Life Insurance
Life insurance allows you to provide for your family, in the event of your not being there. It is not mandatory; but can you afford to NOT have it?
In its purest form, life insurance refers to term insurance. But there is a bewildering variety of life insurance plans out there, such as whole life plans, money back, and endowment plans. Not to mention the hugely popular unit-linked insurance plans (ULIP). All these plans vary through different parameters such as coverage, exclusions, riders, and cost.
What is life insurance?
Life insurance can be termed as a contract between and insurance company and the person who is insured. A life insurance policy will protect your family against financial risk to the extent the life is covered/ sum assured of the life insurance policy in case of death of the life insured. Thus a life insurance policy is always meant for your family and not for you.
What is the major risk a family is exposed due to death of the breadwinner of a family?
In the above circumstance, the source of income comes to an end but not the expenses. They remain, as they were earlier before the death of the breadwinner of the family. Just in case, the income doesn't remain the same as earlier, the family has to downgrade their standard of living. This kind of situation may affect the future of the family drastically. To overcome all these risks, life insurance is mandatory for everyone who has any dependant on his or her income besides any kind of liability like a home loan or a personal loan or any other loan. In case of death of the insured, the money, which is received from the Life Insurance Company, is paid to the bank or the financial institution from where the loan is taken.
The next question is how much insurance should one take?
To put that in simple words, the sum assured should be large enough to take care of your entire family expenses along with your liabilities if any and also should fulfill all the goals of your children's future or buying a home for your family or any other goal you have. This is quite a sophisticated process and you should take professional help to know how much sum assured you need. To have a fair idea of your life insurance requirement, you can do the calculations on our site on our life insurance planner calculator. but before you go ahead to buy a life insurance plan for yourself, we would suggest you to take some kind of professional help. Taking a lower sum assured than your requirement means that you are not adequately insured and in case of death, your family will have to make some kind of compromises either in regular expenses or for the goals you had set for your family.
In case you have taken reverse route, like going in for more insurance than you need, implies that you are paying more premiums that is actually not needed. You can use this money somewhere else to plan for some other goals you have for your future.
So taking the right life insurance is very necessary. Now the question comes that which policy should one take.
There are many types of life insurance policies available in the market-
Term life insurance policy
Endowment life insurance policy
Money back life insurance policy
Whole life insurance policy
Unit Linked Insurance Plans (ULIP)
We would suggest you to go for term insurance plans, as this is the cheapest form of life insurance available in the market. The premium you pay towards your term insurance would be completely exempted under section 80C of Income Tax Act. Along with life insurance you can opt for various riders like critical illness rider, personal accident rider etc.
How do these riders work?
Suppose you have taken a critical illness rider on your policy, and then the life insurance policy will pay you in case you have any critical illness that are a part of the rider. To take this rider, you need to pay additional premium over and above your life insurance policy.