What is a Life Insurance?
Life Insurance is basically a contract between an insurance policy holder and an insurer i.e. the policy provider. In a life insurance policy, an insurer promises to pay a sum of money and benefits according to the policy to the beneficiary mentioned in the agreement. The money and benefits provided to the beneficiary are in exchange for the premiums which the policyholder pays to the insurance company. The amount and the other benefits can be claimed only upon the death of an insured person or the policyholder. Depending on the contract in the policy, other events such as terminal illness and critical illness can also be covered. The policyholder pays a premium for this, the premium paid is either monthly, quarterly or yearly.
What is Life Insurance for?
If you don’t know the benefits of a life insurance, it will be difficult for you to decide whether you should go for it or not? Here are the reasons why you exactly need a life insurance-
- A life insurance policy pay out can allow your partner and family to pay off the mortgage loan or home loan after your death.
- A life insurance pay out can provide money for your children while they’re growing and young.
- A life insurance policy can give a legacy to your family and relatives with an inheritance after you die.
- Last but not the least a life insurance policy could provide your family with a lump sum to assist with funeral costs.
Tips to Buy Life Insurance Policy
- Understand Why You need the Insurance
You should always be clear about why you need a life insurance, means you should be aware of how it works and what it covers. If you don’t have a purpose to have a life insurance, better don’t buy it. As when you are unaware of the products you may opt for a wrong one. There is also no need to buy a life insurance plan when you don’t have any dependent. In this case, it’s better to buy a mediclaim/health insurance.
- Go for a Plain Term Life Insurance
Securing your loved ones should be your first priority when you are opting for a life insurance place and a plain life term life insurance plan does this. A life insurance provides funds to your family members to live their lives in a comfortable way.
- Choose a Trustworthy Insurance Company
There are many life insurance policies available in the market. Hence, before choosing your insurer and plan you need to know all about them and for this, you need to have a research.
- Fill the Form Yourself
Many a time’s claims get rejected and this happens because insurers claim that true details were not provided when taking the policy.
The major reason behind this is policy forms are filled by the insurance agent or company itself and not by the policyholder. Providing incomplete and false information can lead to claim rejection.
Suppose the policyholder is a smoker or drinker, then it is important to include it in the form. It is always better to pay a bit more than losing the benefits of the policy when you need it most.
- Buy when You are Young
Try to buy a life insurance policy for yourself when you are young. This is suggested as- when you are young there are less chances for your death. And when your age increases the chances of death also increases. Due to this fact insurance companies charges more money as the premium amount when you have more age. Hence, when you are young you can save a lot on your premiums at the same time you will be securing your loved ones too.
Should One take Cover for the Partner too?
Generally, the main earner in a family would take the life cover. However, if your partner earns less or they’re a stay-at-home parent, there will also be a financial impact if they die.
Another important point to consider is, if there are children in the family you must think about them, cost of their survival and domestic work.
If you want to cover for both partners, you can go for a joint life insurance or two separate policies. Joint policy cover only pays out on the first death.
Separate policies will pay out when either of the partners died, it offers a higher level of protection but it may cost more.
Saving Tax on a Life Insurance Premium
Taxes are one of the most important things to consider before you go for a life insurance policy.
When you go for a life insurance policy you are eligible for some tax deduction under the section 80c, this tax deduction is applicable as long as you pay the premiums for the insurance.
Your family may get hold of any payout with the least hassle and the lowest possible tax charge when you die. Hence, one should also look for the tax payable and exemptions when your loved ones get the money from your insurance when you are not there.
Payments (money) from the policy are not usually included in inheritance tax purposes.
Life insurance policies are the legal contracts and the terms of the contract describe the limitations of the insured events.
Exclusions are there which are mentioned in the contract to limit the liability of the insurer- such exclusions are – claims relating to suicide, fraud, war, riot, and civil commotion.
Note: The more cover you buy, the more you have to pay on your premiums. So, decide carefully, how much cover you want.