Q. What is Life Insurance?

Life Insurance is a legal contract between the Life Insurance Company and insuree and which provides your beneficiary with a pre-determined amount in case of your demise during the period of the contract.

Getting a life insurance policy is extremely useful for a person who is the main earning member in the family. In case if a person has an, unfortunate premature, death, your family can still have the financial security due to the life insurance plan that you have taken. Therefore, protection of the family in case of a person’s death is the primary purpose of life insurance. These days, insurance is seen as an instrument to do financial planning effectively for your future years, your retirement, and for your child's needs in the future example education, marriage etc.

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The principal reason to take Life insurance is that it ensures financial protection in case of accident or death.  It helps the family maintain the same lifestyle even after the unfortunate death of a loved one. The beneficiaries in the family can utilize the money, received to replace the income the life insured would have earned or help pay off debts or manage other expenses. 

The benefits of having a Life Insurance policy include

1.     Coverage of death or critical illnesses.

2.     Gives financial security to the family in case of the death of the policyholder.

3.     Most Insurance plans also have inbuilt wealth creation options 

4.     Life insurance products now have various options that are tailor made for different life stages of the investor.

5.     Provides Retirement Planning

6.     Easy Liquidity i.e. Loan against a policy

7.     One of the main benefits is that life insurance premiums offer tax saving benefits under Section 80(c) of the Indian Income Tax Act

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Types of Life Insurance Policies

There are broadly two kinds of life insurance policies namely term life policy and permanent life policy.

What is Term Life Insurance

A Term life insurance plan provides only risk coverage during the selected term period. Under, this contract the insurance company’s pay a particularly specified lump sum amount to the designated beneficiary as per the contract, in case of the death of the life insured. These policies are usually for tenure like 5, 10, 15, 20, 25, 30 or 35 years. Term life insurance is an immensely popular concept in developed countries but is not very popular in India. However, after the private players have made entry and with their aggressive marketing, they have been able to make this concept popular. As compared to whole life insurance plans, these policies do not carry investment or money back option that is why the premium on such policies is comparatively lower. However, the main drawback of term life policies is that if the life insured survives the prescribed period of the policy, he does not get return at the end of the policy term. As the age of the life insured increases, the premium on such policies becomes expensive mainly because the risk of death becomes higher with age. Also, if within the grace period, the premium payments are not done than the policy can lapse without even acquiring paid-up value. These policies help avail tax saving benefits.

What is Permanent Life Insurance 

A Whole life policy remains effective till the time the policyholder is alive. Risk coverage is available throughout the lifetime of the policyholder; therefore, they are known as whole life policies. In case of Permanent Life contract, a part of the amount paid as premiums is put in an investment fund earning interest on a tax-deferred basis.  Over a long period, such investments are supposed to accumulate increased cash values which one can get back either in the duration of the policy or by the end of the policy or different intervals, depending on the plans. Ones need for life insurance changes over the different life stages. At the time of buying the plan, one should keep in mind the circumstances and the standard of living one wishes to maintain for the dependents. The premium one pay for his/her life insurance plan depends upon the insurance plan he/she take and the probability of your death while the insurance policy is effective. Such plan not only provides the required security to your dependents by paying a death benefit upon your demise, but also let the person to use some portion of money in case of service or at the end of the term of the policy. The premiums on these plans are more expensive and when premiums are not paid on time the policy can lapse. These plans have the necessary tax benefits as per the Income Tax Act.

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