What is life insurance?
Life insurance is a contract between policyholder and insurance company.
A life insurance policy guarantees to pay a sum of money (sum assured) to the dependents/nominee on death of insured against the premium paid periodically by insured.
Life insurance takes care of monetary needs of the family members of insured in case of his death.
For enforcement of any life insurance policy proper disclosure of health and habits conditions needs to be done. A life insurance policy will remain active only on payment of timely premiums.
Benefits of life insurance policy:
1.Financial Security: Life insurance policy provides financial security to the family members/ nominee incase of death/ permanent disability.
2.Insurance+Savings: Some Insurance policies come with dual benefits of savings plus insurance.Ulips and endowment plans are best examples of insurance cum investment. Investment linked insurance plans help you build a corpus for different life stages.
3.Retirement Planning: Life insurance policies are designed to fulfill your medium term to long term goals.Retirement planning done early keeps your financially sound post retirement. Life insurance policies create regular income for you to meet your day to day and medical expenditure post retirement.
4. Loan facility: You can avail loan facility on your life insurance policies post completion of specified time and terms and conditions of the policy.
5. Child Education Planning: Life Insurance policies help you systematically invest money over a time period to meet educational expenditure for your child’s higher education. Also certain policies give you cash back on periodic intervals to meet regular educational expenditure.
6. Tax Benefit: Life insurance policies allow you to avail tax benefit under Section 80 ( C ) of Income Tax Act 1961. The maturity proceeds from the policy are completely tax free under section 10 10 (D).
Term Insurance Policy: Term Insurance is the simplest and purest form of life insurance.You pay a fixed premium for a certain time period and if you die during that period your nominee will get a lump sum cash benefit (sum assured).
Benefits of Term Insurance Policies;
- Term insurance provides high coverage at low cost
- Term insurance comes with accidental, critical illness and permanent disability riders.
- Term insurance covers all your liabilities.Term insurance provides lump sum payout to the family incase of death of insured/policyholder.
- It provides tax benefit under section 80 ( C) and 10 10 ( D )
- Term Insurance provides waiver of premium incase of permanent disability.
- Term insurance gives you peace of mind. Even in your absence your family’s finances are taken care of.
How is life insurance different from others?
Life insurance : The insurance which covers the risk of life of the insured is called life insurance.
Type of life insurance: Endowment Plan,Term Plan, ULIP, Whole Life Plan, Annuity Plan and Money Back Plan.
- Endowment Plan: Endowment plans are life insurance policies that pay a lump sum benefit on maturity.The maturity period is 10,15,20,25,30 years.They aim at fulfilling investors mid to long term goals.
- Term Plan: Term insurance is a life insurance policy that provides financial coverage to the policyholder for a specific time period.Term insurance provides cover at cheaper premiums.
- ULIP: United linked insurance plans are hybrid products that mix insurance and investment.ULIP offer a life coverage along with investment.
- Whole Life : Whole life policies are the policies where insured is covered lifelong and the policy continues until the policyholder timely pays the premium.
- Annuity: Annuity is the series of payments at regular intervals. Annuity plans are designed specially to fulfill post retirement monetary needs.
- Money back Plan: Money back plan is the plan where the policyholder gets a percentage of sum assured at regular intervals instead of maturity. It is the only endowment plan that provides liquidity.
General insurance: General insurance is insurance that covers risk other than life.
General insurance safeguard our property such as home,car etc from fire,theft, natural calamities and accidents.
Type of general insurance: Motor Insurance, Health Insurance, Travel Insurance and Home Insurance.
Motor Insurance:Motor Insurance is insurance that provides financial security to your vehicle (two wheeler and four wheeler) against damages arising out of accidents/threats.
Health Insurance: Health Insurance is the coverage that pays for medical expenditure acquired by the insured.It provides benefits for payment as a result of sickness and injury.The policy covers whole or part of expenses incurred.
Travel Insurance:Travel insurance is designed to aid financial help in case something goes wrong while you are traveling. This insurance provides compensation against accidental and medical treatment costs incurred during travel.
Home Insurance: Home insurance provides coverage to policyholders from any unforeseen loss or damage. Home insurance can be claimed for natural as well as man made calamities.
Now let us understand how life insurance is different from others with comparison between
Life Insurance vs General Insurance:
|Life Insurance||General Insurance|
|Life insurance is a long term contract||General insurance is a short term contract. It needs to be renewed every year|
|Life insurance is an investment avenue||General insurance is contract of indemnity|
|In life insurance premiums are paid over a period of time||General insurance premiums are paid one time|
|Insurable interest to be present at time of contract||Insurable interest to be present both at time of contract and loss.|
|Life insurance helps in wealth creation apart from providing insurance||In general insurance the amount payable in confined to losses suffered / maximum cover amount of the policy|
|The tax benefit can be claimed under section 80 ( C ) and section 10 10 (D)||Tax benefit can be claimed under section
80 ( D )
Both general and life insurance have different importance in any individual’s life.While an individual can secure his as well as his family’s future through any life insurance policy on the other hand general insurance policies aim to protect essential assets including health, home, vehicle.
We live in a world of uncertainties where insurance plays a role of providing help when you need it the most. Both general and life insurance let an individual live a stress free life.