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Life Insurance – what is it, its different types and benefits?

Life insurance is an agreement between the insured person and the insurance provider wherein the insurer promises to pay out the sum assured as a compensation in case of loss of life of the insured. Under life insurance, the beneficiary mentioned in the policy receives the sum assured from the insurer in case of the sudden death of the policyholder during the policy tenure.

Life Insurance – what is it, its different types and benefits

What are different types of life insurance policy?

  1. Term insurance plan: Term insurance refers to a life insurance type that offers insurance coverage for a specific period of time, such as for 10, 20 or 30 years. This life insurance type neither include any savings aspect nor provide any maturity benefits; therefore, the premiums are less in cost as compared to other life insurance policies. Term policies are pure protection plans and only offers death benefit upon the death of the policyholder during the tenure of the policy.
  2. Endowment policy: Endowment policy and term insurance are almost similar but differ on one aspect that is maturity benefit. Endowment policy offers a lump-sum amount to the policyholder if he or she survives until the maturity of the policy. In contrast, a term policy does not provide any such benefit. Endowment policy has higher premiums as compare to Term Insurance Policy
  3. Money Back Policy: This form of life insurance is similar to endowment plans; however, the only difference between both is money-back policy offers several survival benefits that are assigned proportionately over the policy tenure.
  4. Unit Linked Insurance Plan: This life insurance type helps the policyholder to build wealth along with providing life coverage. The premiums paid towards a unit-linked insurance plan are divided into two parts – one as the life coverage and the other for building wealth. Under this plan, you can partially withdraw the amount.
  5. Whole Life Policy: As the name suggests, the whole life insurance policy provides coverage extending up to the whole life of the insured. This life insurance type provides survival benefit and also gives an option to the policyholder to partially withdraw the sum assured. The policyholders can even borrow an amount against the policy.
  6. Annuity/ Pension Plan: Under annuity or pension plan, the premium paid gets accumulated as assets and given to the insured person as income in the form of pension or a lump-sum amount depending on the option chosen by the policyholder.

What are life insurance benefits?

  1. Risk Coverage: Life insurance policy secures the insured’s family financially in lieu of the premiums paid.
  2. Different policies for various usage: Insurance providers offer an alternate sort of plan to the policyholder relying upon his requirement for protection. More advantages accompany more premium. 
  3. Spread for Health Expenses: These policies additionally offer coverage for hospitalisation costs and critical illness treatment. 
  4. Helps in Wealth creation and savings: Life Insurance policies come with the option for savings that is they put your cash in profitable ventures resulting in wealth creation.
  5. Guaranteed payout: Life insurance plans provide guaranteed sum assured amount which is payable on the occurrence of any event like the loss of life.
  6. Credit Facility: Under selected policies, insurance providers give an option to the insured to borrow a certain amount.
  7. Tax benefits: The premiums paid for life insurance policies are eligible for tax deductions under section 80C of the Income Tax Act 1961. 

Points to Consider while settling on Life Insurance 

  • Do research: As a life insurance applicant, you will get ample of policy option readily available to look over. It is essential that you do your research before making your decisions for buying the chosen life insurance policy as it will help you in saving money as well as getting maximum benefits.
  • Look for premium-payment options: Almost all insurers offer different options to pay premium payment comprising of yearly payment, half-yearly, quarterly, or monthly payment option. Fundamentally, you choose Electronic Check System (ECS) payment that will intermittently charge your bank account with the necessary insurance amount. Likewise, you can also select a schedule that will permit you to make premium payment at regular intervals.
  • Understand terms and conditions: The terms and conditions of a life insurance policy state all critical information concerning a specific policy. And you need to ensure that you read the fine print in detail and comprehend it before buying the chosen life insurance policy.
  • Lock-in period: Several times, it has been seen that people buy life insurance policies without analysing much, and later they realise that they are discontent with their choice of policy. To deal with such situations, insurance companies offer a lock-in period, which is a brief timeframe usually 15 days and now 30 days where a policyholder can return the insurance policy to the insurer and buy another one if they were unsatisfied with the underlying purchase.
  • Don’t disclose false information: There are times where people attempt to shroud information while filling up the life insurance application form. That is wrong practice and can cause serious issues when filing claims. Therefore, each and every single individual qualification and clinical history must be precisely mentioned to the insurance provider.

Owning life insurance is an inevitable choice in today’s time, but you need to make a wise decision to enjoy its optimum benefits. If you are looking for assistance in buying a life insurance plan, then you can visit, compare various policies and select the right one for yourself as per your requirements.

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