1. What is life insurance?
A life insurance policy is a contract between the policyholder and the insurer, wherein the latter promises to pay a designated lump-sum of money to the family of the policyholder upon his/her demise during the policy period. The policyholder pays a regular amount of money, called ‘premium’ to avail this benefit.
2. Why is life insurance important?
A life insurance policy provides financial support to the family members of the policyholder in case of his/her demise. If you are a sole breadwinner for your family, you must buy a life insurance policy to ensure your loved ones do not face financial problem to sustain their lives, when you are not around. The money received from life insurance policy can help them live the same standard of living as they live when you are around.
3. What are the types of life insurance?
There are two basic types of life insurance policies:
1. Term plan : A pure protection life insurance plan, wherein if the policyholder passes away during the policy period, a sum assured is paid to his/her family.
2. Endowment plan : A plan that combines the benefits of life insurance and savings; here, sum assured is paid to the family of the policyholder in case of his/her demise during the policy period. Else, the policyholder gets a maturity amount at the end of policy period. Money Back plans are a type of endowment plans in which you receive policy benefits in the form of regular pay outs even as you continue paying premiums.
3. ULIP: is a life insurance policy which provides a combination of risk cover and investment. A part of the premium paid provides life insurance cover and the other part is invested in market. The dynamics of the market have a direct bearing on the performance of the ULIPs.
4. Whole-life plans are policies that, as the name suggests, cover you for your whole life, not just for a fixed tenure.
5. Retirement plans are policies in which you contribute a certain amount on a regular basis. When your income stops on retirement, you start getting a steady income at regular intervals from your retirement plan. These plans also provide life insurance cover. Thus, along with wealth accumulation you also get life insurance cover.
4. What are benefits of life insurance?
The benefits of life insurance include:
1. Financial stability for your loved ones even after you are not there
2. Regular Money back payouts in case you have opted for a money back/endowment plan
3. Reduction in tax liability up to Rs 1.5 lacs under section 80C
4. Avail loan against life insurance policy which has savings component (Endowment/ money back plan)
5. Why should I buy life insurance?
If you are earning member of the family you should buy a life insurance to ensure that your family continue to receive income even when you are not there. A life insurance policy is like a financial safety net that protects your family financially in your absence. It provides a sum assured to your family in case of your demise during the policy term. The sum assured can be used by your family to tackle daily and crucial expenses.