There are lots of Life insurance companies available in the market and they offer the same kind of Life insurance plans, it is very difficult to choose the best-suited Life insurance policy. So through this article, you can easily find the right Life insurance policy for yourself.
What Is Life Insurance Policy?
A Life insurance policy is a contract between the insured (policyholder) and the insurer (company). The True importance of Life insurance is its promise to substitute future economic uncertainty and to replace the unknown with a sense of security. In simple words, we can say that the basic purpose of Life insurance policy is to anticipate unfortunate losses that could financially harm one’s future.
Advantages Of Life Insurance Policy
- Affords protection against financial losses
- Financial protection against, disability, death or catastrophic illness.
- Restores the insured back to the same condition as before the loss.
- Compensation for the loss of income at the death of the insured.
- It also helps in saving the Tax.
Types of Life Insurance Products
Life Insurance policy is the most important component of long-term financial planning. Normally to choose the best Life insurance product for us first we have to know how many types of Life insurance products are available in the market.
- The term insurance policy covers only the risk of death.
- An insured person needs to pay a premium every year on year to the company and if he/she dies, the insurance amount is paid out to the nominees.
- If an insured person survives, he/ she doesn’t get anything.
- The premium paid towards the term insurance policy is exempted from the income tax under Section 80C.
- The amount paid to the nominee will be tax-free.
- This is the cheapest Life insurance product.
- Endowment plans are providing risk coverage as well as return on the premium paid by the insured.
- If an insured person survives the policy he/she gets the sum assured.
- If he/she dies during the policy tenure, still they get the sum assured plus sum returns.
- Endowment policy will help meet your financial wants. As per the terms of the policy, you will be paid 25% of the 'sum assured' in the 12th year, 13th year and 14th year in a 15-year term policy.
- If you stay with a single company and pay the premium on a long-term basis, the company will share its part of profits with the holder in the form of rewards.
Whole Life Plans
- Whole Life plan provides cover throughout life ( maximum age could be capped in the future).
- On reaching the maturity age, the policyholder has the option to continue the cover till death without paying any further premium.
- The plan provides for the payment of sum assured plus bonuses on the death of the policyholder.
Unit-Linked Insurance Plans ( ULIP)
- Unit-Linked Insurance plans give greater control to the policyholder on where premiums can be invested.
- Just like mutual funds, the annual premium can be invested in various types of funds: Equity and Debt Fund
- You can choose according to your risk appetite, if you choose to fund in Equity market then you will bear more risk and also enjoy high returns.
- Normally at the age of ’20s and 30’s the individual should buy ULIP because at this stage we can take the high risk because we don’t have any financial responsibilities on our shoulders.
- The policyholder can switch from one fund plan to another freely and can also monitor the performances of the plan easily.
- If the policyholder dies during the term, a lump sum amount will be paid to the nominee. The policy will continue and the future premiums will be waived off by the insurance company as per the terms and conditions of the policy.
While considering the types of Life insurance products, you should also pay attention to the Riders.
What are the Riders?
Riders are a practical solution to enhance your financial protection. Riders are the additional benefits that the insured may buy and add to the policy at a nominal cost. The rider allows the insured to enhance the insurance cover, qualitatively and quantitatively. For example, with the addition of an accidental death rider, you will get double the sum assured.
Types of Riders
- Accidental death benefit rider
- Permanent partial disability
- Critical Illness
- Waiver of premium
- Income benefit rider
How To Choose Best Life Insurance Policy?
- Know Financial Need: When buying a Life insurance policy, do not choose a policy before you understand the financial needs of your beneficiaries. The best way to determine how much life insurance you should buy is with a need analysis. A good need analysis will look at immediate, ongoing and future expenses.
- Purpose of Coverage: Coverage in insurance is the protection that is given by an insurance company when it agrees to compensate if a particular thing happens, for example, if someone gets injured, or dies.
When we meet a client and ask what insurance coverage they have the response is usually. “I have full coverage”. The fact of the matter is most people do not know what they need to have.
A few people pay for unnecessary coverage. Many more are very disappointed to find they do not have enough or the right kind of coverage when something bad happens. And the cost of not having enough coverage can be devastating.
- Duration of cover depends on financial affordability: Duration means the period of coverage; or the period during which the insurance policy or cover is in force. Some factors to consider when deciding on the duration of cover could be:
- Your financial commitments: Financial commitments include things like your mortgage, college expenses and other big-ticket items that you will pay in the future. Most people want to make sure that their term life insurance is in effect while debts must be paid: For example, if you know the house loan debt is going to be paid off in 10 years, you might not want to buy a 20-year policy.
- What You Can Afford: In life insurance, the longer a term life insurance is, the greater the annual premium. For example, if you know you need a certain amount of life insurance coverage but cannot afford a 30-year policy, one option is to buy for a short term (say 10years) and hope that your financial situation will improve by the time the first policy term is completed.
With term life insurance coverage ranging from 1 to 40 years, choosing the right length can seem like guesswork. The best term length is not a one-size-fits-all proposition. The question then is how do I decide the length of a life insurance policy?
You should think carefully about the financial needs of your loved ones before you agree on a term of the policy Most people want their policy to be in force for as long as they have dependents. Whatever may be the duration, it should be sufficient to take care of the risk for which the protection is being taken.
- Life Insurance Policy Not For Everyone: Buying Life insurance does not make sense for everyone. If you have no dependents and enough assets to cover your debts, the cost of dying (funeral fee), etc., then insurance is an unnecessary cost for you. Also, if you have dependents and have enough assets to provide for them after your death then you do not need life insurance.
Now some common mistakes happen and no one can consider important.
How to Rectify Common Mistakes?
As you select your beneficiaries, make sure to avoid the following errors:
- Not being specific: Selecting a beneficiary can be a difficult decision, particularly if you are young or have few or no financial obligations. However, this does not mean that you should send the death benefit to your estate. Family members will receive the death benefit immediately. To be safe, provide your beneficiary’s full name as well as identifiable information like their address, date of birth.
- Not updating your beneficiaries: There’s always time to update your insurance policy, and your beneficiaries are part of that equation. Every few years, as you review your coverage, take an additional look at your named beneficiaries. Is there anyone missing from your list? Should any of them be changed? Make the changes now, before it comes time to provide them the payment.
- Naming a minor: You can indeed purchase life insurance for a young child, but life insurers legally can not pay a death benefit to a minor. You can still leave a legacy for your child; you will just need to set up a trust, name an adult custodian or leave the money to a reliable adult.
- Not informing your beneficiaries: This is more common than you may think. Sometimes people put off informing their beneficiaries. Before naming someone your beneficiary, make sure to thoroughly discuss it with them and answer any questions that they may have.
We know that choosing a beneficiary can be a difficult decision to make. If you are still unsure about how to choose or update your beneficiary, just visit PolicyX or contact our insurance expert today. We would be happy to take the time to further explain beneficiaries to you and help you with your decision.
The best Life insurance product should fulfill all your needs effectively efficiently. The best life insurance product is that in which you can able to pay the premium easily and get the best return attractively.
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