Life Insurance: Security for you and your family
You may have family members depending on your income. You may be a parent who has children to support. What would happen if something were to happen to you? Investing in a life insurance policy now will help keep you and your family out of trouble's hand in future. Such a plan also makes provisions for a cash value where a part of your premiums is put into a savings account. Hence, while you invest for a secured future, you can make savings too.
What are the types of life insurance?
- Term Life Insurance
A simple term life insurance is best suited for those who are running on a budget. This insurance provides death benefits for a specific period or 'term'. The term may be 1 or more years and benefits are paid only in the event of death of the individual, during the term specified in the policy.
Certain term life insurances are renewable for one or more than one additional term. In such a case the premiums may go higher. Some term insurances have provisions for you to trade it for a whole life insurance.
Term Insurances are of 5 types:- Annual renewal term insurance: With this policy you can renew your term insurance every year till you reach a specific age which often freezes at 65.
- Renewable term insurance: With expiry of the term of the policy (generally 5-20 years), you can automatically renew the policy even if your health condition has worsened. It is similar to the annual renewable policy but this one is for a longer period of time.
- Level premium term insurance: This policy ensures that your premiums will not go higher for the term of your policy which is usually between 5 and 20 years.
- Decreasing term insurance: This term allows your premiums to stay level throughout while decreasing your cash benefits each year. Such policies are usually used to cover items whose costs decrease with time.
- Convertible term insurance: With this policy you may convert your term insurance into any other type of life insurance policy that the company offers.
- Whole Life Insurance
A whole life insurance covers a policy holder for his entire life. A whole life insurance does not have a date of expiry like in a term life insurance. This policy provides death benefit to the beneficiary mentioned in the policy in the event of the policy holder's death. The premium for a whole life insurance is also higher than what you pay for a term insurance. This is because some of the money is put into a savings program. However, when you compare the total amount of premium paid in a whole life insurance to that paid in term life, it is seen that the amount in whole life is lesser. This happens because the premiums for whole life insurance remain same over the years while in a term life the premiums increase.
Certain clauses in a whole life insurance allow you to pay premiums for a lesser period of time. The greatest advantage in this policy is that the premiums develop cash values that may be claimed or used for purchasing rider policies for more protection. Few of the advantages of whole life insurance are:- Guaranteed death benefits
- Guaranteed cash values
- Fixed annual premiums
A whole life insurance, also known as "straight life" or "ordinary life" insurance, is not just an investment for your future alone, but also for the future of your family.
- Universal Life Insurance
Universal Life insurance is a flexible policy that allows you to change the policy amount as per your requirements. Like all other policies, this too provides death benefits to the family members/beneficiaries in the event of the policy holder's death. The most important features of this insurance are- Flexibility: You have the liberty to decide how much insurance you need based on your requirements.
- Security: With this policy, you can protect your loved ones from financial hardship that may arise in the event of the death of the insured.
- Tax Benefit: The present tax laws state that individual life insurance proceeds are generally given to the beneficiary absolutely income-tax free.
- Tax-deferred growth of account value: The account value of your policy is subject to earn interest at the rate the company provides which is normally 4%/annum.
What will be the best life insurance plan for you?
You may depend on your insurance agent for a good life insurance plan. However, you must ask your agent to explain the plan to you in details so that you know what you are going to invest in. Different insurance companies may have different policies. If you do not have any dependents then you may not need a life insurance in most cases.
If you are entitled to social security benefits, your spouse will receive only a part of that benefit after your death. So plan your life insurance accordingly.
How much Life Insurance do you need?
The simple answer is that you need enough to cover your family's financial needs when you aren't around. Life insurance benefits, combined with other sources of income (if any) should replace the income that you have so long generated. Your family may need to hire a legal agent who will charge a fee. Your family may need to relocate, may need finances to support education and the like. Hence you should have enough life insurance that helps you cover all of these expenses. Your life insurance plan should be strong enough to replace any hidden income like a subsidy of your health insurance premiums paid by your employer or any other perks.
How should you choose a life insurance company?
When choosing a life insurance company, take the following into consideration: - Identity of companies - Make sure to know the full name, office location and affiliation of the insurance company that you plan to buy from.
- Product sold - Check out what products the company is selling. Most often the companies provide a wide range of policies. Check for what you need and if they have it you may consider buying from them.
- Financial Security - Select a company that is strong financially and has been in business for long. Your life insurance is an investment to secure your lifetime. Be sure that your insurance company will make life easy for you and not otherwise.
- Ethics - Check if your company abides by the codes of conducts and principles of the Insurance Marketplace Standards Association. This non-profit organization promotes ethical conduct in life insurance marketing.
- Agent - An agent is supposed to help you out with your insurance needs on behalf of the company. You must consider taking help from a reliable person only. If there is any discomfort in dealing with the agent, move to another one.
- Cost of insurance - Based on your age, type of policy and features, and the amount of insurance to be purchased, compare one insurance company with the others. Find out one which offers a better coverage.
- Claims - A national claims database will give you the complaints (if any) against an insurance company. You may want to check to find if the company you are considering buying from is listed for consumer complaint.
Life insurance is all about security, a security that you guarantee for your loved ones who survive you. Since it is a big investment, it is always advisable to carefully consider all aspects of an insurance policy. Insure your loved ones against any financial hardship they may come across when you’re not around to help them.
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