How to select a Life Insurance Policy In India to protect you and your family, Check the best insurance plans.Know about Term Life insurance.
Having a family that cares for us is the most precious gift in life. We do every possible thing to be with our loved ones and take care of their needs – whether it’s emotional or financial. For making sure that they are protected and happy throughout their lives, we must take steps to protect their financial future if something unexpected happens to us. Here life insurance policy plays an important role, it acts as a tool that protects our family from financial losses.
Life insurance benefits your family members by helping in paying off debts, meeting regular living expenses, and supporting various life goals.
What is Life Insurance Policy?
Life Insurance Policy is a contract between an insurance policy-holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money (the benefit) in exchange for a premium, upon the death of an insured person (often the policy-holder). Depending on the contract, other events such as terminal illness or critical illness can also trigger payment. The policy-holder typically pays a premium, either regularly or as one lump sum. Other expenses, such as funeral expenses, can also be included in the benefits.
Types of Insurance Policy & their comparisons
Why Choose Life Insurance Plans?
A life insurance policy acts as a financial shield for a possible event linked with human life, such as disablement, retirement, death, accident etc. Since life is a crazy ride, you can’t really predict the next move. In the event of the sudden demise of the prime wage earner of a family, apart from the emotional ordeal, his/her family is at the risk of a financial setback. In case this individual is the only bread earner of the family, his/her dependents are faced with a loss of income.
Financial Protection: Life insurance policy provides with the much-needed financial support to your family by compensating against the loss of income.
Debt-Proof Future: The unexpected demise of a wage earner is nothing less of a tragedy. You have to deal with the emotional crisis initially and it can transform into a financial emergency in no time. With the help of a life insurance policy, any outstanding debt, like a personal loan, motor loan, home loan, etc. would be taken care of.
The Fulfillment of Retirement Goals: A life insurance plan is an ideal alternative to achieve long-term goals. It can also help you accomplish the retirement goals too. Some life insurance plans offer miscellaneous investment opportunities while some life insurance plans provide you with a performance-based bonuses.
Avail Tax Benefits: A life insurance policyholder can enjoy tax-benefits regardless of the type of life insurance policy one chooses to purchase. As per the Income Tax Act of section 80 C, the premium payable for a life insurance plan is entitled for tax benefits of up to Rs. 1 lakh 50 thousand.
Mental Peace: The most precious gift that life insurance policy offers is the ultimate peace of mind by providing financial assurance for the future of your family. Even a basic life insurance plan can help generate funds to take care of the future economic needs of your family.
Savings Tool: You will have to pay an enhanced life insurance premium if you opt for a traditional/unit-linked plan. This additional amount of money is invested in your preferred fund and as a result, it can act as a savings instrument for the future.
Children’s Future Expenses: A life insurance plan can take care of all the future expenses of your children. Various expenses like wedding and education expenses can be take care of by insurance policies.
In the modern age, the cost of reading a child is through the ceiling. Apart from that, getting an admission in a reputed college costs a high amount of money. Life insurance policy makes sure that the policyholder’s your children don’t have to make any concession as long as their educational and personal requirements are concerned.
Business Security: Some life insurance plans certainly cater to the requirements of yours as well as your family’s. However, there is the availability of some life insurance plans in the market that provide support to your business as well. The life insurance policy also facilitates a business partner to buy the share of his/her departed business partner.
Types of Popular Life Insurance Riders in India
Life insurance companies offer additional riders to supplement your insurance plan. These offer benefits over and above the life covers included in your policy. Opt for riders only if it suits your unique requirements. It is neither wise to be under-insured, nor to be over-insured. Here are some of the useful riders that you may consider while buying a life insurance policy:
Critical Illness: This add-on rider covers illnesses that are usually not covered in life insurance plans. These offer covers on medical expenditures related to illnesses such as cancer, heart attack, stroke, paralysis, kidney failure, etc. The treatment for such illnesses not only burns a hole in our pockets, but is a cause of emotional turmoil as well. Therefore, being financially prepared for such exigencies is a wise move. Besides, it saves us from emotional stress to a great extent. The lump sum can be availed on the policyholder being diagnosed of any of these illnesses.
Accidental Death An Accidental Death rider keeps the policyholder’s family financially covered in case of his/her death. The additional lump sum offered to the beneficiary by such riders enables the family to meet long and short-term financial objectives like immediate family expenditures, outstanding debts of the policyholder (if any), child’s education and marriage, etc. Apart from being a stable source of income, it acts as emotional support and saves the family from an impending debt burden.
Income Benefit Rider This rider assures the policyholder’s family of a reliable and steady source of income after his/her unforeseen death. This rider proves to be especially beneficial when the policyholder is the sole breadwinner of the family. This rider relieves the family from financial stress and instability, securing their lives.
Waiver of Premium: In situations when the policyholder is unable to pay premiums due to disability or death of the policyholder where the insured and policyholder are different, this rider prevents the life insurance policy from lapsing and ensures that the policyholder can avail the pre-decided maturity benefits.
Partial and Permanent Disability: There is no guarantee to the kind of surprises that life throws on us, and surprises are not always good. Hence, it is best to be prepared for different eventualities, if it may arise. A partial or permanent disability rider serves as a much-needed financial support for the policyholder and his/her family when there is lack of a steady source of income due to the disability. Insurance companies usually offer 10% of total sum assured on such riders. Since riders offer the aforementioned benefits, it is recommended that you purchase them if they meet your requirements. However, it is essential to do your research and make sure that you do not make any unnecessary purchases as you may end up spending money for something that you may never even use. Go through each of the riders and purchase them only if they provide the benefits that you will actually require at some point in time.
What Are The Factors That Affect Life Insurance Premium?
Several factors are considered by insurance companies while calculating insurance premiums. Some of them are listed below-
Age Of The Policyholder: Age is a significant factor while calculating the life insurance premium. As you grow older, the premium increases because there are higher chances of you getting sick and needing medical aid.
Lifestyle: If a person smokes/drinks/leads a stressful lifestyle, (s)he needs to pay higher premiums. This happens because such habits lead to life-threatening illnesses, lowering your life expectancy.
Medical History: If a person has a medical history of cancer, blood pressure, etc., the insurance companies charge a higher premium in return for the policy.
How to Choose the Best Life Insurance Company for Your Family?
The selection of the right life insurance provider is essential to ensure that you or your loved ones will get the benefits they seek from the purchase plan.
Consider the following aspects while choosing the best life insurance provider:
1. Claim Settlement Ratio (CSR)
This ratio defines the claims settled by an insurer over the ones received in a financial year. The higher the CSR, the higher are the chances of getting your life insurance claim paid.
2. Solvency Ratio
It refers to how well an insurance company can manage sufficient cash flow to deal with the debts. An insurer can provide hassle-free claim settlement if this ratio depicts its strength to meet the related liabilities.
All life insurance plans are priced differently. Thus, you need to choose the one that seems cost-effective for you. To avoid the risk of losing the life cover, make sure you do not select a plan whose premium is too high and unaffordable to you.
4. Persistency Ratio
It defines the percentage of policyholders that pay the premium over the total active policyholders. It is a good indicator of customer satisfaction delivered by the insurer.
5. Claim Settlement Process
A simplified claim settlement procedure implies your family will not have to face any hassle to receive life insurance benefits. It is advisable to choose an insurance company which follows a streamlined process to settle claims.