In this world, where everything is uncertain and unpredictable, no one knows what will happen in the next second. Hence, it becomes very necessary to plan everything to sail through the tough times. To serve this purpose, you must understand; how life insurance works & the importance of life insurance.
Life Insurance is the best option and financial safety to face unfortunate and unforeseen events.
I guess you have searched lots of websites for the right solution, which can clear your confusion in the context of;
- The Importance Of Life Insurance
- How Does Life Insurance Work?
- What Does Life Insurance Cover?
- How Much Life Insurance Do I Need
- Low-Costs Life Insurance
- Best Life Insurance Advice
- How To Buy Life Insurance?
- …….and so on.
Also, you might be looking for an expert view on Life Insurance, whether to go for it or not. If yes, then which plan will be more beneficial and affordable?
Here, I will be discussing everything related to Life Insurance and try to clarify any doubt for beginners as the title suggests ‘Life Insurance Guide for Beginners.’
What is Life Insurance?
Now, we will talk about what is life insurance and how does it work? Life insurance is a scheme or a contract between the life assured of an individual and the insurance provider with specific terms and conditions. In a standard life-assured plan, regular premium payment is involved for a fixed period to keep the policy active.
After the completion premium, when it gets matured, the insurance provider offers a maturity bonus to the individual as per the choice of the plan he/she has opted for. In case of the death of the person, his/ her beneficiary will get the sum assured by the insurance provider as the death claim. Such a sum assured of the insurance can’t help with the emotional bonding, but it’s helpful to survive life with the support of money.
However, the plans vary according to the insurance provider, your health condition, your budget, and so many other things. There are many insurance policies like LICIndia, Iciciprudential, Maxlifeinsurance, Bajajallianlife, Bhartiaxa life insurance, and many more.
How does Life Insurance Work?
Life Insurance is a government-approved scheme where an individual consistently invests a pre-defined amount for a longer duration. Here, the choice of a life insurance plan is directly proportional to meeting your financial goal.
For instance, suppose you are a newly married person and hold the liabilities of your child’s marriage or their higher education after 15-20 years. Now, due to inflation, you can analyze that after a long time, you will need a huge amount to fulfill the goal.
So, as an early plan, you can slowly invest some amount in the insurance scheme. Over time, you can see that enough amount has been collected to fulfill the desire without worry.
Likewise, there are different premium and insurance plans to fulfill your goal in the long run.
When you buy any insurance plan, the company is liable to assure you from the first day. That means if any unforeseen situations happen with the life insured (including death), as per the described insurance policy, the insured individual or their family would be paid off the sum assured by the insurance company.
After the accident or death of the insured person, an Insurance provider company must be contacted as soon as possible to claim the policy and pay-out process.
It is essential to add the beneficiary carefully to ensure that the legit person is receiving the amount. However, there are different ways of payment, i.e., installment payments, annuities, lump-sum payments, and retained asset accounts.
Importance of Life Insurance
Here, I will elaborate on the factors why Life Insurance is important.
1] Debt/ Loan Repayment
Suppose you are the bread earner of your family, and for some work, you have taken a loan or a debt from anyone which you have not repaid. Unfortunately, if you are dead, then those debt/loan repayment responsibilities will be carried on your loved one’s shoulders.
If you have taken any such Life Insurance plan, you will receive death benefits from the insurance provider, which will help you love to wind up the debts/loan.
2] Medical Expenses
In this inflation, it is very tough to manage medical expenses. The medical costs are so high these days that they will burn your pocket. So, to support your expenses and lower the load on your pocket, there is an insurance provider which offers a policy plan for medical expenses.
If you are going for health insurance, then your medical expenses like hospitalization and post-hospitalization care costs will be managed through the right insurance plan.
3] Financial Safety
The Life Insurance Policy plan provides a death benefit if the life-assured person dies before the maturity period of the opted plan. The life insurance company will provide a certain amount, as mentioned in the policy, to the family to handle the financial strain.
4] Tax Benefits
If your income ranges between 2.5 lakh to 5 lakh, then you have to pay 5% of tax on your total income to the government. Life insurance provides you an opportunity to save the amount from paying taxes.
It is mentioned under section 80 C of the Income Tax Act that one can enjoy tax benefits up to Rs. 1.5 Lakhs on the premium paid amount if the person is life assured and also on their spouse and children’s policies.
What does Life Insurance Cover?
If you are the only bread earner for your family and your family members are dependent on you for everything. You must plan to invest in life insurance to manage your financial liabilities in the future. Life insurance can help you to cover the expenses for child education, illness, marriage, buying a home, retirement plan, etc.
Also Read: 4 Benefits of Financial Planning If You Start Young
How does Term Life Insurance Work?
Term Life Insurance is also known as pure life insurance, which is a type of insurance that guarantees the amount of a stated death benefit if the insured person dies during a mentioned term. If the policy gets expires, then renew it or change the plan as per your desire.
