What is Life Insurance?
Life Insurance is a contract between two parties to pay the agreed sum to a person (or his/her nominee/legal heir) on happening of the event insured against.
Why this article?
I have found many agents mis-selling life insurance products. Many people take policies and later found them not suitable for their needs. I have studied some of these products and thought it will better if I share those with you.
What is the need for Life Insurance?
First and foremost reason is uncertainty in one’s life. There can be unforeseen accident, disease resulting in loss of job, situations resulting in long term treatment, death etc. Life insurance helps mitigate the suffering to a large extent in these situations. In case of death, sum assured is paid immediately on submitting claim forms. In case of permanent disability, future premiums are waived in many policies. Some products will pay you a portion of the sum assured yearly. Also Sum assured with bonus/loyalty addition is returned at maturity. Those who have opted for critical illness/premium waiver/accident rider gets big relief with those options.
Other benefits of taking a life insurance policy include savings, tax benefits etc.
Another major reason could be that no court of law can attach a person’s insurance amount thus making sure that at least the insurance money is safe and will reach the needy. All other savings/investments/assets may be attached in case one is in debt.
Life insurance policies offer a different kind of liquidity which many are unaware. Other than the nomination which becomes effective only in case of death of the insured person during the term of the policy, there is a facility called ‘assignment’. The policy can be assigned to any party including unrelated third parties. Only requirement is that you need to inform to the insurance company about the party details and reasons in writing. There after all benefits payable gets transferred to the assigned party.
What are the different riders available?
Critical illness rider/Premium waiver rider available with life insurance policies helps in paying future premiums in case of agreed disease/death . This comes at a minor extra cost to most the of insurance products.
Another rider is Accident Benefit option available at INR 0.50 – 1.oo per thousand of sum assured. In some of the products it is inbuilt.
Some useful Products
I will write about term insurance in this article.
Term insurance is a product where sum assured is payable only in case of death. If one survives to the end of the term no benefit is paid. It is as simple as that.
The advantage of term insurance lies in its low premium. INR 1 million (10 lacks Rupees) term insurance for a 40 year old person costs 5000-10000 per year only (depending on the insurance company one chooses) for a term of 25 years. The same 1 million INR endowment or ULIP or any other product would cost 30000 – 40000 minimum per year for a similar term.
One can take a term insurance for insurance needs and invest balance amount thus saved on taking a similar sum assured endowment policy on gold/real estate/ fixed deposit with banks/pot office/mutual funds etc. Thus one gets his/her life covered through term insurance and a much better amount than joining an endowment scheme through investments in gold/real estate/bank fixed deposit etc.
I will continue with some other life insurance products later in my next article.