A common man's guide to the basics of life insurance

Life insurance is a tool to protect your family from financial concerns such as funds for your child’s education, home loans, daily expenses, and ensuring your loved ones live a comfortable lifestyle, even in your absence. This guide will help you understand the basics of life insurance plan, types of life insurance cover and how to choose the correct plan.

How does a life insurance policy work?
Life insurance plan is a contract between the insurance company and you to provide life cover, provided you pay your premiums on time. It provides a financial benefit to your named nominees – spouse, children or dependent parents – upon your death. The nominee will have to submit a death certificate and file a claim to receive the benefit. Minors will have to be represented by an adult and you need to name the adult in your life insurance policy documents.
What are the different types of life insurance plans?
There are different types of insurance plans. Depending on your requirements you can choose the plan.

Term Plans – Term plan is purely a life insurance plan. You will get insured for a certain period and your nominees will get the sum assured only on the occurrence of death. You are insured only for the tenure of the plan.

Endowment Plans – This plan is used for dual purposes as a saving and insurance instrument. Your nominees will get the sum assured in times of unforeseen events such as death. If the insured survives beyond the agreed term of the policy, he/she gets the agreed maturity amount.

Whole Life Insurance – This policy gives you lifelong cover. It may be whole life term plan – where you get life cover till you are alive or till age 99/100. This helps you cover your liabilities and also plan for a legacy. Other whole life plans also gives you maturity benefits after your insurance term is over. Most people prefer whole life insurance plans as it gives you the dual benefits of the endowment as well as term insurance plans.

How will your life insurance plan be issued?
Policies can be a simplified issue or fully underwritten. Simplified issue policies require you to answer questions about your health whereas underwritten issue policies require you to undertake medical exams, alongside answering the health related questions.

What factors determine your premium rate?
Age, gender, answers to health-related questions, occupation, life style are a few factors that influence your premium rate. Age is typically the most important factor. The younger you are, the lesser you will pay.
Why do you need a life insurance plan?
Life insurance plans ensures the financial stability of your family in your absence. It can be of great benefit if you are the sole breadwinner in your family.  It can provide for your children’s education and college fees, health requirements of your spouse, and even day to day financial requirements of your family, in your absence. Also, some life insurance policies will cover your outstanding debts like a home loan, auto loan, personal loan and credit card loan, thus ensuring the burden of your liabilities do not fall upon your family. For all these benefits, paying life insurance premium is a small price to pay for your family’s future.
How to buy a life insurance plan?
Before you buy a life insurance policy, determine your requirements based on your outstanding debts, your monthly expenses and plan future expenses. Then, get quotes from different insurance companies and choose a quote based on the company’s financial rating and premium charged. You can also look at other metrics like claims settlement ratio etc. Always ensure that you can afford the premium and read the terms and conditions in detail.

Buying a life insurance cover is an important decision for your entire family. Buy a life insurance policy and be future ready.