When one buys a term life insurance policy, the company sets the premium based on the policy’s value and one’s age, gender, and health condition. There are exceptional cases where the company also requires a medical certificate, your current medications, smoking status, occupation, driving record, hobbies, and family history.
If one dies during the policy term, the company will pay the face value to the nominee who is non–taxable. If one dies after the policy expires, the company doesn’t pay the beneficiaries.
How Much Life Insurance Do You Need?
If you are confused; about how much insurance I need, then here are simple analysis.
How much life insurance you need depends upon your family members and financial situation! It will help you to determine how much coverage you must have. Life Insurance depends on the age; the younger you are, the less premium you will have to pay. Also, you should analyze the upcoming liabilities after a few years. As mentioned above, there are many insurance policies like LICIndia, Iciciprudential, Maxlifeinsurance, Bajajallianlife, Bhartiaxa life insurance, etc to choose from.
You have to decide the premium you can pay and choose a plan accordingly with the face value; your beneficiaries will be in need if you are not there. You must also keep in mind your income and debts because the death of an income-earning person creates a situation both emotional and financial.
How to Avail Affordable Life Insurance?
Life Insurance varies according to age, so each individual in their 20s, 30s, 40s, 50s, and above must choose a plan wisely at an affordable rate.
The group which comes in the 20s or under 30s will have their health in the prime graph, and if having term insurance at this peak of time then you will be paying less premium approx—4,000 INR annually with a coverage of up to 50 Lakh INR.
The cost of premiums rises with the increase in age and also with health conditions. To make it more affordable for yourself, you can start investing in your 20s concerning your source of income.
What is a Life Insurance Calculator?
An insurance calculator is a medium by which you can easily calculate the premium you will be paying and the amount you will be getting back after the maturity of your life insurance policy.
Several insurance companies provide a free insurance calculator for the customer to carry out the calculation. This insurance calculator is classified into six types which are as follows.
1] Term Insurance Calculator
To calculate the premium for term insurance, you will get a calculator where you have filled in your details along with your annual income and whether you consume tobacco/nicotine or not. After that, the final premium amount will get displayed for you.
2] Child Education Cost Planning Calculator
It will help you to know your child’s higher education needs. In this, you have to simply fill in your child’s age, and the calculator will display the premium amount that you should invest in insurance.
3] Retirement Planning Calculator
This calculator is to plan for your retirement. It helps in calculating the amount you will need to live a tension-free life. Accordingly, you can decide to go with the best life insurance plan to financially secure your old age.
4] Child’s Marriage Expense Planner Calculator
All you need to fill in is the age of your child, and you will get the exact amount you will need to plan a wedding.
5] Mortality Risk Calculator
It displays how your choices are affecting your lifespan. What you need to do in this is you have to fill in every possible data related to your daily life routines like an exercise routine, food intake, lifestyle, and medical history.
After filling in these details, the calculated amount will be displayed.
Best Life Insurance Advice
First, you should analyze the need for life insurance and a shortfalling amount to cover the risk of your family members. After that, calculate the optimal insurance cover you need as per your income and determine an amount that will be affordable for you to pay the premium.
Choose the correct policy term which will give you maximum coverage, compare plans of different companies, and then go for a reputable company providing life insurance coverage. Tell them everything about yourself, like smoking habits, medical history, and so on. Also, go through the policy document carefully.
The golden rule to consider any insurance provider company is;
- Never rely on the words of the insurance agent. They might sell you an improper insurance policy for the sake of a high commission.
- Always see the claim rate of the company. It helps you to smoothen the process at a time of emergency or when you will be in need of financial support.
- Invest up to 30% of your regular income in insurance. The higher portion of the investment may lead you to debt or financial crisis month after month.
How to Buy Life Insurance Online?
Buying a life insurance policy is now easier than ever. With the basic details (that we shared above), you can shortlist the company that is the best in the life insurance market. Find out a couple of the best insurance-providing companies with detailed research. Further, you can search their official website online.
There are several websites where you can visit and fill in the details. They will recommend the best policies, and if you wish, you can also compare them. Additionally, you can call their customer care number and clear the doubtful queries.
After completing and verifying with the insurance provider whether it is genuine or not, you can buy Life insurance online. For repayment, you can link your bank account for auto-debit of the monthly or yearly premium. Else, you can pay the life insurance premium of decided installments manually by visiting the official portal.
Getting yourself insured is beneficial as we never know what will happen to us at the next moment! It acts as a backup plan and support to the family members in the absence of an income-earning person.
I have discussed each point in the article, which must be kept in mind while getting insured by the insurance provider. I hope the above given detailed information about the importance of life insurance, how it works, what life insurance covers, how much insurance I need, life insurance cost calculator, life insurance benefits, and more things will help you find the best insurance plan in your country to financially secure your future.
Let us know in the comment section below; have you ever bought any insurance plan? What is your goal in buying a life insurance plan? According to your research, which is the best insurance company in India?