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Life Insurance: Overview

Life insurance Policy is a contract between insured and the life insurance company (insurer) for the specified period of time (term) to protect your family against financial risk of your life to the extent of the life coverage (sum assured) by paying a cost (premium) to the life insurance company.

Life insurance is a must for the bread earner of the family, who has dependents. In case of an uncertain death of the bread earner it pays a lump sum amount to the nominee of the life insurance policy, so that the family can continue with the same standard of living even after losing him. Basically we can say life insurance covers the risk of death.

Types of Life insurance Policies:

Term Life insurance Policy:
It is a pure life insurance cover policy. This policy pays the sum assured only in case of death during the term of the policy. It does not have any investment factor and thus nothing is paid on maturity of the policy. Term insurance policies are cheapest of all the life insurance policies. Nowadays, Online term insurance policies are available in the market, which are relatively cheap as compared to the Offline term insurance polices.

It is a savings cum insurance policy. This policy pays the sum assured on death or maturity of the policy, which ever is earlier. Life insurance Company invests the saving portion of the premium as per insurance act. The reversionary bonuses are added every year depending on profits of the company.

Money Back Life insurance Policy:
It is a savings cum insurance policy, which provides a regular payment as a fixed percentage of sum assured at specified intervals during the term of the insurance policy. These are known as survival benefit. On death during the term of the policy, the nominee is paid the basic sum assured and even survival benefits paid during regular intervals are not deducted while calculating the death claim payable.

Whole Life insurance Policy:
It is a savings cum insurance policy, which has a life cover till lifetime i.e. till 100 years of age. You have to pay premiums only for a specified term but the life insurance cover continues for lifetime.

Unit Linked insurance Policy:
ULIPS are market linked insurance plans are the investment risk is borne by the policyholder. It is an investment cum insurance policy, where you have an option to choose out of different funds, where you would like to invest the premiums. The different types of funds are Liquid Funds, Bond Funds, Balanced Funds and Equity Funds etc. You can also choose the proportion of investment in the different funds. These plans carry charges like premium allocation charge, policy administration charge and fund management charges etc. All kinds of life insurance policies like child plans, endowment plans and pension plans are available as ULIPs.

These are savings-cum-life insurance policies, where the policyholder is the parent and the beneficiary is the child. So that in case of the death of the parent, in most policies the premium payment is waived and then all the benefits are paid as it is as promised in the policy. In case if the parent is alive, the sum assured along with the accrued bonus is paid. These plans are available in the form of traditional plans as well as ULIPs.

These policies are targeted to create retirement corpus. This plan is offered both with life cover and without life cover. Premiums need to be paid for a specified term generally till your retirement. At the end of the term depending on the funds accumulated during the premium paying term, a fixed amount is paid to the policyholder throughout the life as pension / annuity. In case of death during the term of the policy, the paid up value is paid. These plans are available in the form of traditional plans as well as ULIPs. 

What are "Riders"?
Riders are an additional benefit that can be bought while buying the life insurance. It is not compulsory to add riders to your life insurance policy. You can take a rider benefit sum assured depending upon your basic sum assured and the premium of the policy. These riders are available with all types of life insurance plans. Some of the common riders available with most of the life insurance policies are Critical Illness, Accidental Death, Accidental Death and Disability, Waiver of premium, etc. For example, incase you have taken accidental death rider with a term life insurance policy and the policy holder dies due to an accident, then the nominee will be paid the double sum assured.

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What is life insurance?

Life insurance can be termed as a contract between and insurance company and the person who is insured. A life insurance policy will protect your family against financial risk to the extent the life is covered/ sum assured of the life insurance policy in case of death of the life insured. Thus a life insurance policy is always meant for your family and not for you.

What is the major risk a family is exposed due to death of the breadwinner of a family?

In the above circumstance, the source of income comes to an end but not the expenses.   They remain, as they were earlier before the death of the breadwinner of the family.
Just in case, the income doesn't remain the same as earlier, the family has to downgrade their standard of living. This kind of situation may affect the future of the family drastically. To overcome all these risks, life insurance is mandatory for everyone who has any dependant on his or her income besides any kind of liability like a home loan or a personal loan or any other loan. In case of death of the insured, the money, which is received from the Life Insurance Company, is paid to the bank or the financial institution from where the loan is taken.

The next question is how much insurance should one take?

To put that in simple words, the sum assured should be large enough to take care of your entire family expenses along with your liabilities if any and also should fulfill all the goals of your children's future or buying a home for your family or any other goal you have. This is quite a sophisticated process and you should take professional help to know how much sum assured you need. To have a fair idea of your life insurance requirement, you can do the calculations on our site on our life insurance planner calculator. but before you go ahead to buy a life insurance plan for yourself, we would suggest you to take some kind of professional help. Taking a lower sum assured than your requirement means that you are not adequately insured and in case of death, your family will have to make some kind of compromises either in regular expenses or for the goals you had set for your family.

In case you have taken reverse route, like going in for more  insurance than you need, implies that you are paying more premiums that is actually not needed. You can use this money somewhere else to plan for some other goals you have for your future.

So taking the right life insurance is very necessary. Now the question comes that which policy should one take.

There are many types of life insurance policies available in the market-

    Term life insurance policy
    Endowment life insurance policy
    Money back life insurance policy
    Whole life insurance policy
    Unit Linked Insurance Plans (ULIP)

We would suggest you to go for term insurance plans, as this is the cheapest form of life insurance available in the market. The premium you pay towards your term insurance would be completely exempted under section 80C of Income Tax Act. Along with life insurance you can opt for various riders like critical illness rider, personal accident rider etc. you can also use the apnapaisa financial planning tool to calculate the amount of insurance that you need.  you can use your facebook login or any other openid login to signin and start using the same.

How do these riders work?

Suppose you have taken a critical illness rider on your policy, and then the life insurance policy will pay you in case you have any critical illness that are a part of the rider. To take this rider, you need to pay additional premium over and above your life insurance policy.