An insurance policy is more than an investment for an individual. It is a symbol of assurance for the family of the individual that they would be well taken care of in the unfortunate event of an individual’s death. And it is for this purpose, that everyone should have a life insurance plan.
Life Insurance Plans can basically be categorized into 2 categories: –
- Term Insurance Plans: These type of plans are pure insurance plans wherein the insured is covered for a specified number of years.
- Unit Linked Insurance Plans (ULIP): These type of plans offer investment benefits over and above the insurance benefits.
The 2nd type of plans i.e. ULIP plans are more expensive than the 1st type of plans i.e. Term plans as ULIP offer investment + insurance benefits whereas Term Insurance only offers Insurance benefits.
Most financial experts usually recommend Term Insurance as compared to ULIP’s as they recommend keeping insurance and investments as separate and not merging them into one plan like in the case of ULIP.
Things to check before opting for a Term Insurance Plan
While determining the best term plan suitable for an individual, the following things should be kept in mind:-
1. Duration of the Plan
This is a very tricky question as to what is the ideal duration of the plan. Most insurance companies offer a minimum duration of 5 years and a maximum duration of 35 years.
Although these term plans also allow you to renew the plan after the specified term, but the renewal usually is costlier. Hence, if possible, a person should opt for a term plan with a higher duration, so that the regular premium is lower.
2. Amount of Insurance
The second most important thing to be kept in mind is the amount of insurance cover needed. The amount of insurance cover needed depends on expected future needs of the family and the following points should be kept in mind while deciding the insurance cover: –
- Average Monthly Household Expense
- Average Child Education Expense
- Any long term EMI’s which you are paying
- Expected Annual Rate of Inflation
3. Additional Riders
Life Insurance companies offer also offer additional riders alongwith insurance policy like:-
- Critical Illness Cover
- Accidental Death Rider
- Permanent & Partial Disability
- Waiver of Premium
- Income Benefit Rider
These are not part of the basic term plan and a person can add them to his term plan by paying some extra premium.
4. Claim Settlement Ratio
Claim Settlement Ratio means the number of death claims which are approved by the insurance provider. Not all cases get approved as some cases get rejected as well.
The higher the settlement ratio, the better it is as it indicates the probability of your death claim getting approved.
5. Frequency of Payment
Term Insurance Plans offer annual/half yearly/monthly/ quarterly payment options. The amount of premium to be paid varies depending on the frequency of payment. Generally, annual premium payment options are the least expensive as you will be transferring money to the insurance company at one go.
6. Tax Deduction
The premium paid for life insurance plan can be claimed as a deduction under Section 80C of the Income Tax Act which allows for a maximum deduction of Rs. 1.5 Lakhs per annum. An individual should check whether the insurance plan he is enrolling for is eligible for tax deduction or not.
7. Insurance amount repayment
In the unfortunate event of demise of the insured person, the death benefit would be paid out to the nominee of the policy holder. The payout can be in any of the following manners: –
- Option 1: Lump sum: The assured sum would be given to the nominee at once
- Option 2: Monthly Income pay-out: The sum assured would be paid to the nominee in the form of monthly installments to supplement their expenses over a longer period of time.
- Option 3: A combination of lump sum and monthly pay-out: Under this option, some part of the money would be paid lump-sum and the balance would be paid in monthly installments.
