Life Insurance in its simple meaning advocates that your life is insured from any unseen circumstances in life and your spouse will not be left alone in case of any mishap with your life. .When we plan anything big in life we always think for backup but what about life itself to which we don’t give the necessary attention. To provide a solution, one sector came up with various services to consumers depends on the requirement and of course payment paid to the company that is Insurance Sectors. So I will try to Discuss the Topic in detail so that we all must know how important it for us is to have Insurance?
Insurance and how it functions
Being Insured is a perfect step for attaining Personal Finance at a first instance followed by other options like Saving and Investments. Insurance is a tool by which one can protect himself and his family from any financial loss. Generally, the fees/premium consumer pays for a big insurance cover is much lesser as compared to the money paid back by the company to the consumer in the event of any loss.
But why is it so?…..
Because very few people claim that amount or you can say very few actually require it. This is why you get insurance for a big amount at a low price. But that does not mean that you should not purchase any insurance I must insist that everybody must have it, because nobody knows about that unlucky day.
So, Insurance is an official and legal contract or you can say a mutual agreement between the service provider (insurer) and the consumer (insured). The company compensates the losses of the insured in various circumstances which are made viable as per agreement prior to the loss happen to an individual. Loss may be of any type like loss incurred to the individual like the death of the policyholder and/or damage/destruction of the property (movable/immovable). Insurance companies compensate these losses in lieu of Premiums paid by an individual which will be very minimal as compared to the amount of compensation.
The consumer and the company both get a legal contract for the insurance, which is called the insurance policy, which contains each and every detail, and under which conditions, the company will compensate for the losses to the individual or to the nominee of an individual. The details of the nominee also mentioned in policy documents.
It is worth to mention that whether you will get insured or not, it totally depends on the service provider after they go through the applications and usually companies did not provide Insurance to people involved in the high-risk zone. Insurance is generally categorized as Life Insurance and General Insurance and I will discuss only Life Insurance in this Blog. but before that one point, I would like to emphasize that
is a plan which protects against loss of the life of the consumer i.e. in which the insurer/company guarantees payment of a death benefit to named beneficiaries upon the death of the insured/consumer. The utility of life insurance is to give financial protection to surviving dependents/ family after the death of an insured. It is a must for the customer to analyze their financial situation and determine the standard of living needed for their surviving dependents before purchasing this type of insurance.
Life Insurance Riders
Many companies offer policyholders the option to customize policies with their personal needs, and Riders are the most usable way a policyholder may update their plan. There are many riders, but availability depends on the provider.
⇒The accidental death benefit rider provides additional life insurance coverage in the event the insured’s death is accidental.
⇒The waiver of the Premium ensures the waiving of premiums if the policyholder becomes disabled and unable to work.
⇒The disability income rider pays a monthly income in the event the policyholder becomes disabled.
⇒Upon diagnosis of terminal illness, the accelerated death benefit rider (ADB) allows the insured to collect a portion or all of the death benefit.
It is the most basic type of insurance. In which consumers get insured for a specific period of years. If the person insured dies when the policy is active or in force, his/her family gets a lump-sum amount. That means term insurance has no cash value behind it and the only family will get the amount on the death of the insured person.
⇒So If you survive the term, no money will be paid to you or your family. But the term for insurance can be renewed, but the premium would be costlier for renewed policy in comparison to the original term policy.
⇒The premium for policy bought at a young age will be less.
Various types of term policies available in the market like for 20 years, 30 years which are called Level Term Insurance. The medical test might be conducted for the individual who is buying the term insurance as the premium for the policy is calculated by the company based on Age, Health, and Life Expectancy of the consumer. Types of Term insurance available are Convertible Term, Increasing Term, Mortgage Term, or Decreasing Term.
Whole Life Insurance
It is traditional life insurance in which you get covers you for a lifetime. In addition, Your family receives a certain sum of money after your death, and you will also be entitled to a bonus that often accrues on such amount. The policy includes saving portion called cash value along with death benefits and on saving part, interest may be accumulated. To build cash value, a policyholder can remit payments more than the scheduled premium. Additionally, dividends can be reinvested into the cash value and earn interest, and to access cash reserve, you can as for Loan or withdrawal of funds.
The value of the total premium paid tax-free can be withdrawn from the customer. In case of a loan, interest is charged by the company and Loans that are unpaid, the loan will decrease the death benefits by outstanding amount. But in case of withdrawal of funds, the cash value will be hampered but not death benefits.
The death benefit of a whole life insurance policy is a set amount of the policy agreement. Some policies are eligible for dividend payments. In this case, the policyholder may choose to have the dividends purchase additional death benefits, which will increase the death benefit at the time of death.
is essentially a Term insurance policy which covers the life of the insured, in addition to it also helps the policyholder save regularly over a specific period of time so that he/she is able to get a lump sum amount on the policy maturity in case he/she survives the policy term. This amount can be used at retirement or for a child’s future. So this type of policy serves both purposes of Life insurance as well as savings. Longer the plan will give large overall benefits.
so in a NutShell, any life insurance option with the benefits of saving component in it as well as some amount of maturity after policy gets terminated is known as Endowment Policy. People with regular income and need a corpus after some period can go for this policy. But the people more interested only in life cover should go for Term insurance and not for Endowment because Term plans are cheaper.
is a type of Life insurance in which a certain percentage of the sum assured money or coverage will be paid to you periodically throughout the term as a benefit for survival. And once the period of the term got over, you will get the balance amount as maturity. In case of your death, Your family gets the entire sum assured regardless of the survival benefit payments already made to you while you were surviving.
Unit-linked Insurance Plans (ULIPs)
These also type of Insurance in which in addition to life cover, part of your money invested in the market may be in Debt or Equity. The lump-sum amount will be paid to your family in the event of your death.
These types of Life Insurance plans meant to secure your child’s financial security. In the event of your death, your child will get a lump-sum amount. The insurer pays the premium amounts after your death. and children will continue to get a certain amount of money at specific intervals.
These are meant to build your retirement fund, and you can get a regular pension amount after retirement. In the case of your death, your family can claim the sum assured.
Tax Benefits of Insurances:
Securing your family with insurance not only provides you back up so that you don’t have to worry in emergencies but also save your money by giving exemption in Income Tax. The money you pay as the premium can be reduced from your total taxable income. However, this is subject to a maximum of Rs 1.5 Lac. That mean Life insurance premium of up to ₹1.5 lakh can be claimed as a tax-saving deduction under Section 80C
⇒The premium amount used for tax deduction should not exceed 10% of the sum assured.
⇒A medical insurance premium of up to ₹25,000 for yourself and your family and ₹25,000 for your parents can be claimed as a tax-saving deduction under Section 80D.
It is a term mostly used which is the total money, company bound to pay to the consumer in case of any type of loss to the consumer. Insurance is divided into various types depending on the type of cover provided by the company.
Cash surrender value
It is the sum of money an insurance company pays to the policyholder or account owner upon the surrender of a policy/account.