LIFE INSURANCE
Life Insurance can be defined as
a contract between an insurance policy holder and an insurance company, where
the insurer promises to pay a sum of money in exchange for a premium, upon the
death of an insured person or after a set period. Here, you pay premiums for a
specific term and in return, we provide you with a Life Cover. This Life Cover
secures your loved ones’ future by paying a lump sum amount in case of an
unfortunate event. In some policies, you are paid an amount called Maturity
Benefit at the end of the policy term.
There are two basic types of Life
Insurance plans -
1. Pure Protection
2. Protection and Savings
What is Pure Protection Plan?
A Pure Protection plan is
designed to secure your family’s future by providing a lump sum amount, in your
absence.
What is Protection and Savings Plan?
A Protection and Savings plan is
a financial tool that helps you plan for your long-term goals like purchasing a
home, funding your children’s education, and more, while offering the benefits
of a Life Cover.
Factors that affect life
insurance premium
Now that you know what is life
insurance and why you need it, find out the factors that can affect the life
insurance premium:
Age:
One of the prime factors that
affect the premium for a life insurance plan is your age. The life insurance
premium is lower for younger people and gradually increases with age
Gender:
Studies have shown women live longer than
men1. Therefore, the life insurance premium is lower for women as compared to
men
Health conditions:
Your present and past health conditions can
determine the premium for your life insurance plan. If you have any
pre-existing illnesses or have suffered from an illness in the past that may
resurface or affect your present health, you would be charged a higher premium
Family health history:
The chances of suffering from a
disease that runs in your family are considerably high. So, if any hereditary
illnesses run in your family, you may have to pay a higher premium
Smoking and drinking alcohol:
Lifestyle habits like smoking and drinking
alcohol can impact your health and lead to multiple health issues. Therefore,
insurance companies charge a high premium for individuals who smoke or drink
alcohol
Type of coverage:
The type of coverage you opt for
can increase or decrease the life insurance plan’s premium. If you add any
riders to your plan, the premium would increase. A longer policy term can also
result in a higher premium compared to a shorter term. In addition to this, the
type of life insurance plan you select also impacts the premium. For instance,
term life insurance is the most affordable form of life insurance
Amount of coverage:
A higher sum assured would result
in a higher premium and vice versa
Occupation: If you work in a
high-risk job, the premium for your life insurance plan would be higher than
others. For example, if you work in construction or if your job puts you at any
kind of risk, such as regular exposure to chemicals, the insurance company will
charge a higher premium.
Let us understand some commonly
used terms in Life Insurance:
Life Assured:
It is the person who is covered
under the insurance policy
Proposer:
It is the person who pays the premiums of the
policy. For example: If you have bought the policy for yourself, then you are
both the Life Assured as well as the Proposer. Similarly, if you purchase an
insurance policy for a family member, then you are the proposer and the family
member is the Life Assured.
Nominee or Beneficiary:
It is the person you appoint at the time of
buying the policy to receive the benefits of your insurance policy, in your
absence.
Insurer:
The insurance company that sells the life
insurance policy is called the Insurer.
Life Cover:
It is the amount that the Insurer will pay to
your Nominee in case of an unfortunate event.
Maturity Benefit:
For Protection + Savings
policies, the Insurer pays a certain lump sum of money on completion of the
policy term. This amount is known as the Maturity Amount.
Premium:
A premium is the amount you pay
to the insurer for receiving the benefits of the insurance policy. These
payments can be made on a regular basis throughout the policy duration, for a
limited number of years or just once, as per the options available under the
policy you choose.
Premium Payment Term:
The number of years for which you pay the premiums
is known as the Premium Payment Term.
Policy Term: The number of years
for which the Life Cover continues.
Let us understand how Life
Insurance works:
In today's era, having a life
insurance policy is a must for every individual as it is one of the best ways
to secure one's future along with their loved ones. There are many different
types of life insurance policies available in the market. However, before
choosing one, it is important to understand how a life insurance policy works.
Let us look at an example to understand how life insurance works
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