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What is Life Insurance?

What is Life Insurance?

You might know people who have life insurance and are paying a substantial amount towards the premium. So what is life insurance policy and does it really work? Yes, it certainly does work but let’s understand what life insurance is and its benefits in detail today.

Life insurance Meaning

life insurance is an agreement between you and the insurer who will pay a lump sum amount in the event of your demise. In return, you pay premiums for a fixed period of time to secure the future of your family.Life Insurance Insurance policy helps you get a life cover and also create wealth for the long-term. There are various kinds of insurance policies available to suit your financial requirements like term insurance, endowment plan, money-back insurance policy and many more.

Now that you know the meaning of life insurance, let’s take a look at some of its benefits:

Benefits of Life Insurance:

1. Risk Coverage

In case you pass away, the beneficiary of the policy will get a lump sum amount to secure their future, eliminating the need to be dependent on someone else.

2. Tax Benefit

The premiums paid towards insurance can be claimed for income tax deductions under Section 80C of Income Tax Act, 1961. This reduces your taxable income, aiding you to obtain a life cover instead.

3. Loan Option

The insurance policy companies allow you to get a loan against your policy if you are in need. It has lower interest rates when compared to a personal loan and is much quicker in terms of processing. The option is available on selected policies.

4 . Health Cover

Life insurances also cover expenses related to illnesses or hospitalization, freeing you of the burden of medical bills.

5 . Variety of Policies

There are several varieties of insurance policies available to help you secure your future. You can choose a type of policy depending on your needs and purpose.

6. Riders

This option enables you to add extra perks to your policy. The rider options can cover critical illnesses, disability, waiver of premium, accidental death benefit and much more.

Types of Life Insurance:

1.Term Insurance

Term insurances provide life cover in the event of your demise and don’t have any maturity benefits. This is the simplest form of insurance and cheaper than most other options present in the market.

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2. Endowment Plan

Endowment plan is similar to term insurance but the only difference is that the lump sum amount is paid out even if you survive the maturity period. Unlike term plan which provides no maturity benefits.

3. Unit Linked Insurance

ULIPs or Unit Linked Insurance Plans invest some part of your premium towards life insurance and the rest into a financial instrument. The policy has a lock-in period of 5-years and can be continued even after the lock-in ends. You can also choose where you want to invest according to your risk appetite.

4. Whole Life Insurance Plan

Whole life insurance plan covers you throughout your life where you pay the premiums for a stipulated period of time. The corpus is paid out to your family in case of death and does not have a fixed validity. This plan is perfect if you have financial dependents as the death benefit will help secure them.

5. Money Back Policy

Money Back Policy gives you life coverage throughout the policy term and also provides regular payments on survival. The payment made is a percentage of the sum assured which is given during the plan tenure and the rest of the sum assured is paid out on maturity of the policy. In case you pass away during the tenure, the sum assured is paid regardless of the payments made to you before.

6. Annuity Pension Plan

Pension plan involves paying a lump sum amount to the insurance company where the payments are sent out immediately on a regular basis or in a lump sum form. The wealth can also be left to accumulate according to your risk appetite.

Why Do You Need to Buy Life Insurance?

Though life may seem smooth when you are younger but as you age there could be some health issues arising, requiring medical aid. Also, no one can predict their life span and till what age they may be with their loved ones. If something were to happen, you wouldn’t want your family to wind up paying your loans and clearing the debt. Life insurances help secure the future of your family and also helps them sustain through the tough times. It leaves them with enough wealth to be independent and carry on.

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