1.What is Life Insurance?
Life insurance is protection against financial loss resulting from insured Individual’s death. In realistic terms, life insurance provides you and your family the financial security and certainty to deal with the aftermath of any unseen unfortunate events.
2.Why should I buy life insurance?
Life Insurance provides you and your family with protection against all the risks involved, moreover providing you an opportunity to grow your investments. It could be viewed as a long-term investment to provide for your child’s future expenses or your expenses, post retirement.
3.Why do I need Insurance?
You need insurance for Family that is financially dependent on you: If you have a family that is financially dependent on you, then you definitely need to insure yourself. The most common reason to buy life insurance is it provide protection to your family incase of any unforeseen events. The life insurance proceeds can be used to support your family members with the expenses.
Loans or liabilities: It is very important to insure yourself if you have taken a loan or mortgaged your assets. It not only provides peace of mind but also a steady source of income for your family
Compulsory saving-cum-investment: A life insurance policy could be used as a compulsory saving-cum-investment avenue. Proceeds from the insurance policy could be used to fund future expenses such as child’s higher education or retirement funds or even a well-deserved holiday.
Partner in a firm or Self-employed: It is highly needed by people who are partners in a firm or have their own proprietor firms. Life insurance can be a critical component for specialized business applications - such as funding a buy-sell agreement. The proceeds of a life insurance policy could be used to provide cash for the purchase of a deceased owner’s interest in the business or to pay off business liabilities.
Other than the RBI Bonds, insurance products are the only other investment products that guarantee yields over a range of time - from 5 years to 25 years. Insurance companies offer single premium investment products as well as regular investment-cum-insurance products that guarantee high yields over a period.
4.Whom should I insure?
Breadwinner - If you are the breadwinner of the family, you should insure yourself first.
Working spouse - If you have a working spouse who could use an insurance policy, both of you could insure yourselves in a joint-life policy. It could serve as a low-cost policy which covers both of you, and which either of you could use for tax-saving purposes as well.
Children - If you have children you could buy an insurance policy in their name. This would ensure that your children receive a certain sum of money in their needy years of higher education. The major advantage in such a policy is that your child or family receives a guaranteed amount of money at a specified period in life.
This type of a policy helps since the earning parent may not be alive later when the child needs money for higher education and the spouse may not be in a position to provide such a large sum of money. Moreover, a policy of this kind ensures a compulsory saving for the child’s future.
Partner/Key-person in the organization: If you have a working partner in your firm or a key-person(s) in the organization, your firm/organization could buy life insurance for them. Such a policy would insure your firm against any financial loss that would be incurred in the event of your partner/key-person’s death.
5.When should I insure?
The minute you have people dependent on your income, you should insure yourself. The younger the age, the lower is your premium. We believe anybody who is married and has children or plans to have children needs to be insured.
Even if you are single, earning and intending to marry, you should think of buying a policy now, as it costs less now than it will when you marry.
Remember, it is never too late to buy an insurance policy. Even if you are 45, and are not insured, you could choose insurance products that provide benefits to your family and provide income during your retirement period.
6.For how long should I insure?
Ideally, you should insure yourself for as long as you are the critical or crucial breadwinning member of the family.
With the growing nuclear families and the typical Indian sacrificing mothers/wives. It may be prudent to ensure that the working man covers himself for his whole life; to ensure that his wife receives a lump sum upon his death.
7.What are the basic elements of Life Insurance?
The two basic elements to all individuals are
Risk coverage (i.e. Term Insurance)
Savings for future (i.e. Pure Endowment)
8.How much does life insurance cost?
The cost of buying an insurance policy depends on:
• Your age, health and the nature of work you do
• Policy type selected.
• Sum assured.
• Policy term.
• Premium paying term.
• Premium payment frequency.
• Riders (if any) attached to the policy.
9.How do I reduce the cost of buying life insurance?
The cost of a policy could be lowered if you
• Buy insurance at an early age (while the risk is lower)
• Insure yourself for a long period
• Insure yourself for a large sum assured; offer to pay premium annually, thereby receiving discounts
• Select a low cost policy such as a Term product, which offers negligible to minimum returns upon maturity.
Do not buy riders or additional benefits that do not seem to add value to you or are available as other insurance policies at lower prices.
10.What are the various types of insurances?
