Life Insurance is a financial cover for a contingency linked with human life, like death, disability, accident, retirement etc. Human life is subject to risks of death and disability due to natural and accidental causes. When human life is lost or a person is disabled permanently or temporarily, there is loss of income to the household.
Though human life cannot be valued, a monetary sum could be determined based on the loss of income in future years. Hence, in life insurance, the Sum Assured (or the amount guaranteed to be paid in the event of a loss) is by way of a 'benefit'. Life Insurance products provide a definite amount of money in case the life insured dies during the term of the policy or becomes disabled on account of an accident.
Primarily, anyone who has a family to support and is an income earner needs Life Insurance. In view of the economic value of their contribution to the family, housewives too need life insurance cover.
The amount of Life Insurance coverage you need will depend on many factors such as:
Apart from risk cover life insurance also offers the benefit of regular savings. Whole life plans, Unit Linked Insurance Plans (ULIP), endowment or money-back policies etc offer a mix of life cover and savings. In a whole life plan the policy holder is covered till death or on reaching 100 years of age. If the insured individual lives beyond the age of 100, he/she receives a maturity benefit and in the case of any unfortunate event, his/her nominees receive the death benefit. A whole life insurance policy also accumulates a cash value that's accumulated throughout the life of the policy.
Life insurance provides you with that unique sense of security that no other form of investment provides. By buying life insurance, you buy peace of mind and are prepared to face any financial demand that would hit the family in case of an untimely demise. It can also help your family to enjoy their current lifestyle in your absence without compromising on their dreams.
Life insurance can be a valuable tool in tax planning. Apart from helping you save tax on insurance premium paid by you up to the extent of 1.5 lakhs yearly, it also offers tax free maturity in most insurance policies.
Life insurance is a long term investment. So over a long period of time you can accumulate a substantial amount along with the policy bonuses which can help you to supplement your income after retirement.
Life insurance policies can be broadly classified into three categories, such as pure insurance plans, traditional polices (endowment, money back, whole life insurance plans), pension plans and unit linked plans.