Understanding Life Insurance Solutions

When it comes to life insurance the first thing that crosses peoples mind is that will I get any returns?

Insurance is a term that covers ‘risk’. Just how your vehicle insurance takes care of any damage that may occur to your vehicle, life insurance takes care of any risk that may occur to you and your family members.

Apart this, there are insurance plans that provide returns and the good part is that they also provide life – cover.

This article will explain the four major categories covered under life insurance. These are life insurance solutions designed to help you and your family to be prepared for uncertain events.

Below are the key products and the needs they fulfil:

Pure life cover
Savings plan that provide guaranteed returns
Investment plans that also provide risk cover
Plans that cover major illnesses

The purpose and the need each of these categories fulfil are completely different:

Pure life cover: Life insurance solutions that provide pure risk cover would generally include a pure term plan. A pure term plan is where the policy holder pays a specified premium and gets his family financially secured in case any unfortunate event like death occurs to him. Normally, in a term plan there is no maturity benefit associated with the policy. The sum assured will only be paid to the nominee when the specified event occurs. Now the premium you pay for a term plan is comparatively lesser and the sum assured is quite high. This is because term plans only cover risk and no investment product can provide the same level of benefit for a similar level of premium. Also there are term plans which provide long life cover. While you may think a life cover up to age 60 is fine but life expectancy has increased since the past five years, so you may live beyond 60 but then the premiums you pay will go in vain. It is advisable to take a long life – cover which will keep you worry – free and also provide security for your family. You can opt for a life –cover up to the age of 80 and get a comprehensive protection with these life insurance solutions.

Savings: Savings plan do provide maturity returns to the policyholder. These policies are life insurance solutions to help the policy holder accumulate a fund that can be used at some later point. There are plans that provide guaranteed returns with interest and bonuses. Now these plans can be a great option if you are looking at saving for your child’s education, a new car, etc. These plans also provide a life cover, however the sum assured under life cover provided by them is not as high as a term plan. This is because it serves a different need which is savings.

Investment: We receive a bonus once every year and a lot of us think of investing the same. ULIPs i.e. unit linked insurance plans can be a great option. ULIPs are market linked products, they provide significantly good returns for long term investments. ULIPs have a lock in period of 5 years and so these are ideal for your long term goals like buying a house, an international trip, etc. Unlike mutual funds, ULIP lets us choose and switch between various funds. You can invest in the different fund options which is debt, equity and combination available as per your risk appetite. The best part about ULIP is that you can closely monitor your investment and switch if you feel it’s necessary. They also provide tax benefits so you can invest and also save on taxes.

Cover against critical illnesses: Life expectancy has increased since the past 5 years but so is the occurrence of critical illnesses. The incidence of critical illnesses is no longer uncommon. Cancer, Heart Disease, Kidney Failure cases are very common in India. A critical illness insurance plan is designed to meet the financial needs of the policyholder in case he/she is diagnosed with a critical illness. A critical illness plan provides the assured amount on the diagnosis of any critical illness that has be predefined in the policy document. Such life insurance solutions purely provide protection against critical illnesses to the policyholder. The premium rates are reasonable even for high sum assured amount.

You should assess your requirements and  needs before buying life insurance solutions. If you have dependants and wish to get a high level of risk protection at low premium rates, then a term plan would be an appropriate product. Online term plans are generally cheaper and hassle-free. There are various life insurance solutions to cater to different needs and requirements. Since insurance is an important decision when it comes to financial planning, it is important you analyse and understand your needs and the life insurance solutions before making a purchase.

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