, know why is it important and how to choose the best by reading further.
What is Life Insurance policy?
A Life Insurance policy is firstly an agreement between the Insurer and the Policyholder. The agreement, in brief, will state that in the event of the policyholder’s death a claim is to be raised by the beneficiaries who on the settlement will receive a guaranteed sum in a periodic or wholesome manner. For acquiring such a policy, a person needs to pay an amount yearly that can be broken down to smaller intervals known as the premium. While there are a lot of intricacies in the mentioned brief definition, the basic idea is that one can secure their family’s future by availing such a policy during their lifetime and paying the specified premium without lapse. An important fact to note is that the cause of death plays a major factor in having the claim settled since unnatural causes are not covered.
Types of Life Insurance policies and Premium Costs
Just like how the same profession will not be suitable for all, Life Insurance policies are also similar to Insurance companies offering multiple types to suit everyone. Along with the popular types of Life Insurance policies and hybrid Life Insurance policies their costs are compared with respect to each other for proper analysis:
1. General Life Insurance: Typical Life Insurance policy as the term suggests is for life meaning, from the time of availing a policy if you keep paying the premium without any lapses, then when your death occurs whenever that is being completely unpredictable your policy reaches maturity and the beneficiaries will receive the promised sum.
2. Term Insurance: A newer Insurance policy termed as Term Insurance policy insures you for a particular term meaning if your death occurs within the chosen term then the insurer is liable to settle the claim to your beneficiary after all the due diligence but if you outlive the specified term then the policy gets nullified meaning if your death occurs after the term, the beneficiaries receive nothing. While this may seem like a ploy by the Insurance companies to not pay the maturity amount it works out for the policy buyer as well in a way as Term Insurance policy premiums are substantially lower amongst a few other benefits.
3. Unit Linked Insurance Policy: Some of us want to make the money do some work by investing in the stock market directly or via mutual funds, bonds, etc. For those who wish to take advantage of the stock market, the Unit Linked Insurance Policy is a boon. As apart the premium will consist of two components with one of them for the assured sum and the other for investing in mutual funds of their choice in one channel. Such that the beneficiaries after the policyholder’s death not only receive the assured sum but also a sum from the investment portion of the policy that is given with the value provided at that time of the stock market when the claim is settled. So the premium cost of such policies purely depends on the Maturity sum one chooses plus the amount they want to invest through it on the stock market. So who knows, if you make a great bet on a stock that grows multifold your beneficiaries stand to enjoy its rewards.
4. Pension Plans: Some of us wonder about how to secure our finances after our retirement as well apart from providing financial security to our family after our death. Such aLife Insurance policy is the Pension Plan Life Insurance policy which provides a fixed monthly income to you at a specified age apart from an assured sum after your death. Such Life Insurance policies typically have a higher premium which can be substantially more if you want the monthly income parameter to be high.
Benefits of having a Life Insurance Policy
As defined the primary purpose of a Life Insurance policy is to ensure your family has a secured future after you. Hence the prime benefit is the assured sum to the beneficiaries but there are multiple types of such policies with added benefits that range from getting a fixed income, investment options, tax breaks to endowments thereby availing an insurance policy can never be a wrong option. Note that some of the benefits will be based on the type of Life Insurance policies that one avails.
Let’s get into the other benefits that will be useful to most of us:
1. Tax Breaks: Apart from securing one’s family for the future, a coaxed reason as to why a lot of people get insurance policies is to enjoy tax exemptions. Once can save taxes on up to Rs 1.5 lakh of their income by investing in Insurance policies by showing the amount paid on premium as that for tax exemption. This push by the Indian government has resulted in financial security for a lot of homes when the breadwinner of the family dies especially at a relatively young age. So if your annual income falls in the taxable range life Insurance policy is a safe and useful way to invest while enjoying tax exemptions at the same time.
2. Premature breaking for Emergency: Imagine a situation of dire financial emergency with no one to help. Just like breaking Fixed deposits before their maturity some of the Insurance providers offer Insurance policies where you can opt-out for getting back the invested premium minus some fees and charges. So basically the Life insurance policy acts like a safe deposit as well that can be retrieved at dire or unforeseen situations giving another reason to have one.
3. Collateral to apply for Loans: Not all the majority work for the government or large companies where everything is well organized, documented and sent like getting salary in the account, payslips, filing IT returns etc which is very important when one applies for a loan in India. For such of us and those who cannot produce the required documentation can place their Life Insurance policy as collateral. Loan amount based on the Life Insurance policy is provided either up to a percentage of the maturity value or on the part of the premium amount paid till date depending on the Loan providing institution. Either way, this is a very useful added benefit that one can avail while holding a Life Insurance policy.
Benefits of Hybrid Life Insurance Policies
1. Income in Old Age: On some hybrid policies like Life Insurance policy with Pension plans one can support themselves even after retirement with income making them self dependent. This benefit can be very useful as one cannot know what the future holds for them and any form of security or income can be useful as old age comes with health ailments that may require substantial funds. Why hope for the best when you can assure yourself a self-dependent future with this benefit.
2. Dividends on Profits: In policies with additional premium components for investing in mutual funds or betting on the Life Insurance company itself, one can earn dividends on the profits of the company or investments made. This way one can get additional income taking advantage of the market growth but in a more controlled manner. These benefits can be availed to the policyholder itself or to their beneficiaries depending on the type of policy availed.
But choosing a provider and the type of plan can make a huge difference in the returns for an almost similar premium amount.
Different Providers of Life Insurance in India
One can buy policies from well-known Government companies like LIC who not only offer time and tested policies along with new-age covers. You cannot go wrong in choosing them but the question is how good the other options out there are. The next set of providers though private have been in the Insurance business as long or even before LIC itself which are Oriental Life Insurance Company, National Insurance Company, the New India Assurance Company and so on. Their premium and benefits can be not in sync with the needs of recent times giving space for a multitude of new ones to open shop.
Being in the financial industry the majority industry majority of India’s largest banks nationalized and private offer Life Insurance with some having tied up or wholly bought smaller Insurance companies for the same. SBI Life Insurance, HDFC Life, ICICI Prudential, PNB Metlife are just to name a few. Those with accounts sometimes get lower premiums too making it a loyalty type benefit. Last but not the least in their competitive space is the new-age fintech startups that offer highly competitive premiums, benefits, payment options, offers etc to get a piece of the pie. Of the new-age companies, most do not offer the policy directly but with tie-ups of existing providers thereby just acting as a marketing channel.
One such highly helpful types are Insurance aggregators such as Coverfox who help you compare policies from multiple providers, get you the lowest premiums, some additional benefits, and rewards. But the matter in hand is that you do not miss out on knowing any competitive benefits by comparing policies through Coverfox Life Insurance comparison feature.
From where ever it is that you plan to avail a Life Insurance policy in India, having one is surely a Godsend.