As human being, we usually try to protect and keep safe our loved ones. When it comes to the earning member of the family the person try those things both emotionally and financially. Life insurance always helps us to achieve that goal to some point without exhausting the other investments. Talking about considering life insurance is one thing but purchasing the right one is another. There are several kind of products available in the market. Although all the products pays the nominee if any eventuality happens, are not designed or work in the same manner. Please don’t be scared because it’s not scary at all.Let me confess something, almost all my childhood I spent reading classics and believed that death is romantic and beautiful. After some years I lost someone in our family I cared about and that was the very first time I faced it although in a different way. Jim Morrison once said “The future is uncertain but end is always near”. Although we all don’t want to discuss that, but also can’t simply ignore the most inevitable incident of our life and that is ‘death’. When that inevitable happens to someone, his or her family face some crisis both emotionally and financially. It is the point where the concept of insuring someone’s life comes into the picture. Probably no one can fulfill the emotional loss but certainly financial crisis can be taken care of. It is the most crucial issue that we need to consider while planning for our finances.
Although theoretically life plans are of two types i.e. term life insurance policy and traditional whole life policy, there are several kinds of plans available in the market like Endowment plans, Unit linked plans, Money back policy etc. Practically we can categorize all the plans in two major types i.e. Pure life insurance plan and life policy cum investment. Term plans are known as pure insurance plan and has no investment part which pays money back only after death. A person can hold term policy maximum thirty years (term) and if the person survives the term there is no survival benefit. All other policies comes with an investment part along with death benefit resulting higher premium. Life insurance companies collect the premium from the policyholder and put it in two different boxes. Where one part uses to buy you a term policy, another part uses to invest in some instruments. When simple life insurance is the priority we can prudently choose the term insurance plan. Term insurance plan is the cheapest plan when compared to the other plans for same level of life cover and we can add a rider to enhance the basic plan. Rider refers to the additional benefit for a little charge. Some popular riders are critical illness rider, disability rider, accidental death benefit rider etc.
The level of life cover need assessment is tricky and simple at the same time. We can simply consider our annual income or expense and multiply the value with ten or fifteen. It is the simplest way but we always can take professional help of our financial planner. Life insurance companies consider other factors as well when deciding the premium like personal expense of the policyholder, lifestyle habits, present health condition, age etc. Both the public and private companies offer a range of products but it is always prudent to choose the right product. For doing so, we need to consider the factors like types of product, premium, claim settlement ratio etc. Claim settlement ratio is the measure of how much claims a company is settling out of total claims a year. Obviously a higher ratio is always good sign for the policyholder and data is available on IRDA website.
Abhishek Sharma is a successful IT professional and annual income is ten lakh rupees. He is a family person with wife Neeti and two children Rohan and Parth. Abhishek is now 35 years old. He is thinking about getting a life insurance and he has several investments. So as per the above theory he will need around one crore to one crore fifty lakhs rupees as his life cover. He can take a term insurance policy of fifteen to twenty years because within that period he will need to fulfill the crucial goals of his and his family. As his investment goals are already taken care of he also doesn’t need a life insurance with the investment opportunity. Life insurance also can be used as tax saving tool. Section 80C of the Income Tax Act allows policyholders to claim deduction up to one lakh fifty thousand rupees a year on the premium paid. The claim of sum assured is also exempt from tax under Section 10(10D) of the Act. The below table can help us to understand the tax treatment.
|Particulars||Section of IT Act||Types of Benefit||Amount|
|While Paying Premium||80C||Deduction||150000 max.|
|Amount Received||10(10D)||Exemption||Total Amount Received|
Our life is beautiful and full of surprises and yet so uncertain. Uncertainty may threaten its beauty and sometimes makes it miserable but if we manage our finances and take adequate life cover to protect our loved ones then life may not become that bad even if we are not around anymore. So, considering about a basic life insurance helps us to be a more responsible family person and live our life with mental peace and dignity.