Life Insurance
Defining Life Insurance
Life insurance provides its beneficiaries with
the financial coverage upon the death of the insured person. A contract is signed
between the insured person and the insurance company under which the insurance company
has to pay an assured sum of money to the nominees of the insured person. Due to
the uncertainties of life, this form of insurance has become a priority among a
substantial number of Indian citizens.
Need for taking Life Insurance
A life insurance policy assures complete peace of mind as it prepares the family
to face any financial crisis in case of untimely demise of the insured person. No
other form of investment provides such sense of security as well as sound returns
to the beneficiary. Life Insurance also serves as a tax saving mechanism, and hence
plays a crucial role in the process of one's financial planning to secure the future
of the survivors.
Types of Life Insurance Policies:
- Term Life Insurance Policy- Term Life Insurance is named
so because it provides coverage for a specified period or term. In the event of
death of the insured individual, the insurance company pays the face value of the
policy amount to the beneficiary within the term. In case the term is over and the
policy is not renewed or the death occurs after the maturity of term period, the
insurance company is not liable to pay any cash benefits to the beneficiary.
-
Whole Life Policy- Under this type of policy, the person has
to pay a fixed premium based on his age and other factors. As the years go by, the
insured person earns a certain interest on his policy's cash value. This policy
continues till your old age for the same premium you started with, and offers not
only permanent protection but also accumulates a substantial amount for the family
in case of any emergency.
- Endowment Policy- Endowment
insurance policy is specifically designed to provide life insurance cover for a
specific time period. It is a combination of a risk cover with financial savings.
Most people take this policy if they want to purchase a product that provides both
insurance cover and savings. Often, the maturity amount is used to supplement the
pension income. This policy, although coming with a high premium payment, has worth
its value.
- Money Back Policy- Under this type
of insurance policy, the insurance company pays a part of the amount assured at
fixed time periods in the form of survival benefits before the maturity date. The
premium is payable for a particular period of time. The nominee will receive the
entire sum assured in the event of death of the insured person during the term of
the policy even if the insured had received fixed portions of the sum assured.
- Life Insurance Policy-
Children's Life Insurance policy aims at securing the future of one's children in
case of any unforeseen circumstances such as death of any parent. In this case,
the beneficiary, i.e., the child, gets the benefit in the form of a guaranteed lump
sum amount.
Stage Analysis :
The need for life Insurance can be analyzed on the basis of the stages of one's
life. Below are certain factors that help in identifying how much insurance is required
during different stages of life:-
- Young Professionals- In the initial years of Life, a person
has to face a relatively lower level of responsibility. Thus, he can save more by
paying a low amount of Life Insurance Premium which is calculated on the basis of
your age. As one grows old, the premium for life insurance cover increases many-fold.
While planning to pay premium in the initial years, one can keep in mind his future
needs.
- Newly Married- Newly married couples have
to face lot of responsibilities as you have a spouse who may be dependent on your
income. This is a phase where expenditure to be incurred is high. Moreover, there
is an immediate need for planning for the future. Thus, at this point of time, it
is advisable to take Whole Life or Term Life Insurance Policy.
- Married
with Kids- This is the phase when a person has to take the responsibility
of his children as well as elderly parents. One has to plan for your children's
future needs and his education as well. If a person is going for insurance policy
at this stage of life, then it is advisable to go for such plans which offer periodical
returns to be used for your child's education and marriage. Thus, Term or Whole
Life Insurance Policies are best suited.
- Planning To Retire- At this stage, one has to reduce his debts as one needs to save
for the retirement. It is advisable to go for Endowment Plans or Deferred Annuity
Plans at as these will fetch you guaranteed returns on your investment.
-
Post Retirement- After one has retired, it is suggested to take
Single Premium Immediate Annuities and Whole Life Policy for wealth transfer as
this is the time when one has to save for medical expenditures for himself as well
as his spouse.
Defining Riders :
In order to spread the risk cover, riders can be purchased along with a life insurance
policy. Availing riders along with Life Insurance Policy add to its cost due to
the prevalence of high rider premiums. The most common riders are:-
- Accidental Death Benefit Rider- Under Accidental Death Benefit
rider, in the event of demise of the insured person due to accident during the term
period, the insurance company has to pay an additional amount equal to the sum assured
to the nominee.
- Critical Illness Benefit Rider-
As per this rider, if there is any event of diagnosis of a critical illness during
the term of policy, the insurance company has to pay an amount equal/less to the
sum assured to the insured person. The condition is that the diagnosed illness must
be within the purview of the categories of critical illness defined by the insurance
company.
- Guaranteed Insurability Rider- In this
type of rider, the insured person can purchase additional whole life insurance at
several stages of his life without even undergoing any further medical examination.
Further, in case the person wants to protect additional responsibility in the future,
this rider is very useful.
- Hospital Cash Benefit Rider-
Hospital Cash Benefit Rider comes in handy in case the insured person has to face
sudden hospitalization. During the term of a life insurance policy, if the insured
person needs to be hospitalized for more than two or three days due to any reason
like injury, sickness or disease, the insurance company has to reimburse an amount
in proportion to the room charge in the hospital or daily hospital cash amount ,
whichever is lower.
- Life Guardian Benefit Rider-
During the term of the policy, in the event of sudden demise of the parent/guardian
of the insured child, all future premiums will be waived off, with the policy still
remaining in force. This rider ensures that the benefit to the child will remain
undamaged in case of death of the guardian.
- Term Rider-
The term rider is a pure insurance policy and therefore offers a low cost benefit.
Under this rider, in the event of death of the insured, the nominee gets an amount
equal to the sum defined in the life insurance policy.
- Waiver of Premium
Rider- In the event of the insured being totally disabled as
a result of an injury or critical illness , premiums are waived until the insured
regains his ability to repay.