The most basic things about “Life Insurance”
Life Insurance: What is it?
In real sense, it is a tool that will help our family meeting their critical needs and live a comfortable life when you will not be around them. This works as the insurer (company) will pay a predetermined sum of money ? to the beneficiary (your family ?) after your death. This makes life insurance a must to be included in our investment portfolio.
Policy taken, Who regulate the companies?
Indian insurance is a fast growing sector though its contribution to GDP is only 3.1% which is much less than UK’s contribution to GDP of 8.8%. All the insurance companies in India need to comply with “strict regulations” set by “Insurance Regulatory and Development Authority” called IRDA. Apart from Life Insurance Corporation, the public sector life insurer, there are 23 other private sector life insurers, most of them are joint ventures between Indian groups and global insurance giants.
Now Getting On to Point! What are the real life benefits?
This means that if you have taken a Life insurance policy and misfortune happens leading to your death than the family stays financially protected. So you don’t have to worry if you have taken a life insurance for your financial needs!
Long term saving:
It will help you to save and build up the funds for future. It can help you to meet your financial needs after retirement or even fulfill a future goal. Thus, life insurance helped you to get benefits of both protection plus savings
Most of the people in India buy life insurance from the point of view of investment and tax saving. You can get tax benefits on premium paid under section 80C. Pension policies are covered under section 80CCC and health policies under 80D of Income Tax Act 1961.
Term Plans: Term insurance plans are pure protection plans which pay the sum assured on death of the policyholder. They are cheaper by 50-60 per cent when bought online. The rates, however, vary according to the policyholder’s age and lifestyle habits. For example, smokers will have to pay a significantly higher premium compared to that of a non-smoker.
Unit-linked Insurance Plans (Ulips): The policyholder’s money is invested in capital markets. A part of the premium that the policyholder pays goes toward providing Life Cover and the remaining is invested in different funds like equity and debt.
Traditional plans: Traditional policies give a sum assured and a guaranteed or vested bonus at maturity. Such plans invest money in fixed income instruments and are for people who do not want to take a lot of risk.
Now before you pick up a life insurance policy, take care of certain things :
How much life cover though certainly need?
We take life insurance to cover the risk of an earning member not being there and not just to save tax or for investment purpose(at least we need to think like this!). The amount should be enough to take care of expenses of family after death.
How to estimate?
An estimate is that the sum assured should be “at least 10- 15” times of your annual income.
If you earn 20 lakhs per year, go for at least 2 crore of life insurance policy
If you earn 2 lakhs per year, you should take a policy sum of at least 20 lakhs.