The recent Covid-19 pandemic has emphasized the need for suitable life insurance. The pandemic had a severe impact on the lives of people and many were left stranded when the only earning member lost their life. People, now, understand the need for sound financial planning and how savings and insurance can satisfy their requirements. It is important for all of us to identify our long-term objectives, financial commitments, and ways to protect our family's financial well-being at various stages of life.
Life Insurance is a contract between a person and an insurance company. The person pays premiums to purchase life insurance. Life insurance acts as a financial cover and is given as the sum assured. Based on the type of life insurance plan chosen, the insurer will pay the lump sum amount to the policyholder when the plan matures or to the nominees if the policyholder dies. This ensures that all the financial obligations are met even in the absence of the earning member. The sum assured can be utilized to manage daily expenses, pay off debts, and meet long-term plans and important milestones such as children's education, marriage, career ventures etc.
Facts to consider
Here are some basic but important facts that one should know about life insurance. It is important to consider these facts while buying a life insurance plan.
The premium is the amount which you pay regularly to your insurance company. This amount is based on your age, lifestyle, any pre-existing illness, and sum assured. The insurance company considers the above factors and uses a statistical method to calculate the risk involved in the death. If you are young and healthy, then the premium amount could be less. Therefore, it is advisable to buy an insurance plan as soon as you start earning! The insurance companies allow you to opt for a comfortable premium payment frequency such as monthly, half-yearly or annually.
2. Sum Assured
The sum assured is the amount you get a lump sum when the policy matures or as a death benefit to the family members. You should consider all the expenses associated with you and your family to derive this value. Calculate your monthly expenses, consider your other liabilities like education loans, home loans, and your long-term objectives such as children’s education, marriage, career etc. Select the insurance plan based on the policy tenure you can afford so that the computed sum assured gets you the best benefit.
3. Death and Maturity Benefit
Generally, there are two types of benefits in life insurance. The death benefit is the sum assured provided to the nominee in the case of the policyholder's death. This kind of situation is the basis of the term insurance plans. The savings or investment plan, on the other hand, provides the maturity benefits to the policyholder if he outlives the policy term or the nominees if he dies unexpectedly.
It is important to be aware of the riders in any insurance plan you buy. There are additional riders that can actually enhance the plan and increase the coverage of sum assured. For example, the accidental benefit rider# will make the amount payable when the insured person dies due to an accident as against natural death. The terminal illness or the critical illness rider will ensure the amount payable when the policyholder is first diagnosed with the illness. Other riders# also waiver future premium payments when the policyholder gets affected due to a total and permanent disability.
5. Tax Benefits
As per the Income Tax Act of 1961, the premium paid towards life insurance plans qualifies for a tax deduction. Under the Section 80C, the annual premium paid up to Rs. 1,50,000 is eligible for deduction while calculating the taxable income. Also, there are insurance plans in which the maturity benefit or the return is exempted from income tax under Section 10 (10D). There are terms and conditions associated with every plan, therefore read the policy document before you make a decision.
6. Investment Benefits
Apart from the basic plan which is not essentially an investment and where financial security is provided in case of the demise of the policy holder, there are few plans where insurance companies add the investment options. Unit Linked Insurance Plan is an endowment plan, wherein one part of the premium goes for the life coverage and the other for investments in equity, debt or hybrid funds.
If you would like to have our help in choosing the right plan, then please call us at 9818510748, and one of the experts will be more than happy to help you.
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