The primary goal of any type of life insurance policy is to provide financial stability in the form of the death benefit to your family in the case of your unfortunate death if it happens within the tenure of the policy. The life insurance beneficiaries can use the death benefit to repay debts, educate their children, or fulfill other goals, such as monthly expenses or to fund other dreams of theirs. There is still a section of people who are still in doubt and wonder what is the purpose of having a term insurance plan. If you want to know how life insurance works or want to know whether it is worth it to buy the same or not, this article is for you.
What does life insurance cover?
The policyholder will be required to pay a fixed premium that will be based on the sum assured chosen by you at the time of an application and the time specified (known as tenure) for which the insurance company will pay a lump sum to the beneficiary if you die during the policy period. Life insurance covers several deaths. However, many life insurance plans have a suicide clause, which reduces or rejects the death benefit payout if the policyholder commits suicide within a particular time frame, usually within the first two years of purchase. Before purchasing a term insurance or any plan for that matter, it is crucial to understand how life insurance works. To choose the best life insurance plan, you need to gather all relevant information such as premium payable amount, benefits, exclusions and inclusions, and so on.
Life insurance often covers death which could have happened for a variety of reasons:
- An accident happened as a result of an unanticipated incident. It could be a vehicle accident, a fall, or any other unexpected occurrence.
- Long-term illness or condition, such as a heart attack, stroke, or cancer.
- Murder (unless the beneficiary is implicated in the crime).
- Death from old age.
Note: Critical illness suicide and other such important should have been disclosed and evaluated during the underwriting and claim settlement process.
What are the Exclusions that are there under the Life Insurance plan?
To have a thorough understanding of the terms and conditions of life insurance, it is imperative to know about the exclusions of a particular term plan you have bought. If you are unaware of the exclusions in your life insurance policy before purchasing one, all future claims may be denied. Exclusions include death caused by:
- Suicide that occurs within the first years
- Participation in adventure sports and other potentially harmful activities.
- Death due to a pre-existing illness that was not reported when applying for the policy.
- Drunk driving
- Participation in illicit activity.
- Murder in which the beneficiary is implicated in the crime.
Note: One must understand this list is not exhaustive and includes other exclusions as well.
Get a thorough understanding of the Types of Life Insurance Plans
In India, there are many types of life insurance plans that can help consumers fulfill their
individual financial demands. How the insurance works in respect of premium payable, maturity benefit and other benefits is determined by the type of insurance plan the policyholder will choose at the time of application. To select a policy that corresponds with your financial objectives, you must understand the reason for which you are buying the insurance plan and accordingly ,you can narrow down the plan for yourself. Let’s get a brief
Term Insurance: Term insurance is one of the most popular and affordable options if compared with other types of plans such as whole life insurance, TROP, etc. It provides coverage fora particular tenure, and the premium remains constant until the end of the term. The term plans are famous for the fact that one will be able to get a higher sum assured at a lower premium. If the policyholder dies within the policy term, the sum assured will be paid to the beneficiary(ies). Otherwise, the policy will lapse at the end of the term.
Whole Life Insurance: As the name suggests, whole life insurance covers you for the rest of your life. However, their premiums are higher than those for term insurance plans. When a policyholder dies within the policy period, the nominee receives a guaranteed death benefit. This policy includes a savings component in the form of cash accumulation, which helps in long-term financial planning.
The comparison of term and whole life insurance demonstrates why it is important to understand how whole life insurance works in order to make the best decision. Term insurance only covers you for a set period of time, whereas whole life insurance covers you for the rest of your life and includes a cash accumulation component.
ULIP: The ULIP Plan, or Unit Linked Insurance Plan, includes both insurance and investing components. Insurance protects your family financially, whereas investing allows your money to grow so that you can achieve the future financial goals you have seen for your family. A portion of the premium paid goes toward life insurance, while the remainder is invested in market-related assets of your choice.
Retirement Plans: Retirement plans are meant to cover your living and medical expenditures, as well as other post-retirement obligations. Pension plans such as PPF, NPS, Deferred Annuity, Immediate Annuity, and others are retirement plans that help build a corpus as well as a consistent income stream essential to live a financially independent retired life.
Savings Plans: Savings programs instill a disciplined saving habit and provide consistent returns, allowing you to achieve your financial goals. Since these plans are life insurance plans, for example: ULIPs, they also provide life coverage, which assures financial security for your family in your absence.
Benefits of Life Insurance:
Financial Protection for Dependents: If you die during the policy’s term, your beneficiaries will get a lump sum as a death benefit. It helps your dependents manage expenses such as outstanding debts, education, and healthcare. Even without you, they can maintain their current way of living and meet their financial obligations.
Tax Benefits: Investing in life insurance such as term plans can also provide tax benefits. Section 80C of the Income Tax Act of 19611 provides tax exemption for paid premiums. The death benefit is also tax-exempted under Section 10(10D) of the Income Tax Act of 19611.
At last,
Life insurance products provide you with peace of mind that your family will be financially secure even if you are not present. The fact that your family will not suffer financial difficulty as a result of your death provides you with mental assurance and peace of mind.
**’The opinions expressed in the article are solely the author’s and don’t reflect the opinions or beliefs of the portal’**
