Do you ever feel, especially since the dawn of the 2019 pandemic, that all your financial plans are out for a toss? Do you ever feel the gut-wrenching fear that if something happens to you all of a sudden, the lives of your loved ones will turn upside down?
These are valid fears. Given how life’s uncertainty has escalated in the past few years, it has become paramount to employ backup plans that will take care of your loved ones. That is why you need to choose the right type of life insurance plan for you and your family.
What is a life insurance plan?
A life insurance plan, or life insurance policy, is a financial backup that you purchase to protect your family. It is, essentially, a contract between you, as the policyholder, and an insurance company.
The contract for the life insurance plan states that if the policyholder expires during the policy tenure, then the beneficiaries receive the sum assured as death benefit, provided that the policyholder pays the premiums regularly, and on time.
Of course, there are other terms and conditions attached to the life insurance plan, but the core of the contract lies in the statement above. To fully understand the entailment of a life insurance plan, you also need to understand the importance of the features of life insurance in the contract.
Features of life insurance
The financial contract between a policyholder and an insurance company must be upheld by both parties by following the terms and conditions diligently. To do this, you need to know the features of life insurance, which are as follows:
1. Who is the Policyholder
The policyholder is the person in whose name the life insurance plan was purchased. If you purchase the policy in your name, then the contract will state you as the policyholder.
2. Selecting the sum assured
It is one of the important features of life insurance that determines the total coverage for your family.
3. The time frame for the policy tenure
It is the total duration during which the life insurance plan is valid. Your beneficiaries will receive the sum assured as death benefit only if you pass away during this time.
4. Premium-related features of life insurance
You will need to pay a specified amount for the purchase of the life insurance plan. This total amount is divided by the number of years during which you wish to pay premiums, and by the frequency with which you will make the payments. You can choose monthly, annually, or even a single, lump-sum premium payment.
5. Choosing the nominees
You need to appoint the family members who will be entitled to receive the death benefit in the event of your demise.
6. Picking the necessary riders
Aside from the traditional inclusions and exclusions of the life insurance plan, you can also include additional riders for extra coverage. This would typically include critical illness cover, accidental death cover, and other such riders.
7. The basics of claim settlement
In the event of your death, your nominees would have to file a claim with the insurer by providing proof of death in the form of a death certificate. The insurer will verify the circumstances of the death and pay the death benefit to settle the claim.
The maturity benefit
If you survive the policy tenure, you may receive the lumpsum premiums that you invested over the years, provided that you opted for maturity benefit or return of premium.
Now that you know the features of life insurance, you can make an informed decision about the best type of policy for your family.
Types of life insurance
Life insurance plans come in many forms to serve different purposes. Some offer basic, traditional benefits, while others amplify the features of life insurance by leaps and bounds. Here are the most common types of life insurance plan:
- Endowment plans – These are life insurance policies that also offer bonuses at regular intervals. While the sum assured helps your family, you can use the bonuses to address current financial crunches.
- Whole life plans – These policies secure your entire lifespan under a single, long-term plan.
- Term life insurance – These are affordable forms of life insurance with low premium rates and flexible policy tenure.
- ULIPs – These are life insurance plans that also allow you to grow your wealth by investing part of your premium in the unit-linked market.
- Child insurance – These policies aim to help children plan their life stages and goals. You pay the premiums as parents, and the children reap the benefits once they reach a certain age.
- Retirement plans – These plans help build a corpus for your golden years.
- Money-back plans – These policies allow you to make specified withdrawals at regular intervals to address current financial setbacks.
You can choose the right type of life insurance plan by carefully evaluating the benefits and features of life insurance and the requirements of your family.