The insurance sector is classified into Life and Non-life (or General insurance as we know it).
Under Life insurance, an individual’s life is covered i.e., the insured’s nominee receives a certain sum of money if the insured individual dies within a specified time.
Under General Insurance, everything but an individual’s life is covered. Thus, an individual could insure himself for his health, home, automobile, travel, office, shop, and even pets.
11.What type of insurances should I have?
To ensure you are safe, the least you should do is to ensure that you have
- Health insurance
- Life insurance, Accident Insurance
12.What do I get if I insure?
A Peace of mind, that you have secured your family from major risks – be it death, illness, accidents, theft or natural calamities ,In monetary terms, you can claim tax-deductions under section 88 (although now the deductions will depend on your income bracket).
Premium paid towards a life insurance policy, up to Rs 1,00,000, can be claimed as a tax-deduction u/s 88. However, the amount that can be claimed as a tax-deduction depends on the income bracket (given below in the table).
Moreover, the money you receive from the insurance company, during the term of the policy and/or upon maturity, is tax-free (with the exception of the pension policies).
13.Should I use insurance as an investment?
You could use some of the insurance policies as investment products.
Insurance companies now offer a variety of products that allow the insured to choose his investment option. There are policies that offer a fixed guaranteed rate of return; some offer a market-linked rate while some allow the insured to select his investment option. In the current state of the market, yields from insurance products can be expected to vary in the range of 6.5 -7.5 - 8% per annum (pre tax).
14.What is Group Life Insurance?
Life insurance usually without medical examination, on a group of people under a master policy. It is typically issued to an employer for the benefit of employees or to members of an association, for example a professional membership group. The individual members of the group hold certificates as evidence of their insurance.
15.Which type of policy is best suited for me?
The type of policy that suits you best depends on many factors, such as your insurance objectives, your income, assets, liabilities, number of dependent members in your family and family expense. Life insurance policies are broadly classified in to three categories
• Endowment Policies
• Money back policies
• Child Plans
• Unit Linked Policies
• Whole Life Policies
• Pension Policies
Endowment policies cover the insured for a specified period. Thus, the insured may select to insure himself until retirement; e.g. if he is 25 years old, he may choose to insure himself for 35 years, until he reaches the age of 60.
Endowment with profit policies
Money back policies
During the term of the policy, the insured receives a fixed portion (percentage) of the sum assured at regular intervals. This money received during the term of the policy is tax-free.
Upon surviving the term of the policy or upon maturity, the insured receives the balance amount of the sum assured plus bonus for the term of the policy.
Upon death of the insured, the nominee receives full sum assured plus bonus for the number of years the policy was in force. (Money received by the insured during the term of the policy is not deducted from the amount paid to the nominee.)
Money back policies cost more than Endowment - With profit policies. Many people prefer to purchase such a policy to utilize the money receivable for going on a holiday, re-furnishing their homes or even re-investing the same amount.
Unit-linked Insurance Plans
Whole life Plans
Whole life policies provide insurance until the death of the insured person.
16.What is Term Insurance?
Term Insurance covers “Risk” and Risk means “Death”. Here a lump sum amount is payable only if death occurs during a selected period. If the insured survives till the end of the selected period, nothing becomes payable.
17.What is Endowment product?
The insurer will receive a lump sum amount either at death during the term or at maturity of the term.
18.What is a Whole Life insurance product?
Whole life insurance risk covers the death of the insured, whenever it may happen. It means that there is no fixed term under whole life insurance. Most policies provide a dividend to the policy holder which helps with retirement.
There are two variations in the whole life insurance products i.e.
Pure Whole Life Insurance: - where premiums are payable continuously throughout the life of the insured till death. Risk coverage is for the entire duration of life and the life insured amount is paid on the happening of the death of the insured at any time.
Limited Payment Whole life Insurance: - where premiums are paid for a limited and shorter period and the option of the insured or till death if earlier. Risk coverage is however throughout the life of the insured.
19.What is a Money Back plan?
Unlike endowment plans, in money back policies, the policy holder gets “periodic payments" during the term of the policy and a lump sum amount on surviving its term. In the event of death during the term of the policy, the beneficiary gets the full sum assured, without any deductions for the amounts paid till date, and no further premiums are required to be paid. These type of policies are very popular, since they can be tailored to get large amounts at specific periods as per the needs of the policy holder.