FAQs on Life Insurance

Life insurance is nothing but an agreement or a contract between the insurer and the insured or the policyholder. In case of uncertainties such as death, critical illness or disabilities, the life insurance company agrees to pay certain amount to the insured’s nominee in return of timely premiums paid by the insured. Life insurance offers a financial shield on the event of death or an accident of the insured. It ensures a comfortable lifestyle to the loved ones on the death of the bread-winner of the family. The unpaid loans and other debts and expenses are well taken care off in your absence by the life insurance policy.

Insurance is a contract between the insured and the insurance company (insurer). An insurance company promises to pay the sum assured to the dependents (nominee/beneficiary), in return of premiums that the proposer/insured pays periodically.

Premiums are the periodic payments that the proposer pays. The insurance company decides premiums based on the type of plan, age, gender, medical history, duration of the policy, lifestyle, etc.

In the case of passing away of the life insured, the insurance company provides money directly to the nominee. The sum assured provides financial aid:

• For household monthly expenses – replacing breadwinner’s monthly income
• As a fund for child’s education
• To pay off any loan or debts
• To build corpus and funds for retirement and child’s marriage

The life insurance comes in different variants. The basic structure is same – premiums and payouts. But each policy may have some differences to fit different needs of different people. Each life insurance company may offer different types policies under the same segment. Some life insurance policies provides coverage for whole life, while some covers risk of untimely death for a specific duration. Some policies may have the inbuilt functional part to provide corpus or funds either through savings or investments. Some insurance companies also offer an option of converting from one type of policy to another.

Types of life insurance policies are:

• Term Insurance
• Whole Life Plans
• Endowment Plans
• Unit Linked Insurance Plans (ULIP)
• Money Back Policy
• Child Insurance Plan

Term insurance is a pure protection plan. It is purely a life cover providing a death benefit coverage. As the name suggests, term, it covers the life insured for a period (term). The proposer decides the term. It can be taken for a period of 5 years to upto 40 years. However, the term is also guided by the present age of the proposer.

• Level term insurance.
• Increasing sum assurance
• Decreasing sum assurance
• Return of premiums term insurance

• Low premiums
• Pure death benefit plan
• Provide financial security to the family in case of breadwinner’s untimely demise
• It is income replacement option as it provide high sum assured at a very low premium

This policy provides life-long coverage. It gets you cover as long as you are alive. The main key feature is that it is for whole life and in case of death of the life insured, the corpus is paid to the beneficiary. They are intended to protect your family as long as you continue paying premiums.

• Provides protection for life-long
• Premiums fixed
• Family Protection plan
• Tax benefits

Endowment plans are not pure insurance plans. They differ from vanilla insurance plans, as these plans involves investment part. In Endowment plans, there is return of sum assured at maturity. These plans have both Death and Survival Benefit features. But this is not only the difference, as it provides survival benefits, the premiums are comparatively higher than the pure death benefit insurance plans.

• Combination of insurance and investments
• Offers Survival and Death Benefits
• Helps to build funds
• Tax benefits

ULIP is a combination of insurance and investment plan. It is a variant of endowment plan. In ULIP, a part of the premiums provides coverage, and other part is used as investment to build funds. ULIPs differ from endowment plans, as the returns are linked to the market. Individuals can select the type of investment product from the range of options.

• Combination of insurance and investments
• Offers Survival and Death Benefits
• Helps to build funds
• Provides coverage
• Tax benefits

Money Back plan is also a product combining investment and insurance. Money Back plan provides periodic returns as survival benefit over the policy period. A percentage of sum assured is paid at equal intervals. As a survival benefit at the end of the policy term, balanced sum assured is paid to the policyholder. And in case, if the policyholder dies during the term, the coverage is paid to the nominee.

• Combination of insurance and investments
• Payout at regular intervals
• Offers Survival and Death Benefits
• Helps to build funds
• Provides coverage
• Tax benefits

As the name suggests, it is meant and designed to insure the stars of tomorrow. It provides the coverage for child’s education, and other life’s milestone.

