What is Life Insurance

Life insurance is a legal contract undertaken for specific years(known as the policy term) between the insurance company and the customer (known as the insured) where the insurance company provides a life cover (known as the sum assured)on payment of a price (known as the premium) to attain the protection amount. Life insurance policy offers financial security to the insured’s dear ones by providing the sum assured in case of an untimely death of the insured during the policy term. If the insured survives the policy term, he gets maturity benefit and the policy is terminated henceforth. So under a life insurance policy, there is a death benefit and/or maturity benefit (whichever event occurs first) based on the type of life insurance policy opted.

Life insurance policy is an important foundation to ensure your family is financially protected. It acts as your savior in the following scenarios:

Death: Death is the hard fact of life but it leaves behind a financial and emotional vacuum for the loved ones of the deceased. A lumpsum payout as a death benefit under a life insurance policy will certainly support your family members in that hour of distress and give them financial stability to move to surpass the moments of sorrow and get out of the financial crisis.

Accident: Accidental deaths are on the rise. Usually, people in early age are more prone to die an accidental death as compared to a death due to any illness. Under life insurance policy with accidental death benefit, your nominee gets additional accidental death sum insured over and above the base policy sum insured amount if the cause of death is an accident.

Debts: A life insurance policy is your financial asset and it is considered as collateral security to take loans like home loans, etc. In case of an untimely death of the person indebted(who is also the person insured)the financial burden shifts to his family to pay off the outstanding loan. Proceeds from a life insurance policy in such scenarios can be used by the family members to pay off the outstanding loan of the deceased. This way it safeguards your loved ones from a traumatic financial burden.

Child’s Future: A life insurance policy can be used to accomplish various goals set by an individual. One such goal is to fulfill the dreams of our kids by giving them the best of education and talent-driven training. All such things come at an enormous cost. With child insurance plans, you can plan for your child’s education expenses well in advance by creating a corpus that will help in important milestones in your child’s life.

Old Age: Post-retirement age is generally considered as second innings of your life but you can live it to the fullest if you have your regular flow of financial income in the form of a pension. A pension plan offers you an income in the form of a pension amount- by planning well in advance. Pay your premiums during your working years and enjoy your pension in your retirement years.

Let us now understand various types and forms of a Life Insurance Policy.

Life Insurance Plans can be classified into four broad categories:

Term Plans: This is the purest form of insurance, which only offers a death benefit to your nominee. There is no maturity benefit. The premiums for term plans are cheapest and affordable.

Endowment Plans: These plans are usually guaranteed benefit saving plans which offer death benefit or maturity benefit based on whichever event (death or maturity) occurs first. § Unit Linked Insurance Plans (ULIPs): These plans are the combination of a pure term insurance plan and investment plan. The returns under this plan are market-driven and volatile in nature which can be managed by the customer based on his risk-taking abilities.

Money-Back Plans: As the name suggests, such plans offer periodic payback to the customer under regular intervals. The sum assured is paid back in installments (known as money backs) to ensure the customer has enough funds at regular time frames. On death, the complete sum assured is payable to the nominee irrespective of any earlier payout made by the company.

It is important to secure your life for your loved ones so that they can lead a happy life in your presence and also in your absence. Different types of Life insurance policies along with providing protection also help you to achieve various short terms and long term financial goals.

AN Nov 09/17

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