What is Life Insurance?
Life Insurance is defined as a contract between the policy holder and the insurance company, where the life insurance company pays a specific sum to the insured individual's family upon his death. The life insurance sum is paid in exchange for a specific amount of premium. Life is beautiful, but also uncertain. Whatever you do, however smart and hard you work, you are never sure what life has in store for you.
It is therefore important that you do not leave anything to chance, especially ‘life insurance’. As death is the only certain thing in life, apart from taxes, it pays to insure it well in advance.
Life Insurance Definition & Explanation
If you were to go by the dictionary definition, “life insurance” is a financial product that pays you or your dependants a sum of money either after a set period or upon your death as the case may be.
However, if you were to understand the term clearly and also appreciate its importance in your life, consider “life insurance” as a back-up plan for life. Life insurance in its simplest form means being prepared financially, come what may. It ensures that your family and you receive financial support in case you are not able to bring in the much-needed income yourself (maybe due to an accident, retirement, or untimely demise).
In legal terms, life insurance is a contract between an insurance policy holder (insured) and an insurance company (insurer). Under this contract, the insurer promises to pay a pre-decided sum of money (also known as “Sum Assured” or “Cover Amount”) upon the death of the insured person or after a certain period.
What is a Life Insurance Premium
Simply put, “life insurance premium”is the amount of money you pay your life insurance company in exchange for your coverage. Life insurance premium can either be a regular monthly/annual payment or a one-time payment as the case may be. The payout (called a death benefit) is the amount of money the life insurance company would pay your beneficiaries if you died unexpectedly during the term period. Calculate your premium by clicking below for a better understanding:
Benefits of Life Insurance
Life insurance is designed to minimize the impact of the ﬁnancial loss your family may incur upon your demise. The beneﬁts of such plans are fourfold, aptly contained within the acronym “LIFE”:
1. Liability Free
Life insurance gives your family the power to be independent and self-reliant. A good term plan can help them repay ﬁnancial liabilities like home loan, auto loan, personal loan, or a loan on credit card. The term plan may also cover hospitalization charges and critical illness treatment, giving you a comprehensive protection package
2. Income Replacement
If you are the sole breadwinner in your family, a life insurance plan becomes can provide a guaranteed income to your family every month, making sure that their everyday life is not disrupted and they remain ﬁnancially stable.
3. Education and other expenses for dependents
The payouts from life insurance can help to pay the bills for the education of your children, as well as expenses for their wedding or medical costs if any.
4. Immediate Expenses after Demise
It will also help your family cover a part of essential expenses immediately after your demise, such as funeral costs and/or medical bills.
Why you Need a Life Insurance Now?
The significance of having a life insurance is to avail the "peace of mind" that it brings along. However, having an adequate amount of life insurance effectively sets your mind free of some important questions like:
• What will happen to my family financially after I die?
• How will my wife and kids take care of their expenses after I am no more?
• How will I provide for my family in case I lose my job after an accident?
• How do I ensure that I am able to fund my child’s higher education?
• How do I ensure an income after my retirement?
Types of life insurance – Traditional and Market linked
Following are the types of Life Insurance
1. Traditional Life Insurance
Traditional Life Insurance plans offer multiple benefits in terms of life cover and returns, thus providing safety and security to the insured. These policies are considered risk-free. This is because they provide a fixed benefit (Cover Amount) in case of death of the insured person or at end of the term. Following are the three types of Traditional Life Insurance plans:
Term Insurance Plans
Term policies are considered largely risk-free, low cost and usually with the highest coverage. These plans are purchased for a ﬁxed period of time (such as 10 years or 20 years). They provide a ﬁxed payout in case of death of the insured person or at the end of the term. These plans have evolved to also provide survival beneﬁts so customers get double protection – for family and regular income for retirement needs. Let us understand the plan with an example:
Endowment Plans or Guaranteed Returns Plan
Endowment Plans provide ﬁnancial protection through life cover along with guaranteed returns. The policyholder will receive a lump sum amount if he or she survives until the date of maturity of the policy. With these plans the life cover amount is much lower and people generally buy these plans for the maturity beneﬁt. These plans are great if you are saving for a big purchase.
Money Back Policy
In a money back policy, the customer gets a certain percentage of the sum assured as guaranteed payouts at fixed intervals. In short, money back plans are endowment plans with liquidity.
2. Market Linked Plans or ULIPs
ULIPs (Unit Linked Insurance Plans) provide both protection and savings combined with flexibility to the covered person. As these products are linked to capital markets, they may have the potential to deliver better returns than traditional plans. However, with high returns there is a risk of low returns as well, which will depend on the market’s performance.
Why you MUST buy life insurance?
Life, as we know it, can throw a surprise at any moment. Surprises are welcome as long as they are pleasant. Rude surprises completely take us by the hook!
A heath emergency, an accident, or sudden death – these are some eventualities that you and your family must always be prepared for. That is where the importance of life insurance lies.
In other words, look at life insurance as your replacement as far as income is concerned. Thus, helping your family and you get over any kind of financial problems, if you are not able to take care of them. As simple as that!
Aegon Life Insurance's iTerm Insurance Plan
Aegon Life iTerm Insurance Plan is a cost-effective comprehensive protection plan with an option of life coverage till the age of 100 years with add-on flexibility to choose from 3 different plan options basis your protection needs.
The best thing about this plan is that you can get an additional lumpsum payout on diagnosis of 36 Critical Illnesses up to age 80 years (including cancer, heart attack and kidney failure) with Aegon Life CI Care Rider.
Aegon Life iTerm insurance plan also covers COVID-19 death claims.
Benefits of iTerm Insurance Plan
Disclaimer: This article is for general reference reading, please take an expert’s advice in case of doubt.