What is Life insurance policy
Life Insurance Policy is defined as a contract between the insurance company and policyholder, wherein an individual is offered financial protection by an insurance company in exchange for a payment over a period known as 'premium'. The insurer will offer a lump sum amount to his/her nominee, in the case if the policyholder dies during the policy tenure. After the completion of the policy term, the policyholder receives a sum assured on maturity from the insurer along with a bonus.
Advantages of Life Insurance Policy-
Risk coverage: Insurance provides risk coverage to the insured family in the form of monetary compensation in lieu of the premium paid.
Difference plans for different uses: Insurance companies offer a different type of plan to the insured depending on his/her need for insurance. The more the premium amount you pay, the more benefits you will get.
Cover for health expenses: All the life insurance providers offer financial cover against health expenses and critical illnesses. Since health expenses are increasing constantly, the need for health insurance policies has also increased, as it ensures that the policyholder will have minimal medical costs to deal with.
Promote savings in the long run: Life insurance policies are long-term agreements wherein the policyholder makes a fixed periodical payment. So, it helps the policyholder to inculcate the habit of savings in the long run.
Guaranteed income via annuities: When you plan to get retired, life insurance policies are one of the best instruments that offer steady pay-outs in the form of annuities. Thus, it will act as a source of pension when you retire from your professional life.
Loan facility: Individuals who avail of life insurance policies also get the option to avail of a loan against their policy, which will help them to meet any unplanned event in their life without hampering the benefits provided by the policy they have purchased.
Tax benefits: Life insurance policy can also be used as an important tax planning tool, as the policyholder is eligible to avail several tax benefits on the premium paid under the Income Tax Act, 1961. Policyholders can claim tax deductions of up to Rs. 1,50,000 on life insurance under Section 80C.
How much life insurance do you need?
The requirement for life insurance policies may vary from one individual to another. However, the general thumb rule of getting life insurance is that you should always choose a cover which is ten times more than your current annual salary. Therefore, before buying a comprehensive policy for yourself and loved ones, you will need to calculate your financial expenses in the future.
When should I get a life insurance policy?
There is no time that can be considered as the ‘right time’ to purchase life insurance as it depends on individual financial requirements and circumstances. There is a wide variety of options available nowadays and the key to choose the best life insurance plan lies in research and comparison. If you purchase the right policy at the right age, you can reap most of the benefits. However, before choosing a policy, it is important to consider factors such as future, dependents, income, etc. to make an informed decision about the policy term, the premium and the cover.
Documents required for buying a life insurance policy-
- Proof of Age: Driving License/PAN Card/Passport/ SSC (Secondary School) Certificate
- Proof of Residence: Passport/Telephone Bill/Electricity Bill/Ration Card/Water Bill/Voter ID
- Proof of Identity: Ration Card/Voter ID/PAN Card/Passport/Driving License
- Proof of Income: Pension Passbook/ Income Tax Returns/Form 16/ Latest Salary Slips
Bottom Line
Life is full of uncertainties, and misfortunes mostly come unannounced. Certain events can have an adverse impact on your life and leave your loved ones bereaved. Having a life insurance policy is a financial cushion that makes you forget all your worries and ensure your family is well protected.
