With uncertainty increasing everywhere, a life insurance plan is proving to be a lifeline. Having insurance ensures that the dependents of the family’s breadwinner do not suffer financially in their absence. In India, an increasing number of people are realising the value of having a life insurance plan, particularly during the pandemic. COVID-19 has shown many people why and how a life insurance plan can provide a financial safety net in times of need.
Too many life insurance plans? Choose the best
One of the major barriers to the widespread adoption of life insurance is a lack of awareness. Some people are also perplexed by the availability of various types of insurance products. However, most life insurance policies work in the same way. Let us first discuss the life Insurance meaning and how it works.
What is the meaning of life insurance?
The meaning of life insurance is that it is a contract between the policyholder and the insurance company in which the insurer promises to pay a predetermined amount to the nominee in exchange for premium payments. The predetermined amount could be the maturity amount paid at the end of the policy term or the death benefit paid if something unfortunate happens during the policy term.
In a nutshell, all of the benefits of a life insurance plan are dependent on premium payments, which is why one should choose a premium that is easily serviced. A life insurance plan is only effective if the policyholder has paid all premiums on time. Life insurance policies are best known for providing the policyholder with life insurance.
How does a Life Insurance Policy Work?
Life insurance is a legal contract in which you pay a small sum as a premium in exchange for a large sum of protection. In the event of your untimely death, the insurer will make the large sum available to your family and dependents.
Life insurance is usually only available for a limited time. Thus, if you die within this time frame, the life insurer is obligated to pay a death benefit, also known as the sum assured. However, if you survive the term, depending on the type of life insurance plan, you may be eligible for a maturity benefit.
However, whole life insurance plans are more likely to pay the death benefit rather than the maturity benefit.
In India, there are various types of life insurance plans.
Now that you understand what a life insurance policy is, let us look at the various types of life insurance policies available. Life insurance plans are entirely up to you. There are various types of life insurance policies from which to choose. When looking for the best life insurance plan, keep in mind that your financial goals must be taken into account. The following are the various types of life insurance policies available:
1. Life Insurance Policy (Term)
Term insurance is the most common type of life insurance plan. It is valid for a set period of time and expires at the end of the term. The best thing about a term plan is that the premiums are reasonably priced. Because the premiums are low, these plans are affordable to those who have just begun their careers.
Some of the best term life insurance plans include critical or terminal illness coverage, which means the policyholder will receive a lump sum payment if they are diagnosed with a life-threatening disease to help cover medical expenses.
2. Life Insurance Policy
It is, as the name implies, a policy that covers you until the age of 99. That means you can be protected until the age of 99. Whole life insurance policies include both a death benefit and a cash value.
The cash value of the life insurance plan will grow over time and can be withdrawn by the policyholder once it has accumulated enough value. It can also be withdrawn if the policyholder chooses to take out a loan against the life insurance policy.
3. Unit-Linked Insurance Contracts
ULIPs are investment and insurance plans that allow you to have the best of both worlds. This is a type of life insurance plan that provides both life insurance and investment opportunities. The majority of ULIPs have a 5-year lock-in period.
As a result, it can be regarded as a long-term investment strategy. It operates according to market dynamics, and you should understand your risk tolerance before purchasing a ULIP.
4. Endowment Funds
This is a type of life insurance plan that provides you with both a life insurance policy and a savings account. If you purchase the best saving plan, you can save regularly over time and receive a lump sum at maturity.
If you have long-term financial goals, such as funding your child’s education, purchasing a new home, or living a carefree retirement life, purchasing an endowment or saving plan is beneficial.
5. Money-Back Guarantee
A money-back policy is a type of life insurance plan that pays out money on a regular basis. During the policy term, a percentage of the Sum Assured is paid back at regular intervals. Survival Benefits are provided by these life insurance plans and are paid out during the plan’s term and at maturity.
If the policyholder dies while the policy is still in effect, the entire Sum Assured is paid to the beneficiaries, regardless of any Survival Benefits already paid.
6. Child Insurance Policy
Child insurance plans are life insurance policies that are chosen to protect your child’s future. Along with providing life insurance, it assists in the establishment of an education fund to support your child’s dreams and aspirations.
Child plans are investment and insurance plans that are designed to help you build wealth for your child’s future needs. You can start investing in these plans as soon as your child is born to build a solid financial foundation.
7. Retirement Strategies
These life insurance plans assist you in accumulating a retirement fund so that you can enjoy your post-retirement life. Your spouse can be named as the beneficiary of your life insurance policy.
So that if something were to happen to you, they would be financially independent. Furthermore, having the best life insurance policy will assist you in paying for medical expenses during retirement.
A life insurance plan is intended to safeguard your family. Simply put, the death benefit received by the nominee(s) replaces the financial assistance provided by you to your dependants.
More people are scrambling to buy the best life insurance in the aftermath of the pandemic. Purchasing a life insurance plan is worthwhile due to the financial security it provides. In some ways, this smart financial tool should be considered an essential part of financial planning.
In the event that you die, your family will be financially prepared. If you protect your loved ones with the promise of a life insurance plan, you can be certain that you will fulfil all of your promises to them even if you are not present.