WHAT IS LIFE 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
in 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 and but at the same
time grow your wealth too
DO I NEED LIFE INSURANCE?
If you have dependants and financial responsibilities towards them, then you certainly
need insurance. Having a family means dependants; this in turn means financial commitments.
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 cannot 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 guarantees that your dependants will be able to continue living without financial
hardships even in case of your demise
Most insurance plans available today come with a savings element built into it.
These policies help you plan not only for protection against death but also for
a financially independent 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. 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. Apart from the risk cover, the most
important benefit you receive is Income Tax Relief under Section 80C of the Income
Tax Act. This means that the premium paid by you reduces 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
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
HOW MUCH DOES LIFE INSURANCE COST?
In order to buy a life insurance policy, you must pay certain amount as premiums
to the life insurance company. The amount of premiums payable depends upon the type
of policy, term of policy contract, sum assured and your age. You could pay these
premiums monthly/half-yearly/annually or as a single premium
HOW MUCH DO I INSURE MYSELF FOR?
One of the simplest rules is to assume that insurance is a replacement for your
lost earning capacity Calculate your total income for the years that you expect
to work. Assuming that the prevailing interest rate is 8%, you need to insure your
life for at least 12 times your current annual income. Assuming that a family needs
Rs.100 annually for household expenditure and the rate of interest is at 8%, then
the breadwinner needs to have a life insurance policy of approximately Rs.1200.
If the insurance amount were to be put in the bank by the family, the family would
get a comfortable Rs.96 p.a., which would at least let the family maintain the current
ARE THERE ANY ADVANTAGES OF BUYING INSURANCE AT AN EARLY AGE?
Yes. The premium that you pay on your insurance policy is mainly dependent upon
two things—your age and the tenure of the policy. The younger you are the lower
is your insurance premium amount. At younger age, you would be physically sound
and may not be suffering from illnesses. This 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 THERE ANY POLICY WITH WHICH I CAN PLAN FOR MY RETIREMENT?
Yes! We have the Unit Linked Pension Plan, which helps you to regularly invest your
savings during your earning life in order to build up a retirement corpus to take
care of your post retirement needs. Further you may be eligible for a tax deduction
on the premiums paid
IS INSURANCE BETTER THAN OTHER SAVINGS PLAN?
Other savings plans like Bank Fixed Deposits, NSC, and PPF have short maturity tenures,
compared to life insurance policies. (E.g.: NSC for 6 years, PPF for 15 years &
life insurance can be up to 100 years). Hence, other saving plans have limited impact
on financial planning prospects. Whereas, a Life Insurance Policy pays the Sum assured
even if the Policyholder expires before the end of the payment term. Hence, this
provides greater security to the person and his/her family. As such, insurance policy
is definitely a better savings plan
WHAT IS THE UNIT-LINKED INSURANCE PLAN (ULIP)?
ULIP is a market-linked life insurance plan, which invests the premium money in
various proportions in the equity and debt markets. In effect, this ensures that
the returns on such plans are linked to the performances of the markets while also
offering the individual an insurance cover at the same time
WHAT IS TERM INSURANCE?
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 to buy you life cover. This is suitable for you if you are looking for a
low cost life cover without any savings benefits attached. You are at that stage
in life where insurance cover is vital but you cannot afford high premium payment
due to low income
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 younger 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
IS INSURANCE COVER A PART OF FINANCIAL PLANNING?
Insurance planning is an integral part of financial planning. An insurance plan
takes care of the unforeseeable demands on your finances. For instance, an unfortunate
illness requiring a surgery can be covered under a medical insurance plan and you
need not dig into your savings and other investments to pay for it. In effect, insurance
helps to keep your financial plan on track.
WHAT KIND OF RISKS CAN I COVER UNDER INSURANCE PLANS?
Most risks to your life and property can be covered under insurance plans. Some
of the common insurance plans are:
- Unit Linked Insurance Plans
- Term / Term with Return of Premium Planss
- Health Insurance
- Personal Accident Insurance
- Insurance cover for your Home / Car
- Insurance cover to protect your family from liabilities
- Travel insurance
WHAT SHOULD BE MY IDEAL LEVEL OF INSURANCE COVER?
The value of the cover that you opt for should depend on your need for protection.
If you are applying for asset insurance, the value should ideally cover the cost
of replacing your asset. Similarly, the final payout of a term plan should compensate
your family for the financial loss that they will face in case of your demise. If
you go in for ULIPs, endowment or money back policies, these should fall in with
your overall financial plan and enable you to receive funds when you expect to use
At times, it is not possible for one policy to fulfill all your requirements. In
such cases, you can purchase a combination of plans which will meet your needs.
WHY DO I NEED HEALTH INSURANCE?
Nobody can predict illnesses or accidents. These health hazards and hospitalization
can cost you dearly in terms of medical bills and leave you with a major financial
burden. To enable you to cope with such situations, insurance companies have launched
health insurance plans. Health insurance takes care of your hospitalization and
medication expenses. It could also provide financial support to you and your family.
WHY DO I NEED TRAVEL INSURANCE?
While travelling abroad, you would not like anything to ruin your trip. However,
unfortunate events such as baggage loss, passport loss, a medical emergency or an
accident can affect you. Having travel insurance compensates you for such events.