Life sometimes brings unannounced uncertainties and hardships. Some events may have an irreparable impact on your life and may leave your family in a turmoil both financial and emotional. To reduce the financial hardships that may erupt due to the unpredictable and untimely demise of the earning member of the family, life insurance policy comes to the rescue. Life insurance is a vital form of investment that will act as financial aid or assistance to your family when you are not around. Life insurance plans are of varied kinds out of which few plans are pure protection plans offering a death benefit only, whereas the others are saving or investment plans offering death and maturity benefit (whichever occurs first).
Life Insurance is a long term contract (known as LIFE INSURANCE POLICY) between the Life Insurance Company (known as INSURER) and the person whose life is being insured (known as LIFE INSURED) for a specified tenure (known as POLICY TERM) giving a financial amount as life cover (known as SUM ASSURED) by paying a cost (known as PREMIUM).
In the event of death of the Life Insured (known as DEATH CLAIM) during the policy term, the insurance company passes on the requisite amount as policy proceeds (known as DEATH CLAIM AMOUNT) to the specified family members (known as BENEFICIARY/NOMINEE) mentioned in the contract and the policy terminates thereafter or in the event of life insured survives through the policy term, the insurance company pays out the promised amount (known as MATURITY CLAIM AMOUNT) to the policyholder and the policy terminates thereafter.
Life Insurance primarily covers the risk of "Dying too early" or "Living too long". The listed reasons will highlight the need for life insurance for you and your family:
Financial Protection
To assure that your loved ones are financially indemnified in the event of your untimely demise and to maintain the same lifestyle which they are used to even when you are not around.
Meet Financial Obligation
To ensure that your children's education, their marriage and other financial obligations like home loans, car loans, etc. are taken care of in your absence.
Retirement
To gather a corpus for your better future in order to attain a regular source of income post retirement and lead an independent life.
Ensure Guaranteed Income
To guarantee that you and your family possess a guaranteed income in case your regular inflow of earnings are disrupted due to severe illness or an accident.
Peace of Mind
The life insurance policy provides assured peace of mind to you. By buying the right life insurance plan, you are aware of that your family's financial needs are taken care of even when you are not around.
There are bundle of life insurance plans available in the market. It purely depends on which one suits your need and requirement basis the benefits accrued or attached to a plan.
1. Term Insurance Plans
The term plan is a pure protection plan which is taken to cover the risk of "dying too early". Term plans provide the nominee with the sum assured as a financial indemnification in the unfortunate event of your demise during the policy term and policy terminates thereafter. Term plan safeguards your loved ones in your absence by shielding them with financial backing as planned by you.2. Whole Life Plans
The whole life plan is an insurance plan which covers your life against the risk of "dying too early" and "living too long" both, as the life cover is provided for the whole life keeping maximum maturity age as 100 in most of the plans. This insurance company pays the policy proceeds to your nominee in the event of your death during a policy term, but if you survive till the maximum maturity age the company will provide the maturity benefit as well.3. Endowment Plans
Endowment plan comes with the component of saving and insurance making it a twin benefit plan under the policy. Endowment plans offer lump sum payout in the event or death or maturity, whichever happens first. This plan is basically opted for ensuring a robust corpus and regular savings to meet financial objectives in future.4. Money Back Plans
This policy offers a portion of the sum assured payout on regular intervals during the policy term in terms of money backs or survival benefits, while the insured is alive. Once the insured survives the policy term, the remaining sum assured is paid back as maturity benefit. In case the insured dies during the term of the policy, the lump sum payout is given to the nominee apart from the money backs also known as survival benefits.5. Child Plans
Child plans are kind of insurance plans which are taken with a specific objective of giving unperturbed financial support to the child in terms of education, higher education, marriage, etc. Child plans also offer death and maturity benefits (whichever happens earlier). Usually, such plans come with a waiver of premium benefit inbuilt to continue the policy for the objective it is taken for.6. ULIPs
ULIPs (Unit Linked Insurance Plans) provide the twin benefit of insurance and investment opportunities under one umbrella. ULIPs are linked to the market, and the insured's money is invested in various funds (based on equities, debts, government bonds) as per the risk taking capacity of the insured. The lump sum payout is given to the nominee in the event of death and the entire value of the fund is given to the insured if he survives the policy term.7. Pension Plans
Such plans cover the risk of "Living too Long". Pension plans enable to survive the same lifestyle and allow financial independence after the retirement age. Regular payment of premiums builds a financial corpus, which can be withdrawn partly and the remaining can be utilized to provide pensions to the insured as stated in the policy.
