It is true that the life of individuals has improved as compared to what it was 20 to 25 years back, but one bitter truth is that lots of people die a prematurely every year either from illness or an accident.

On the off chance that you’re the only breadwinner in your family and you were to pass away, it could be shattering times for your family members to maintain their standard of living or pay household expenses and debts. The least you can do, therefore, is to secure your family’s financial future by buying a life insurance policy.

Life insurance can be broadly classified into five types:

(1) Whole Life Plans,

(2) Term Plans,

(3) Endowment Plans,

(4) Money Back Plans and

(5) Unit-Linked Insurance Plans (ULIP).

Irrespective of your family and monetary background, the financial planners are of the view that a term plan would be the best choice if you happen to be the sole bread earner in the family.

What Is Term Insurance And How Does It Work?

Term insurance is a life insurance policy where the insured pays a premium at regular intervals (quarterly/bi-annually/annually) and the insurer agrees to pay the nominee or the beneficiary the sum assured in the event of the insured’s premature death during the policy term.

But, if one survives the policy term, term insurance would not provide any maturity or survival benefits. However, insurance companies recently have come up with term insurance policies that pay back a certain portion of the total premium paid, if the policyholder survives the tenure.

Term Insurance Benefits

One of the major benefits of term life insurance is that it provides the most cost-effective risk cover at a very low premium, particularly if you buy online. When a policy is bought online, the benefit of cost saving is transferred to the customer.

Tax savings should not be the only reason to buy a term insurance policy; nevertheless, both the premiums as well as the payouts offer tax benefits and exemptions respectively as per prevailing tax laws (Life insurance premiums up to INR 1.5 lakh per annum are exempt as per section 80C of the Indian Income Tax)

Reasons to Buy a Term Insurance Policy

Provides Financial Security

Term plans are not your investment option, but rather a way to fiscally secure the lives of your loved ones and enable them to meet their way of life needs in the event of the death of the insured.

But the question arises “what is the right amount of the term plan” – There are no easy answers because the right amount is always a moving target. However, the thumb rule is that the cover should be 10 times your annual income. Remember that an inadequate cover defeats the very purpose of buying insurance in the first place. At the same time, you must not be over-insured.

Offers Huge Risk Cover At Low Premium

The premium for a term plan is relatively lower as compared to all other insurance plans because there is no investment element in the amount insured. According to an online insurance aggregator, a 30-year-old guy can buy Rs. 1 Crore cover with policy tenure of 30 years for an annual premium of around INR 8,000 to 9000.

Flexibility

When it comes to term plans, flexibility is one of the best advantages. You can opt for an offline or an online plan. Also, for many online policies, companies do not insist on health check-ups if the cover amount is less than or equal to INR 50 lakh.

Low Claim Rejection Ratio

Generally, claim rejections are lower in a term insurance policy if the policy has been active for 10 years or more.

Riders Provide Extra Benefits

Term plans come with a host of riders which provide extra benefits at a minimal cost. Accidental death, critical illnesses, permanent or partial disability, waiver of premium and income benefits is some of the available options. There is no set rule as to who can avail a plan.

Low (Nil) Brokerage Charges

When you buy an insurance policy, the commissions charged by brokers or agents are mentioned under the premium allocation charges. For term plans the brokerage element is the least and comes at an average of around 5 percent to 6 percent, according to financial planners. Most importantly, however, if one were to go for an online term plan, brokerage cost would be nil.

What Kind of Deaths Are Not Covered In Term Insurance

Death due to an Accident: Term plans provide coverage in the event of the death of the insured due to an accident. However, there are a few exceptions –

• If the death of the insured under the influence of alcohol or any kind of medication while driving or due to involvement in any type of criminal activities leads to claim rejection.
• Moreover, term life insurance also excludes the death of an insured due to involvement in adventure sports like bungee jumping, parachuting, rafting, skydiving, etc.

Suicide: There are certain insurance companies that may or may not provide coverage for the suicidal death. It is very important for insurance buyers to go through the terms and conditions properly and know the inclusions and exclusions of the policy before buying the best term insurance plan.

AIDS/HIV: The insurance company will straightaway reject the claim if the death of the policyholder occurs due to any type of sexually transmitted diseases such as AIDS or HIV.

Killing or Murder: On the off chance that the insured gets killed by the beneficiary and the investigation reveals the involvement of the nominee in the crime, the insurance company will reject the claim.

Natural Calamity: In case the death of the insured happens due to natural calamity, the insurance company will not provide any coverage until and unless the insured has opted for any rider benefit for the same.

Disclaimer: The contents and data presented here are just for your information & personal use only. While much effort is made to provide the information, I ( Vishal Dalwadi ) or “Fin Blab” do not guarantee the accuracy, correctness, completeness or reliability of any information or data displayed herein and shall not be held responsible.

