27/07/2020
How to Choose a Life Insurance Policy to protect yourself
There are various types of life insurance policies that offer definite returns to fulfill financial goals, safeguard retirement plans and assure a regular stream of income even during risky times. These positives make life insurance a must-have.
Know Which Policy Suits Your Needs
Choosing a policy that suits your requirements is important. There are different life insurance policies available in India depending on your needs. For example, your life insurance purchase could change depending on your stage of life. There are policy options for those who want to save for the future, plan financially for children, secure parents or plan their own retirement.
Knowing about the different life insurance policies is a good first step.
• Term Life Insurance
A term insurance plan offers protection for a set period of time. If the policyholder dies during the term, beneficiaries are paid the policy amount. However, beneficiaries do not get paid any sum if the policyholder lives past the term of the insurance.
• Whole Life Insurance
A whole life insurance provides lifelong cover.
• Child Plan
Parents can opt for an insurance policy for their children that ensures financial security of the child through their stages of growing up.
• Unit Linked Insurance Policies (ULIP)
ULIPs offer a combination of protection and investment. They are financial instruments designed to allow consumers flexibility and choice on how their premiums are invested.
The value of a ULIP is linked to the prevailing value of units a policyholder has invested in the fund, which in turn depends on the fund's performance. Customers are given the choice to choose the fund and switch funds during the tenure of the life insurance policy.
ULIPs are complex financial instruments. It’s important to understand features such as the lock-in period, surrender value and surrender charges.
• Money Back Plan
This policy provides a benefit based on a certain percent of the sum assured on a periodic basis. When the term expires, the balance amount is paid as maturity value.
• Endowment Plan
This plan is a savings-linked insurance policy with a specific maturity date. If the policyholder dies during the plan period, the sum assured is paid to the beneficiary nominated. In the event that the policyholder survives the policy tenure, the maturity proceeds become payable to the policyholder.
• Pension Plan or Annuities
Pensions are considered an ideal way to ensure a sustained income after retirement. Other post-retirement benefits offered by employers, such as Provident Fund and gratuity, which is paid at the end of the professional life tenure, help in getting a fixed predetermined sum disbursed when you reach retirement age.
Indian consumers can choose between two options:
Immediate Annuity
With an immediate annuity, the annuity payment begins as soon as the person hits retirement. You pay for an immediate annuity in one lump sum when you buy it.
Deferred Annuity
A deferred annuity provides regular payments from the insurance company. The annuity holder pays the insurer a set sum until a vesting age or a vesting date. After this, the insurance company disburses funds to the annuitant.
The annuity holder has the option to encash 1/3rd of this corpus fund upon arriving at the vesting age or the vesting date. The other 2/3rd of the fund is used for the purchase of annuity.
In many cases, the annuitant is the owner of the annuity. In others, the annuitant may be a different contract holder, such as a surviving spouse.
