Introduction

Ramesh worked in Northern Railways and had to move cities due to transfer often. This cost him a lot because every time he moved to a new place, he had to arrange for the complete home set-up. The family lived in another city while Ramesh alone relocated. Initially, it wasn’t a concern for Ramesh but when the expenses in the name of education and other heads increased, he got worried. Ramesh found no other way of saving money for his family other than the life insurance policy. He chose the traditional way of saving money to help the family in future if they are distressed in his absence.

Well, a million of people think to secure their family through life insurance policies. According to the recent data, the Life Insurance Corporation of India issued approximately 21 million new individual policies. Apart from the government segment, the private insurers issued around 7 million policies. The figures are an indicator of how people perceive life insurance policies. 

If you are interested in life insurance policies, let us read further.

 

Table of Content.

What is Life Insurance?

Benefits of life insurance policy.

Things to consider before buying a life insurance policy.

Conclusion

What is Life Insurance?

A life insurance policy is a contract between the insured and the life insurance company. Under the contract, the insurer assures the life insured to pay a compensation either on the death of the life insured or on the maturity of the policy. The policy remains active only if the premium is paid by the life insured.

The primary motive of the life insurance policy is to provide financial security to the beneficiaries after the death of the life insured. Life insurance policies provide these benefits among several others.

Benefits of life insurance policy.

  1. Life Insurance offers tax benefit: In India, largely the primary intent of the users/buyers to buy a life insurance policy is to get a tax benefit. The premium paid in a year is eligible for tax deduction under Section 80C of Income Tax Act, 1961. Apart from the premium, the payouts under the life insurance policy received by the nominee or the life insured either on the death or the maturity is also tax-free.
  2. Life risk cover: The life insurance policy provides high life cover to the life insured. It implies that if anything unfortunate happens with the insured, the nominee will get the death benefit.
  3. Return on Investment: The life insurance policy like ULIP offers an investment option to the life insured. This policy yields high returns when you stay invested for a long time.
  4. Loan Options: The life insurance policy also provides you an option to encash the policy for loan. After having paid the premium for 2 years or more consistently, the policy gains the cash value. It is the time when you can use it for loans.
  5. Financial Planning: With a life insurance policy, you can easily plan the expenses in future. For example, you can buy a pension plan to support your life financially after retirement. Similarly, you can go for a child insurance plan that helps you prepare financially to support your child’s future dreams like their education or marriage. Depending on your risk appetite, you can plan different life stages.
  6. Riders: The life insurance policy coverage can be improved by selecting some of the rider covers. You can buy the riders at an additional cost to enhance the cover limit. The rider covers may include critical illness, personal accident, accidental death and disability, surgical care, hospitalization cover,  and waiver of premium benefit.

By reading the benefits of the life insurance policy, you must be convinced to buy a life insurance policy to protect the savings and the dependents in the family. But before buying the policy, these are the things you can consider.

5 Things  to Consider Before Buying a Life Insurance Policy.

These are the things you can consider in depth before buying a life insurance policy.

  1. Check the amount of cover: Keep in mind the exact amount of cover you are looking for in the life insurance policy. As a thumb rule, the sum assured under the life insurance policy is 10 times the annual income. The insurance companies always provide an online calculator. You can use them to know the exact amount of cover you would need. For example, if you are buying a ULIP, you can use the wealth calculator to know how much money you would need at the end of the policy term considering the factor of inflation.
  2. Buy the policy for the right reason: The policy you purchase should help you with the right reason. Suppose if you have taken loans for a home or car, you must buy a term plan. The life insurance policy pays sum assured to the family after the death of the life insured. This is a high life cover that comes at a less premium amount. The policy sum assured enables the family to manage the loan liabilities.
  3. Policy Tenure: Before buying the life insurance policy, you must keep in mind the policy tenure. It is the period for which you have to pay the premium. For example, if you are 35 and wish to buy a pension plan to retire by age 65, the policy tenure should be 30 years (65-35).
  4. Additional Coverage (riders): Evaluate the need and the scope of coverage that the life insurance product offers. If it is required, you can buy the riders to enhance the cover under the policy. The rider covers comes at an additional premium which needs to be paid at the inception of the policy.
  5. Evaluate the performance of the life insurance company: Buying a life insurance policy is about setting up a long term relationship with the insurer. In insurance, trust is the major factor from both parties involved. Before buying the policy, it is important that you disclose the facts. Also, at the same time, you need to assess the credentials of the life insurance company. Some of the information that you must browse about the insurer include:
  • Solvency Ratio: The solvency ratio is the ability at which the insurance company can settle the claims. Ideally, the insurer must have a solvency ratio equals or more than 1.5.
  • Claims Settlement Ratio: The CSR reflects the number of claims that the insurance company settles against the number of claims received. If the insurance company like Aditya Birla Sun Life Insurance has a CSR equal or more than 98%, then it is a favorable deal for you.
  • Asset Under Management: Check for the higher AUM which indicates that the insurance company has a strong portfolio and performs well.

Conclusion:

A life insurance policy is also an asset because the policy contract assures to protect you, your family and the savings if anything unfortunate takes place. The life insurance policy agreement helps you to build a huge corpus of funds in life. Buying a policy is a big decision but worth making one. There are about 24 life insurance companies in India. For the best life insurance in India, you can ideally compare the life insurance premium and other conditions online. For more insights on life insurance, please visit the link here.

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