The post Top 6 Reasons Why You Must Buy A Term Insurance Plan appeared first on Upcoming ipos: Latest news on stocks, economy & finance.

Why Life Insurance Policy: The primary reason for taking life insurance is to provide financial security for the dependants of a man in case of his death.

Objective and Tax Benefits: There are some life insurance policies which have inbuilt investment or wealth creation plans along with insurance. Also, these policies are offered as specific goal oriented products such as child plans, pension plans, retirement plans, etc. A few products also offer loan facility along with the life insurance plan. Additionally, all life insurance premiums tender tax benefits to the insured, as per the Indian Income Tax Act.

Different Types of Life Insurance Policies

Annuities and Pension Plan:

In these types of life insurance policies, the insurer agrees to pay the insured a required sum of money periodically.

• Purpose: The main purpose of an annuity plan is to protect against financial risks as well as provide money in the form of pension at regular intervals.

Endowment Insurance Policy:

It is a savings-linked insurance policy that provides cover for a specified period of time. The policyholder receives the sum assured plus bonus or profits at the end of the policy in case of his survival. In the case of the death of the policyholder before the maturity period of the policy, the beneficiary of the policy receives sum assured amount only. The premiums of the endowment policies in India are costlier than term plan and whole life insurance plan.

• Purpose: This policy is most suitable for those individuals who do not have either a savings or investing habit on a routine basis.
• Tax Benefits: The premiums paid on endowment policies are adequate for tax exemption under section 80C of Indian Income Tax Act.

Money-Back Policy:

Under this policy, certain percentage or portion of the sum assured is returned back to the insured, in the case of survival of the policyholder. In the event of death during the period of the policy, the nominee of the policy gets death benefits equal to the sum assured and accumulated cash benefits. The premiums of money-back policy are very high as compared to that of term plan.

• Duration: The money-back policies are offered for a fixed period of time, as a rule, up to 25 years and the policyholder pays a fixed premium periodically (annually, quarterly, monthly) during the policy period.
• Tax Benefits: The premiums paid on money-back policies are entitled to tax exemption under section 80C of Income Tax Act in India.

Term Plan:

Term insurance offers financial safety for the family of the insured person in case of his/her sudden death. It is the least expensive life insurance policy that offers high sum assured at a much lower premium price. This policy provides insurance cover for a particular timeframe. In India, almost all insurance companies offer term plan with different names.

• Duration: The term plan will be usually available for 5, 10, 15, 20 or 30 years.
• Life Cover: The policyholder does not get life cover at the end of the term policy.
• Tax Benefit: In India premium paid on term insurance plan is eligible for tax exemption under section 80C of Income Tax Act in India.

ULIP (Unit Linked Insurance Plan):

It is an exceptional sort of investment plan combined with life insurance and serves as an investment-linked insurance policy. The policy consists of investment mix where some part of the premium can go into either 100 percent equity funds or 100 percent debt funds or a combination of both. Here, the policyholder gets an option of selecting funds or he/she can pick the tactic of investing. The policyholder can likewise have the choice of changing from one fund to other funds. The returns from ULIP plans are based on the performance of the funds.

• Drawback: The main drawback of Unit Link Plans is that it contains high charges (commissions) for managing funds.
• Tax Benefits: ULIPs offer tax benefits at the time of investment as well as on maturity. Tax Benefit on investment – money invested in ULIP can be claimed as a deduction under section 80C (life insurance) or 80CCC (pension). A maximum of Rs 1.5 Lac is allowed under section 80C/ 80CCC.

Whole Life Insurance Policy:

As the name suggests, the policy covers risk for the whole life of the policyholder. This policy continues as long as the policyholder is alive. The policy offers only death benefits to the nominee or beneficiary in case of the demise of the insured. This policy does not offer any survival benefits.

• Purpose: The whole life insurance policy is mainly taken to create wealth for the beneficiaries of the policyholders, as this policy offers payment of bonus plus the sum assured in the event of the death of the policyholder. The premiums for whole life insurance are again costlier than term plans.
• Duration: The policyholder pays a premium for (1) whole life or (2) till some age or (3) for some period of 35 to 40 years based on the terms and conditions of the policy.
• Tax Benefits: The premium paid under insurance policies is qualified for tax exemption under section 80C of Income Tax Act in India.

Definitions:

Sum Assured: Sum assured is the guaranteed amount the policyholder will receive. This is also known as the cover or the coverage amount and is the total amount for which an individual is insured.

Insurer: A person or company that guarantees an insurance risk.

Disclaimer: The contents and data presented here are just for your information & personal use only. While much effort is made to provide the information, I ( Vishal Dalwadi ) or “Fin Blab” do not guarantee the accuracy, correctness, completeness or reliability of any information or data displayed herein and shall not be held responsible.

The post Life Insurance: Different Types of Policies Available In Indian Insurance Sector appeared first on Upcoming ipos: Latest news on stocks, economy & finance.