Everyone should have life insurance. It gives you peace of mind knowing that your family will be financially secure even if you die. It also serves as a savings and investment tool, assisting you and your family in achieving your long-term goals and dreams.
What Is Life Insurance?
Life insurance plans are essentially a contract between a person and an insurance service provider. According to this contract, the insurance provider is obligated to pay a predetermined sum of money upon the individual’s death. This sum is paid to the nominee of the aforementioned individual. In exchange for this life insurance, the individual must pay a set amount of money to the insurer regularly, known as premiums.
Features of Life Insurance Plans
Now that you have a good understanding of a life insurance plan, it is time to look at the various features of life insurance –
1. Issued in the name of the policyholder
One of the primary characteristics of life insurance plans is that they are only issued in the policyholder’s name. A policyholder is a person who buys a life insurance policy and pays the required premiums.
In most cases, a typical life insurance plan has only one policyholder. However, this is not always the case. Some plans, such as a joint life insurance policy, allow for multiple policyholders.
2. Flexible premium payments
As previously stated, to enjoy a life insurance policy, you must pay premiums to the insurance service provider. You can also select the frequency with which you want to pay your premiums.
You can, for example, choose to pay your life insurance premiums in one lump sum. Alternatively, you could pay them at regular intervals such as monthly, quarterly, semi-annually, or annually.
3. Customisable tenure
When you buy a life insurance policy, you must select the duration of the policy. The policy provides protection only until the end of the chosen tenure, known as the policy term. The life insurance is only valid during this period.
This tenure can be tailored to your specific needs and requirements. For example, if you need life insurance coverage for the next 20 years, you can simply select a tenure of 20 years. Some life insurance plans provide whole life coverage, which means they are valid until you reach the age of 99 or 100. This varies depending on the plan.
4. Customisable sum assured
The sum assured component of a life insurance policy is the payment made by the insurance company to your nominee in the event of your death. You can customise the sum assured when purchasing the policy, just like you can customise the tenure of a life insurance plan.
That being said, here’s something you should be aware of. The premium you must pay for a life insurance policy is determined by the sum assured amount you select.
As a result, the premium for a life insurance plan with a sum assured of Rs. 1 crore is likely to be higher than the premium for a similar plan with a sum assured of Rs. 50 lakhs.
5. Pay-out on death or on maturity
Another essential aspect of life insurance is that the insurance company only pays out the sum assured in one of two circumstances: the policyholder’s death or the maturity of the life insurance policy. Payouts are only made on death in the case of pure term insurance plans.
A death benefit is paid when the insurer pays out the sum assured to the nominee in the event of the policyholder’s death. Similarly, when a payout is made to the policyholder upon the policy’s maturity, this is referred to as a maturity benefit.
6. Ability to assign nominees
Nominees are the people who are entitled to the sum assured in the event of the policyholder’s death. Nominees are typically assigned at the time a life insurance plan is purchased.
You can, however, choose to assign them at a later time. That isn’t all. You can also change your nominees at any time during the term of your life insurance policy.
7. Features an investment component
Not all life insurance policies limit themselves to simply providing a death benefit. In addition to a life insurance component, unit-linked insurance plans (ULIPs) and savings plans include an investment component. This feature of life insurance ensures that you receive benefits when you reach maturity.
Factors You Must Consider Before Buying A Life Insurance Plan
Life insurance plans are tailored to meet specific requirements. Choosing the best option can be difficult if you are unfamiliar with the available options.
1. Age
Your age is a critical factor in determining which life insurance product you choose—and even which products are available to you. In general, the younger you are, the more options you will have. Your eligibility to purchase some life insurance products, such as basic term life insurance, ends at the age of 60.
2. Gender
Furthermore, females live approximately seven years longer than males, resulting in a less expensive policy for women. However, the disparity in life expectancy is beginning to close. Your age and gender will be the primary factors in determining the cost of your life insurance premium.
3. State of Your Health
Almost every life insurance policy will require you to undergo a physical exam or answer medical questions to determine your current state of health. It probably goes without saying that the healthier you are, the cheaper your insurance policy will be.
4. Market Knowledge
Some insurance policies are used strategically to generate cash value that can be used for other purposes. Some permanent life insurance plan, for example, allows a policy to accumulate cash value, similar to a savings account, which can then be borrowed against if necessary.
Wrapping It Up
Human life expectancy has increased significantly in recent years. However, the risk of dying too soon is always present. In many cases, premature death has an emotional impact and has a financial impact on a family. This is especially true if the deceased was the breadwinner.
This is where a life insurance plan can help. It can help to lessen the financial impact of the policyholder’s death through a payment known as the death benefit. Aside from that, there are numerous other benefits to having life insurance.
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