Death Benefit
Life Insurance provides financial protection to your family in your absence by providing death claim payout which is a lump sum Sum Assured plus accrued benefits/bonus basis the life insurance plan opted.Maturity Benefit
Life Insurance provides the insured a lump sum payout as deserved under the policy conditions on the completion of the policy term as Maturity claim payout. This is payable if the insured survives the policy term.Rider Benefit
With your Life Insurance plan, you may opt for additional coverage or riders like Accidental Death Benefit, Disability rider, Income benefit rider, Critical Illness rider, etc. to give you added protection along with your base policy.Surrender Benefit
Life insurance provides you the option to surrender your policy partially or fully in the event of urgent fund requirements at your end. However the surrender value is very less as compared to the premiums paid till that time towards the policy.Loan Benefit
Some of the endowment life insurance policies offer loan against the life insurance policy. However, the insured has to pay the relevant interest and repay the loan amount as per policy conditions.Tax Benefit
Premium paid towards the insurance policy taken for yourself, spouse or kids avail tax benefits under section 80 C, and the proceeds of the insurance policy are tax free as per section 10 (10) D of the Income Tax Act,1961 as per the conditions laid.
Market Linked Returns
Savings investment plan especially ULIPs offer the prospect to earn market linked returns since a part of the premiums paid in invested in various market linked funds and then onwards in different market instruments such as debt and equity in a fixed ratio. The proportion of debt and equity depends on the investor's risk appetite. In case the market performs well, the investor will earn good returns.3 in 1 benefit of Investment, Savings and Life Protection
Plan such as endowment and Unit linked plans brings true value of an investment with multiple benefits benefit of life insurance and savings at market linked returns, making them one of the best investment options. This helps one to instill the habit of investing saving which is crucial in building wealth over a period of time.Rider Benefit
added protection along with your base policy.Flexibility
Savings Investment Plan comes in a wide assortment of investment avenues with significant scope for flexibility. The features such as switching between investment funds as per risk appetite and facility to withdraw funds partially and multiple premium payment options makes saving cum investment plan a must in everybody's investment kitty.Protection to loved ones
Saving Investment Policy fetches return on the investments along with insurance coverage. This ensures that in the case of any unfortunate event to the insured, the Nominee will receive the sum insured as well as the fund value. The return is provided as a Lump sum amount or in the form of monthly/quarterly/half yearly payments.
There are various plans wherein tax assets can claim benefits for the amount invested in Tax saving plans. Under the section 80 C and 80 D of Indian Income-tax Act, an individual is entitled to a deduction on the investment done or premium payment made. Such investments consist of funds such as Equity Linked Saving Scheme, Life Insurance, Fixed Deposits, Public Provident Fund, NSS and Bonds.
Long Term and Short Term Financial Goals
The policyholder should clearly indemnify their long term and short term financial objective prior investing in any saving Investment policy. This would allow the policyholder to decide what type and kind of investment to buy. For the ease of completion, the investor can set goals for specific time frame such as 1 year, 3 years, 5 years, 10 years, and so on. The Broad objectives to choose most suitable investment plan may include objectives such as purchasing a house, child's higher education and marriage or retirement planning.Understand Risk and Returns Ratio
Before opting for any saving investment avenue, one should clearly understand their risk capability and financial backing to match that risk. It is very important to strike a right balance between risk and returns associated with the policy. One can invest in an aggressive plan with the possibility of better returns however with higher risk.It is generally advisable that young investor with less financial dependency can go in for high-risk investment options, whereas investors6 with age and greater financial responsibilities, should opt for safer investment options with low to moderate risk.Combine Liquid and Fixed option in a Saving Plan
One cannot deny the fact that Life is full of uncertainty and no one can predict what will happen next. For any unexpected situations and the crisis it is astute to combine fixed and liquid investments in a proportion. This would enable the investor to have enough cushions during any exigency. For any urgent requirement of cash, the liquidity aspect of any fund can be of great help.Start Early and small
It is always advisable to start with a small investment portfolio and then gradually increase the kitty with experience. Tax savings funds should ideally be a part of each and every investor's portfolio. One may opt for various premium payment frequencies ranging from monthly to annually.Research Thoroughly These Best Savings Plans
There are numerous saving investment policies available in the market. Each and every plan has its own risk associated with it and the return may vary. In order to avoid investing in a wrong plan, the investor should ideally spend a good amount of time in researching about the fund before investing. Researching through the internet is one great way to know the best suited investment options. Apart from online research, Newspaper, magazines and journals are good sources of information related to the best saving investment options in India.