In case the policyholder dies, the insurance company pays a lump sum amount. But the policy still stays in force, and all the future premiums are waived off. In such cases, on behalf of the policyholder, the insurance companies provides financial aid to develop child’s future. Some child’s plan also offers survival benefits.

• To sustain child’s education in case of unfortunate eventualities
• Helps to build funds
• Provides coverage
• Tax benefits

A death of a family member can leave wounds far deeper than anything else. A death of a primary bread earner leaves the family in an emotional distress and financial unstable. It becomes tough to continue the lifestyle with no income.

With the sudden passing of the breadwinner, monthly expenses, house loan, child’s education, etc. is impossible to cover without any financial aid.

Life Insurance fills this gap. Thus, people buy life insurance policy to ensure that their family shall live the lifestyle as they have been providing since long, even when they are not there.

By buying a Life insurance policy, the policyholder promises their family, that they will be financially taken care even after the following of his/her death. And in case of unfortunate event of death of the policyholder, the insurance fulfills this promises by providing the money.

Life insurance helps:

• To replace the loss of income
• To aid household monthly expenses
• To re-pay debts, house loan, funeral expenses
• To provide funds for child’s education
• To provide supplement on retirement

• If you are the sole breadwinner or contribute financially to your family
• If you have dependents
• Single parent with a child
• If want coverage and build corpus
• If you are homeowner with a house loan
• If you want funds after retirement

Time is always right to do the right thing. So you must not delay the process or overthink when it comes to buying a life insurance plan. The best thing to do is to buy when you are young because the premiums are far lower than at the old age. The right age would be from the age of 25 to 30 when you are financially independent, have dependents for their financially needs, and you need to build funds.

Insurance experts suggest to opt for a sum assured that is 10-15 times your annual earnings. You must take inflation, loans, debts, child’s education and other factors into accounts. The objective of a life insurance is to provide financial security to your family following your death. These questions will help you to figure out, so answer these questions to draw the conclusion about how much cover will be sufficient:

• Are you the sole earner of the family or contribute to meet the financial needs?
• How many family members are depended on you for their financial needs?
• Do you have children? If yes, how much money they might need to complete their education?
• Whether you are the sole breadwinner or contribute a portion if you were to die, how would it impact your family financially?
• Does your parent, grandparent, brother or sister, or anyone else depend on you for their financial needs?
• Do you have any home loan or any other debts that your family will repay if you die?
• Do you wish to leave money for family members and kids?
• As per your current lifestyle, how much your family needs to sustain? Also, take inflation into account.

Buying a life insurance is one of the crucial and important decisions you make. With utmost care and after a lot of thoughts and expert advice you may finally select one product as per your current situation and needs. But, if you are also looking for some quick handy guide to start your research and buy any life insurance plan, here is the list of tips from our experts to help you in making a right decision:

• Identify your needs and future demands:
  • How much cover will be sufficient?
  • How long will you be working?
  • What much of your current budget allows?
• Write down those few basic requirements and then look for a plan that suits you.
• See what type plan is a must have right now. Prioritize your needs.
• Do research about the type of plans offered by different insurers.
• Before buying, ask yourself how this plan exactly works, what will happen if you pass away, how it will help your family?
• Take expert advice. Ask as many questions as you can think. Resolve very query. Do not leave any space for doubts.
• Once you are confident about the product and insurance company, read facts, reviews, minute details about the product and company.
• Buy life insurance policies when you are young, especially term insurance.
• Do not buy in haste, choosing life insurance will take time, but once bought, stick to that plan. Else it can be costly.

Finding out the right amount of life insurance cover requires consideration of several factors. This includes current monthly expenses, inflation, pending liabilities, future obligations and current income sources. It is generally advised that one should go for a life insurance cover that is 10 times the individual's income.