What is LIFE INSURANCE?
Life insurance is a contract between the policy owner (YOU) & the insurer (Insurance company), where the insurer (Insurance company) agrees to pay a designated beneficiary (Your Nominee) a sum of money (Life Insurance cover or Sum Assured) upon the occurrence of the insured individual's or individuals' death or other event, such as terminal illness or critical illness. In return, the policy owner (YOUrself) agrees to pay a stipulated amount (Insurance premium) at regular intervals or in lump sums.
Life Insurance offers YOU 'peace of mind'that your family will be financially protected in the event of an untimely death of the bread earner of the family.
Life insurance offers a way to replace the loss of income that occurs when someone dies (usually the person who produces the majority of income in a family situation).
A good life insurance program does more than just replace the loss of income that occurs if you die. It should provide for your family's future needs as well, including college education for your children and part or all of your spouse's retirement needs. In almost all cases, your beneficiary can use the cash benefits in the way he or she sees fit, without restriction.
Who needs Life Insurance?
All earning members of a family who have family members who are financially dependent on them, should buy life insurance at the earliest.
People who are well off think that they do not need Life Insurance. But they cannot be more wrong. A pure Term Insurance plan does not cost much but ensures financial well being for our loved ones. A well to do businessman with a high amount of debt will leave an unwanted debt burden for his family member.
Who does not need Life Insurance?
The basic objective behind buying Life Insurance is to protect your family financially in case of sudden demise of the earning member.
If you are a non-earning member or not expected to contribute financially to your family in the near future, then you do not need a life insurance.
Children who are still studying, a Housewife, a retiree etc. do not need life insurance.
What are the different types of Life Insurance Plans available?
Insurance products are basically of following 4 types:
1. Term Plans
2. Money Back Plans
3. Endowment Plans
4. Unit Linked Insurance Plans (ULIPs) Plans
How much Life Insurance should one buy?
The answer varies from person to person & depends on your financial situation, no. of your financial dependents, your standard of living & off course on your premium paying capacity.
The rule of thumb says that you should have enough Life Insurance to cover 10 years of your family's expenses.
Say your Monthly household expenses is Rs. 25,000. Then you should have a minimum Life Insurance cover of Rs. 25,000 * 12 months * 10 years = Rs. 30 lacs.
Mind you, this is a rule of thumb & you should consult your Financial Planner to help you figure out your Human Life Value & therefore the ideal amount of Insurance cover that you should buy..
Dos & Don'ts of Life Insurance
Buy Maximum possible Life Insurance cover for the main bread earner in your family
Do not buy Life Insurance for non-earning members in your family like Children who are still studying, housewives, retired parents & grand parents etc.
Buy a pure basic form of Life Insurance, namely, the Term Plan (it is the cheapest form of Life Insurance that money can buy)
Avoid ULIPs as far as possible
Choose your Life Insurance company & agent wisely
To read detailed articles on Life Insurance, visit our CEOs BLOG by clicking on the link below..