What is Life Insurance? Why need life insurance? These are some of your most common questions as a new policy buyer. Life insurance is essential because it helps to keep us and our loved ones safe. It provides financial stability and acts like a protective shield for our life, ensuring our financial condition remains stable even if something unfortunate happens. The primary purpose of taking life insurance is to help ourselves pay our medical bills or any other financial expenses in case anything terrible happens.
Why Need Life Insurance?
Here are the various benefits of life insurance:
- To have a better retirement plan
- Provides financial safety
- Start young because life insurance is cheaper when you start early.
- You get tax saving benefits, as under Section 10 (D) of the Income Tax Act, 1961, your insurance policy premium is eligible for tax-free proceeds on death or maturity.
Moreover, when a policyholder faces something terrible, having life insurance ensures that those dependent on them are not left with nothing. Also, having life insurance also covers their debts, mortgage payments, funeral costs, living expenses, and much more. Life insurance is more critical for people with families dependent on them for everything.
What are the five factors I need to consider when purchasing life insurance?
Why need life insurance? Here are the five factors you need to consider before buying life insurance:
Understand your needs of the moment:
You must know your current needs. It is essential while trying to buy life insurance. You must analyze your long-term benefits if you want the right life insurance coverage. For example, consider your family responsibilities, financial status, monthly income, etc.
To understand more quickly, take this as an example: a bachelor living alone and a married person living with their spouse and kids might need completely different life insurance coverage plans.
Understand your financial goal.
You need to focus on your financial goal before buying an insurance plan. What exactly are you trying to secure by buying a life insurance plan? You will need a different coverage if you are looking for a comfortable retirement plan.
The life insurance coverage needs will differ if you are trying to ensure your child’s education or your family’s future. For example, an entire life insurance plan with a cash value element can be suitable if you want to leave your children with a financial legacy, as it provides investment and protection.
Make Sure to Verify all the Rules and Regulations
Confirming that the chosen life insurance policy meets all applicable laws and regulations is very important. Before buying any life insurance policy, understand its terms and conditions. You can hire a lawyer to understand the legal concepts if necessary easily.
Policyholders must know each policy's exact terms, conditions, and limitations to avoid unexpected costs when the time for insurance claims comes. Understanding each policy aspect, such as whether there is a waiting period before some advantages take effect, can help avoid misunderstandings and improve your journey.
Understand how to claim the insurance if something unfortunate happens to the policyholder
In unfortunate events, like if something goes wrong, if you know how the claims process works, it is essential to ensure the recipients can easily access the benefits. To help you through a difficult time, understand and complete all the work with the necessary paperwork, the insurance company's contact details, and any specific procedures.
All you do now can make things easier for your loved ones if anything unfortunate happens. Your loved ones will feel less stress during an already emotionally draining time if they know what to do beforehand.
Compare the life insurance plans of one company with the other.
Comparing insurance policy coverage and premiums when assessing insurance plans is one of the most critical steps while buying insurance. Do not just buy the insurance you are presented with at first. Try to compare the insurance plans of multiple other companies.
Since premiums are the continuous expense of keeping coverage in place, you must assess cost-effectiveness while verifying that the policy fulfills your needs.
According to the Insurance Regulatory and Development Authority India , the life insurance coverage you need will depend on the following factors:
- Number of dependents you have
- Lifestyle you live or want to provide for your family
- Finances for your children's education
- Your investment needs
- How much you can afford
You must evaluate these points and analyze why you need life insurance.
Understanding the subtlety of the coverage's additions makes it essential to evaluate rates carefully, which goes beyond simple cost analysis. It's important to consider the value offered for the premiums paid rather than merely finding the cheapest policy.
Specific policies may have attractively low premiums but might be missing essential coverage parts, which could put policyholders at risk when they need the insurance policy. So, go for something other than the cheapest policy; analyze and evaluate every aspect of the life insurance plan.
Types of life insurance
With why need a life insurance question comes another query: What are the various types of life insurance:
Term Life Insurance
Term Life Insurance is a type of insurance provided for a specific period. One of the enormous benefits of an insurance policy is that if the policyholder is diagnosed with a severe illness, the insurance company will provide the first payout just after the first diagnosis. As per reports , term life insurance covers ages 10 and 30 years. If something unfortunate happens within the time frame, the policyholder’s family will receive a death benefit.
Pros of Term Life Insurance:
- Term life insurance is entirely affordable.
- It has no challenging aspects; instead, it provides straightforward coverage plans.
- If you want temporary life insurance, then you can go for it.
Cons of Term Life Insurance:
- It has no cash value.
- If you renew or extend your policy, you might end up with more costs.
Whole Life Insurance
Whole Life Insurance is referred to as an insurance plan that lasts for a lifetime. It has a cash value account with compound interest that grows tax-free. During your lifetime, you can borrow from or take withdrawals from the cash value or use it to pay for additional financial goals like retirement or education.
Pros of Whole Life Insurance:
- This insurance offers lifetime coverage for the duration of the policyholder's life.
- Over time, it earns a value that can be withdrawn or borrowed.
- Throughout the whole life policy, premiums do not change.
Cons of Whole Life Insurance:
- When compared to term life insurance, whole life insurance usually comes with higher premiums.
- Whole-life policies become more complicated when an investment component is included.
- The cash value component's returns might be lower in opposition to different investment options.
Universal Life Insurance
Universal Life Insurance is also referred to as an insurance plan that lasts for a lifetime. Whole life and universal life insurance are different kinds of permanent life insurance that allow policyholders to borrow against or cash out their cash-value savings. While UL costs may begin lower but are flexible, which means they may increase as you age, whole life offers fixed rates. This is the only difference between Universal Life Insurance and Whole Life Insurance plans.
Pros of Universal Life Insurance:
- Provides flexibility in both death benefits and premium payments.
- Depending on how the market performs, the cash value part may increase.
- Enables policyholders to change the type of coverage and the amount of fees they pay.
Cons of Universal Life Insurance:
- An increase in cash value depends on current interest rates, and low rates may impact profits, making it unstable.
- Universal life insurance, like whole life insurance, can be complicated and need careful management.
- Late premium payments may impact the policy's performance despite flexibility.
