Life Insurance: Need And Types Of Policies
Insurance is financial instrument which provides cover against any possible eventuality which may occur in the future. It is an undertaking between the insuring company/insurer and the insured/policyholder to provide guaranteed compensation in case of death, illness, accident, loss or any other type of coverage stated in the policy/Insurance agreement. The insurer charges a certain sum as premium for the cover provided. The premium needs to be paid periodically for the continuation of the policy/insurance agreement for the tenure agreed upon.
The Insurance agreement includes all the minute details regarding the terms and condition of the policy, coverage and benefits provided, tenure and the premium required to be paid for the same.
Need For Insurance Policy
Life Insurance is very important for each and every individual in the modern times. Future is uncertain and therefore one needs have a financial cover in place to take care of basic needs of the ones left behind.
While opting for a Life Insurance policy Individuals need to do a bit of financial planning as well. They should ascertain the financial needs of his/her family in case of their demise before purchasing a policy and the compensation (sum assured) should be sufficient to meet the future needs. One should also look at the additional benefits provided by various Insurance Companies for additional premium like Accidental Death Cover which increases the compensation cover in case of death due to accident.
There are many types of Life Insurance Policies in the market and most of the Individuals are often confused as to which one will be the best one for them.
Lets look the different types of Life Insurance Cover available:-
Term Insurance Policies:- It is a pure insurance policy and cheapest among all other Life Insurance Policies. It has got no maturity or surrender value. These types of policies only provide compensation in case of death of the insured against the payment of premium for the term agreed upon as per the policy/Insurance Agreement.
Endowment Insurance Policies:- These are the classical Insurance cum Investment policies. The premium for this type of Insurance policy is much higher as compared to Term Insurance Policy. Under Endowment policy you will receive maturity amount (Sum Assured) either on death or completion of policy tenure. This policy carries an assured return on completion of term.
Money Back Insurance Policies:- These policies are similar to Endowment Insurance Policies but with difference in payment of maturity benefits. Under this Scheme, a fixed amount out of the premium paid is returned back to the insured at a regular interval as per the terms of the policy. The remaining lumpsum is paid on completion of the policy tenure. In case of demise of the individual in between the tenure, the entire sum assured is paid to the individual without any deduction of money paid back to the insured.
Unit Linked Insurance Policies:- These policies try to combine insurance as well as investment opportunities in real terms. A portion of the premium goes in the insurance cover while the rest is invested in debt and equity instruments. They provide insurance cover as well as help in accumulating good returns on the investment as it is market linked. On maturity the insured is paid the Sum Assured along with the Returns earned through investment.
Return of Premium Term Insurance Policies:- Return of Premium Term Insurance Policies are policies which return the premium paid against the policy on successful completion of tenure of the policy. It means if an individual survives the tenure of the policy then the entire amount paid by him/her towards the insurance cover will be refunded. However, apart from the premium no additional interest or bonus will be paid to the insured.
Group Life Insurance:- This type of policies are similar to Term Insurance Policy. But this type of policy is generally taken by employers for their employees in group. Employees are covered together under a Single Policy and it has got no maturity benefit.
Tax Benefit is available U/S 80C up to Rs 1,50,000/- on the premium paid towards Life Insurance. Even the return on maturity/sum assured is exempt from Tax Liability.
CHOOSING A LIFE INSURANCE POLICY
Individuals should be very careful while choosing a Life Insurance Policy and should not intermingle the meaning of Insurance and Investment. Investment is undertaken with the objective of Wealth Maximization while Insurance is to provide financial compensation and protection against future shortcomings.
Policy should be purchased after examining the policy terms and conditions thoroughly. Individuals should also keep in mind the potential future needs and obligations before opting for the Sum Assured under any policy. However, In my opinion Term Insurance Policy offer the best Insurance cover at affordable premiums and Individuals should definitely consider including them in their portfolio.
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