INSURANCE
Life Insurance is a contract between you and a life insurance company, which provides your beneficiary with a pre-determined amount in case of your death during the contract term.
Buying insurance is extremely useful if you are the principal earning member of the family. In case of your unfortunate premature demise, your family can remain financially secure because of the life insurance policy that you have purchased.
The primary purpose of life insurance is therefore protection of the family in the event of death. Today, insurance is also seen as a tool to plan effectively for your future years, your retirement, and for your children's future needs. Today, the market offers insurance plans that not just cover your life but at the same time increase your wealth as well.
- Do I need life insurance?
If you have financial responsibilities towards your dependants, then you certainly need
insurance. Financial commitments come in the form of loans, children's education, medical expenses.
Imagine what would happen if you were to lose your life suddenly or become disabled and could not earn. Being insured in a situation like this is a necessity. When you insure your life, in effect what you are doing is insuring your earning capacity. This way your dependants will continue to live without financial hardships even after your demise.
Most insurance plans available today come with a savings element built into it. These policies help you plan not only for your family’s protection after death but also for your own financially secure future, which would enable you to have a comfortable retirement.
- Who Is an Insurance Broker?
An insurance broker is someone who acts as a go-between for businesses and insurance
companies. They typically have access to dozens of carriers, and can quickly find several policies for you to consider. A good insurance broker knows the industry, and can begin searching for additional insurance plans for you to consider. They know the procedures and processes of the various companies that offer coverage, and can cut through the red tape and interpret the jargon found in most contracts.
- Is there any other benefit of buying insurance other than the risk cover?
There are several benefits of buying insurance. Other than the risk cover, the most important benefit you receive is Income Tax Relief under Section 80C of the Income Tax Act, which means premiums paid by you reduce your tax liability. Besides it helps you build up compulsory savings. Also, through a valid assignment the beneficiaries of the policy are protected from claims of creditors. One could also surrender his/her policy in case of emergencies. For a policy taken under the MWP Act 1874, (Married Women's Property Act), a trust is created for wife and children as beneficiaries.
- Are there any advantages of buying insurance at an early age?
Yes. The premium that you pay on your insurance policy is mainly dependant on two things—your age and the tenure of the policy. The younger you are the lower is your insurance premium amount. At a younger age, you would also be physically sound and may not be suffering from illnesses which would entitle you to a lower premium on the policy. Therefore it is advisable to buy insurance at an early age to reduce the cost of insurance.
- Is insurance better than other savings plan?
Other savings plans like Bank Fixed Deposits, National Savings Certificate, Public Provident Fund have short maturity tenures, compared to life insurance policies. (Eg.: NSC for 6 years, PPF for 15 years & life insurance can be up to 100 years). Therefore other saving plans have limited impact on financial planning prospects. Whereas, a Life Insurance Policy pays the sum assured even if the policyholder dies before the end of the payment term. Hence, this provides greater security to the person and his/her family.
Term Insurance, also known as pure life cover, is the cheapest and the simplest form of insurance. Under this insurance policy, against payment of regular premium, the insurer agrees to pay your beneficiaries the sum assured in event of your premature death. However, if you survive till the end of the policy term, nothing is payable to you. This policy has no savings component and the premiums you pay are purely a cost you have to pay to buy you life cover.
This is suitable for you if you are looking for a low cost life cover without any saving benefits attached or you are at that stage in life where insurance cover is vital but you cannot afford high a premium payment due to low income.
- What is the difference between traditional life insurance and unit-linked life insurance?
The main difference is in the flexibility in the choice of investments. In the case of unit-linked life insurance, the insurance company would usually offer a choice of different funds (say, with a differential mix of bond and equity investments) in which the policyholder can opt to invest his/her contributions. The policyholder can decide into which funds his/her contributions need to be invested in and in what proportion. Therefore, the returns under the policy are dependent on the investment choice made by the policyholder. The policyholder can also opt to invest top-up contributions over and above the regular contributions at any time and to switch his/her investment pattern at any time during the term of the policy.
In the case of traditional life insurance, the policyholder is usually offered a guaranteed sum assured. In addition, non-guaranteed bonuses in the form of a share in the profits of the fund may also be offered depending on whether the policy is a participating policy or not. The premium amounts are usually fixed at the outset and the same quantum of premium needs to be paid throughout the term of the policy.
- What is the difference between "term?" and "whole life? insurance?"
The Term plans are the purest and cheapest form of insurance where benefits are payable only on the death of the policy holder within the term.
Whole life plans are a special type of term assurance wherein the term of the policy is whole life. So it follows that benefits under the policy are payable only on death of the policy holder.
- Can my policy ever be cancelled due to health or other reasons?
Once a life insurance policy is issued, it cannot be cancelled by the insurance company during the policy period for any reason including changes in health, provided the required premium payments are made and the information on the application was not misleading or inaccurate.
- Do all life insurance policies require a medical test?
Life insurance companies underwrite risk on the basis of the health status of the person. The amount of evidence of health required by the insurer depends upon the amount of risk involved i.e. the sum insured under the contract. In the case of a low sum insured of the life to be insured or at young age, the company might ask only for the statement of health in the form of a health questionnaire from the customer and not a medical examination. In other cases a full medical examination may be required.
- Does the insurance company disclose the investments made in each fund?
The insurance company usually provides investment information at periodic intervals through news bulletins and other means.