In such uncertain times, it is important for one to ensure that his dependents are financially secured even in his absence. The best way to do this is through a life insurance policy. Under a life insurance policy, insurer assures to give a certain amount to your dependents in case of your sudden demise. This enables your family to lead a stable life even if you are not there. A life insurance policy acts as a safety net by providing financial protection for your family. As you know that your family is financially secured, you can lead a peaceful life. Apart from death cover, a life insurance policy can help you in achieving your financial goals. Life insurance policy taken for specific goal helps you to accumulate enough funds to accomplish your goals. Regular investments encourage disciplined saving habits. Life insurance is a risk product, meant to protect policyholder and his family from uncertainties such as death, illness or disability as a result of accidents, etc or to provide replacement for income in case of loss of a job.
Term Insurance
It is the most basic type of life insurance. It offers financial protection for a specific tenure. It offers very high coverage for very nominal premium as there is no investment component. In case of death of the policyholder, his nominee will get the sum insured to lead a financially secured life. However, if you survive the policy tenure, you have to forgo the entire premium. You can choose to get the amount as lump sum or combination of lump sum and monthly amount. Term insurance is must to have especially for the breadwinner of the family. Additional benefits such as critical illness, accidental death and accelerated sum assured are also available with term insurance plans. In recent times online term insurance plans have become popular because they are cheaper than offline plans.
Annuity Plans
These plans are contract between you and insurance company, where you make a lump sum payment or periodic payments and insurer guarantees you to pay you a regular stream of income after your retirement for rest of your life. There are two kinds of annuity plans -deferred annuity and immediate annuity. In a deferred annuity one needs to accumulate money through periodic payments -yearly, quarterly or monthly, and insurer guarantees you to pay you regular income for the rest of your life after attaining the age of 60 years. In an immediate annuity you can make lump sum payment to your insurer and start receiving regular income immediately for rest of your life. You can receive payments monthly, quarterly or yearly. Now you are not financially dependent on anyone throughout your life.
Child Insurance
With parenthood comes responsibility of providing your children a financially secured life and good education. Child insurance plans help you to secure your child's future financially. In case of your death, it gives your child lump sum amount. And also, insurance company waives of all your future premiums and pays the money to child at specified intervals as planned by you. Child insurance plans give you life cover, building corpus for your child's important stages such as higher education, marriage and option of adding riders. Child insurance plans are combination of savings and protection. In such plans parents are investors and children are final beneficiaries when they grow up. You can buy such plans for your child as early as when he is 14 days old. The policy matures when child grows up.
Money Back Life Insurance
It offers periodic payment of partial survival benefits during the tenure of the policy as long as the policyholder is alive. In case of the death of the policyholder, the insurance company pays the full sum assured along with survival benefits. These periodic payouts provides corpus for key stages in life. Money back insurance plans offer both insurance and investment in one policy.
Endowment Policy
It offers the dual benefit of investment and insurance. A certain part of the premium is allocated towards sum insured and rest is invested. It gives a lump sum amount after the policy tenure or on the death of the policyholder, whichever is earlier. It may declare bonus periodically, which is paid, either on maturity or on the death of the insured. These policies are basically of two types - participating and non-participating.
Whole Life Insurance
It offer life cover for whole life of the policyholder or upto 100 years, whichever is earlier. Insurer also calculates bonus on the sum assured, which is paid to the nominee after the death of the policyholder. It offers the dual benefit of insurance and investment. It can be the best way to pass on your legacy to your heirs. Premium rates are slightly higher for whole life since it provides protection for whole of your life.
Pension Plans
Pension plans or retirement plans helps you to build a retirement corpus. This allows you to lead a financially secured life after your retirement. In case of policyholder's death, the nominee can either get lump sum or receive regular payments as pension for the rest of the policy tenure.
ULIP
In Unit Linked Insurance Plan (ULIP) a portion of premiums goes towards providing life cover and remaining is invested in equities and debt. Since it is linked to market, return is not fixed. ULIPs also give flexibility of switching between equity and debt funds. It helps to create wealth in long term.
Classification
With regards to premium payment, life insurance policies can be classified as:
Single premium policies
Limited premium paying policies
Regular premium paying policies
Apart from choosing right type of life insurance plan, equally important is to choose the right sum insured. While too little life insurance would mean that your family is not financially secure in the event of unfortunate death of the breadwinner and having too much insurance would mean higher outgo of insurance premium. The right amount of sum insured can be arrived at by adding ten times of your annual income plus all your outstanding liabilities such as home loan, car loan, etc plus amount required for your future liabilities such as your children's education, marriage etc. Don't forget to factor in inflation.
You can further enhance your cover by attaching rider or add-on cover with your life insurance policy. It offers financial protection over and above the basic sum insured against an eventuality. These riders can be bought for nominal premium. Some of the popular riders are critical illness rider, disability rider and premium waiver rider.
To get the most affordable price on life insurance, buy as soon as possible. The cost of life insurance increases with age.