Categorized | Life Insurance

Know Your Policy : Life Insurance

What are the advantages of buying life insurance? Does it make sense to compare insurance benefits before buying life insurance in India? Are online resources really useful in our country? What is the harm in understanding insurance benefits by blindly relying on the insurance agent-adviser? Buying life insurance is a complicated decision with many variable factors involved in the decision making process.

Types of Life Insurance Policies

Pure Protection Plan
Term insurance Policy will not offer any return on the investment. A 15-year Term policy for Rs. 10 lacs will pay the sum Assured if the individual Insured dies before the end of the term. If the individual survives the term, then the money paid lapses and offers no returns.

Insurance cum Investment Plans
Whole life policies, endowment policies, money back policies, ULIPs- these policies offer a return on the Premium paid and, under no circumstances, does the money paid Lapse or go waste. Whole life policies do not have a fixed term and continue until the person dies. The premium paid will be returned with Bonus and other increments upon the death of the insured person.

Endowment and money back policies offer returns at specific intervals. When and how the money is returned may differ from one life insurance company to another. However, there is no possibility of the premium going waste.

ULIPs invest money in the Stock and Mutual Fund market in a bid to offer better returns to the policy holder. Yet, there is no question of not getting the money back just because you have survived the term of the policy.

Riders, Add-Ons …All Mean the Same Thing
A standard insurance policy will offer maximum benefits upon the death of the insured and will not automatically offer protection for other major complications like accidents, terminal illness, permanent disability, and so on. What is the point of restricting insurance benefits at death without covering other major risks that one faces?

This is where going in for add-ons or Riders can make a huge difference. From a rider that covers permanent disability to an add-on that covers incapacitation due to an accident- there are numerous options available to enhance the nature and scope of coverage.

Using Life Insurance to Create Wealth
Investing money in the stock market will help create wealth. However, there is no guarantee that one will be in a position to enjoy the same when an emergency occurs. Unit linked life insurance plans were created to combine the protection offered by life insurance with wealth creation that traditional investments offer.

The policy will have a Sum Assured that will be paid upon the death of the life insured. The premium paid will be invested in the capital market to help the policy value grow faster over a shorter period of time. There are numerous benefits of going in for such a policy. However, one should not presume there are no risks involved.

Firstly, unattractive market conditions may hamper wealth creation. You may end up with significantly lower returns on the investment when the payout is made. Secondly, ULIPs are very expensive in the short run. The policy sees very little appreciation in the first three years as bulk of the returns earned are deducted by the insurance company towards expenses and other charges. Thirdly, ULIPs are slightly more complicated as compared to traditional policies. Understanding the various facets and aspects of your investment decision may be very difficult to understand.

No Running Away From Life Insurance

All said and done, there is no denying that life insurance policies offer financial safety and security from the various risks we face in our daily lives. It is advisable to have a mix of different insurance policies for proper protection. A Term Insurance matched to your home mortgage will take care of repayment of this long term liability even if you die. A Money Back Policy will pay money in lump sum for marriage, child’s birth, child’s education and for the marriage of the children. ULIPs can help you generate wealth and improve your financial position without any Risk to your capital.