A Brief Note on Life Insurance

An insurance policy known as life insurance protects against the possibility of an untimely passing. If the life insured passes away while the policy is still in effect, the policy stipulates that a death benefit will be paid out. Policies issued by life insurance companies take the form of legally binding contracts that require the policyholder to make a premium payment in exchange for the protection provided by the insurance provider. In addition, the majority of life insurance policies provide protection in the event that the insured person survives until the end of the policy term, at which point they are entitled to a maturity benefit.

Purpose of life insurance

1.Life insurance protection

Families rely on cash for daily living, therefore they require protection from financial calamity if it’s gone. Life insurance protects a family’s income if a member dies. It can also replace family services like child care. 

2.Protect and save

Life insurance protects survivors by providing an instant estate. Some policies have a savings option, but there are many more. When getting life insurance, you should prioritise protection over money.

3.Needs evaluation

When calculating life insurance needs, families should consider entire financial needs and other resources.

• Dependents’ ages (wife, kids, parents, etc.);
• Dependents’ preferred standard of life if the breadwinner dies;
• Social Security, savings, investments, earning ability of dependents, etc.

4.Buying principles

A family should build a strategy and choose life insurance products that meet their needs. Life insurance should cover unmet financial needs.

This plan should meet the family’s ability to pay insurance premiums.Families should choose the cheapest premium period (usually annually). This requires planning and a regular budget.Families should thoroughly read policies. Policyholders should spend their insurance payments wisely to protect the insured’s survivors.The family insurance scheme should be evaluated and updated periodically.

Types of life insurance

There are just two primary types of life insurance policies available to pick from, and these are term life insurance and permanent life insurance. The most common form of life insurance, known as term life insurance, covers a policyholder for a predetermined period of time, whereas the most common form of permanent coverage, known as whole life insurance, covers the policyholder for their whole life.

1.Term life insurance

A term life insurance policy will remain in effect for a predetermined amount of time before becoming null and void. You are responsible for paying the premiums towards the policy, and in the event that you pass away within the period of the policy, the insurance company will pay a predetermined sum of money, often known as the death benefit, to the beneficiary that you have specified. The beneficiary has the option of receiving the death benefit in a single sum or as an annuity payment. The majority of people make this decision so that they can avoid paying taxes on the death benefit when they get it.

2.Whole life insurance

Permanent life insurance comes in a few different flavours, the most common of which is whole life insurance. In addition, it provides a death benefit to beneficiaries, but in contrast to term life insurance, most whole life policies come with a cash value component, which is essentially an investment-like savings account that is exempt from taxation.

3.Universal life insurance

There are three different kinds of universal life insurance (UL): variable universal life insurance, indexed universal life insurance, and guaranteed universal life insurance (VUL). All of them, like whole life insurance policies, come with a cash value component. Your payments into the policy contribute to the cash value as well as the death benefit.

Universal life insurance, as opposed to whole life insurance, gives policyholders the ability to alter both the amount they pay toward premiums (known as “flexible premiums”) as well as the amount they receive in the event of death. If you lower the amount of money you put toward your premiums each month, the difference will be taken out of the cash value of your policy.

Disadvantages of life insurance

Life insurance disadvantages include:

• Life insurance has a high cost for older persons. Age increases life insurance premiums. Age increases risk, therefore premiums do too. So, get life insurance early to avoid exorbitant premiums. Insurance firms may have refused to cover elderly persons with illnesses.
• Calculating returns is difficult. Life insurance returns are complex and hard to forecast. Life insurance returns are based solely on market performance. Unlike PPF and other fixed deposit plans, life insurance is hard to quantify.
• Policies: There are several life insurance firms in India. Your needs determine the appropriate life insurance plan. Different insurance policies have different characteristics, which can confuse customers. Some policies are easy, some aren’t. Choosing life insurance might be difficult.
• Insurance firms may not pay benefits even after the policy matures, and they have resisted paying the sum promised or death benefit to the policyholder or nominee. They’d cite hidden fees or stipulations to reduce payouts. So, carefully read the policy and choose a provider with a good payout rate. Before signing a contract, discuss the pros and cons of life insurance with our agents.
• Any market-available financial product has exclusions and hidden terms. You must find the proper clauses and life insurance policy. Most insurance don’t cover suicide in the first year, and virtually all exclude drug overdose or criminal activity.

Conclusion

The human life is vulnerable to the threats of death and incapacity that can be caused by both natural and unnatural events. A life insurance policy can assist reduce the likelihood that the policyholder’s loved ones will experience significant financial hardship in the event that the policyholder passes away unexpectedly. One of the most essential components of sound financial planning is having adequate life insurance coverage in place. In these trying times, having life insurance is something that is absolutely required.