A life insurance is a security blanket you knit for your loved ones. Incase, of your death your loved ones can claim for insurance and reap its benefits.
Contrary to what several insurance agents recommend, you do not require life insurance for your whole life. You require it most when you are young and you are the sole or primary provider of your family.
Before buying a life insurance policy, it is better to know the types of life insurance that are available and choose one that best fits your requirement.
TYPES OF LIFE INSURANCE
There are two major types of life insurance, such as term insurance and cash value insurance. The term insurance is pure insurance, devoid of an investing part, whereas the cash-value insurance is essentially a term insurance policy with an investment part stitched on, which is referred to as the cash value.
- Whole Life Insurance
A whole life insurance covers you till you turn 99 years old and is a kind of permanent insurance that combines life coverage with investment finance. In this type of insurance, you are buying an insurance policy that pays a declared, fixed sum on your demise, and a fraction of your premium will go towards building cash value from investments made by the insurance business.
Cash value obtained is tax-deferred every year, as long as you maintain the policy, and you can have a loan against the cash buildup fund with no tax. However, the sum you pay usually does not change all through the life of the policy.
- Universal Life Insurance (Traditional Policies)
This is a kind of traditional insurance policy, which combines the term insurance with the money market-form investment. This will reimburse the market rate of return at the end of the policy term, you can also draw loan under these policies that are tax-deferred. To get a high return, these policies usually do not promise a certain rate.
- Variable Life Insurance (ULIP)
Variable life insurance is a permanent policy with an investment fund linked to a stock or bond mutual fund outlay, but here returns are not ascertained as they depend on the fluctuations of the market.
- Term Insurance
This is the basic insurance that provides you with all the required coverage. Hence, it is considered the best option for almost everybody.
As the name suggests, a term insurance policy is applicable for a definite time period, which can be bought for one year, 10, 20 or 30 years. As you usually need life insurance only, just choose the period that best fits the time you require coverage. If you expire during that period, your beneficiaries will get the payment, which is known as the demise benefit. If you expire after the expiry of the term, there is no payout.
Term life insurance policies usually contain a maximum issue with ages. With the increase in age, the premium levied in Term Insurance also increases as the mortality rate increases. If you cross the age of 50 years, it will get difficult for you to get insurance.
COST OF LIFE INSURANCE
Besides knowing the types of life insurance products, you are also supposed to know its price also to make your investment a lucrative and purposeful one. However, the price of life insurance depends on your health, your age and the size of the deceased benefit you would like. No surprise that the healthier and younger you are, the lesser your payment will be.
Just as an approximate, if you are a 35-year-old healthy person and buy a 20-year point term policy with a fixed yearly premium, you might pay a premium of Rs. 17,000 per year to secure a death benefit of Rs. 20,00,000. On the other hand, if you are a 50-year-old healthy person and buy the same policy, you might pay a premium of Rs. 50,000 per year. This simply shows that your premium levied is directly proportional to your mortality rate.
However, cash-value policies would cost you much higher premiums. If you are a 35-year-old healthy person and pay a premium of Rs. 17,000 per year for a term policy worth Rs, 20,00,000, you might pay a premium of Rs. 1,50,000 per year for a universal life policy worth Rs. 20,00,000, in part, as a fraction of that Rs. 1,50,000 will go into the investment part of the policy, which is a huge variation.
WAYS TO BUY LIFE INSURANCE
After knowing all the vital factors, and deciding your needs and budget, now you can start buying your preferred policies. While shopping for life insurance, explore only trusted and reliable websites to get the precise information you need.
Get an insurance policy only from an institute that is in great financial form. Before you buy a life insurance policy, inquire with the agent, or verify the website of the insurer for the financial power rating, a letter rating from main rating services of your proposed insurance provider and stick with the top ratings.
