What is Life Insurance?
Life insurance is a protection against the loss of income that would result if the insured passed away. The named beneficiary receives the proceeds and is thereby safeguarded from the financial impact of the death of the insured.
Why do you need Life Insurance?
Firstly, if you have a family who is dependent on you financial, the pay-out from life insurance can help support them financially in case of your sudden absence.
Secondly, it can be a very effective tax saving instrument as it comes under the EEE tax bracket which means it is exempted from tax at the time of deposit, interest accumulation and withdrawal.
Thirdly, in case you do not have any dependents, it can help you manage the costs that you may otherwise have shared, such as the repayment of loans, or other important life events such as education and travel.
Types of Life insurance
A term plan is the cheapest form of life insurance where a certain amount (called death benefit) is paid to the policy holder’s family if he/she expires within the term of the insurance policy
2)Whole life plan
Whole life plan is a type of insurance that has an insurance and investment component. The insurance component ensures that the family of the policy holder is financially supported in case of his/her death. The investment component accumulates in value over the years so that the policy holder can with draw it or borrow loans against it.
An endowment policy is a life insurance contract designed to pay a lump sum after a specific term (on its 'maturity') or on the death of the policy holder. Some policies also pay out in the case of critical illness.
Unit linked insurance plans (ULIPs) are insurance plans where a part of the investment is invested in equities thus linking their performance to the market. These plans create a possibility of high returns in the long term, with the additional benefit of protection.
How to pick an insurance plan that suits you
Let us consider an example where we have Rajat who is 39 years of age. His financial particulars are given below-