Life Insurance Plans: Offering Protection Against Death

Life is precious, more so because nobody knows when we are going to lose it! We may be enjoying time with our family one moment but may not be there the very next moment. This uncertainty throws up a vital question, what will happen to our family, our loved ones, after we are gone? Will they be able to live comfortably or will they struggle to carry on a normal life? It is to resolve such worries that one should always consider life insurance plans to secure the financial future of their family after their demise. 

The Amount Depends on Your Needs

While insurance cannot help replace your love for your family, it can certainly ensure that they do not have to suffer financially. However, it is important to remember that the monetary amount or sum assured will vary for different people, according to their age and responsibilities, and no single plan is perfect for everyone. 

The amount that you choose a policy for will depend on the current standard of living and the level desired for the family after your death. This requires consideration of the amount of assets you have and the sources of income available to your family in case of your untimely demise. Sources like cash in the bank or provident fund money may not be adequate to meet all the funding needs like education and marriage of your children, besides their day to day expenses. This gap between the available resources and the amount of funding required by your family after your death can be easily filled if you base your policy purchase decisions on careful thought. 

In India, life insurance plans can:

• Help your family survive a sudden loss of income
• Allow them to fund crucial goals, like college education or marriage expenses
• Live a normal life, without having to worry about funding the varied expenses

While deciding the amount to be bought, do remember to take into account not only your current income but also potential future income, goals for your children and family, and any other costs or liabilities that may come up in the future.

Knowing that the future of your family is secure even when you are no longer there to take care of them can give great peace of mind, besides allowing a person to enjoy life in the present. However just buying a policy is not enough. You should re-evaluate the financial needs of your family from time to time, especially at the time of major life events like marriage, the birth of a child, the purchase of a major item like a house, etc. This will help you decide whether you need to take additional policies or not. 

The good news is that with growing competition in the insurance sector in India, life insurance plans are as varied as the needs of the people in the country.

What to Consider When Buying Individual Life Insurance

Time seems to freeze when a loved one develops a serious illness and it’s normal to go through a tough emotional phase akin to grieving. But when death occurs in a family especially that of a breadwinner, there are severe financial implications and hardships in addition to the emotional trauma of losing someone. 

Individual Life Insurance Products Can Help in Your Worst Hour

According to data published by India Brand Equity Foundation, India’s life insurance sector is the biggest in the world, with about 360 million policies. Moreover, this is expected to expand at a phenomenal compounded annual growth rate (CAGR) of 12-15% over the next five years.

A life insurance policy is designed to ease life's uncertainties and difficulties. Such policy is a legal agreement between you and an insurance company that guarantees the payment of a death benefit to your chosen beneficiaries in exchange for the payment of premiums by you. The primary aim of a life insurance policy is to protect the surviving members of a family or other dependents against the loss of an individual’s income or services. To decide how much coverage is required, think about your family’s situation and how much would be required in your absence. 

Identify Your Family's Needs

When buying individual life insurance products, you need to arrive at an amount of money that you wish to be paid at the time of your demise. You would also need to name the person or persons, known as your “beneficiaries”, who would receive that money. You may also have the right to determine whether that money will be paid in a lump-sum or in a series of payments.

If you are married, you will want enough coverage to minimize your spouse’s financial needs as well as plan for your children’s future expenses, including college tuition and marriage.

Consider your annual living expenses as well as any mortgage on your home, personal or car loans, or property taxes. In such cases, you will need more cover than someone whose mortgages are fully paid off. If you do not want that your dependents to pay for your final expenses, such as hospital bills and costs associated with the last rites, ensure enough coverage beforehand.

Choosing a Company

Make sure that the insurer you are dealing with is a reputable one that will be around to protect your loved ones financially when the need arises. One important factor to consider in choosing an insurer is its financial strength. Make sure the company recognizes your financial needs and goals, and is committed to helping you meet them, by offering a wide range of life insurance plans, financial solutions and riders. 

Riders Available

Insurance companies offer riders with specific benefits, such as additional coverage against accident or disability. Riders need to be purchased separately from the basic policy. A number of riders are offered by life insurance companies, which add value to a policy. The common riders are:

• Family Income Benefit Rider: This traditional rider provides financial protection to your family in the event of your unfortunate demise. It protects the family against financial liabilities after the demise of the policyholder.

• Accidental Death and Total & Permanent Disability Benefit Rider: Accidents are common nowadays, and can impair an individual’s life and cause his death, affecting the family both emotionally and financially. This rider provides additional benefits to the insured in such an unfortunate event.

It is important for you to get only that much life insurance as you can afford to pay for in terms of premium. Opting for a life insurance products and then losing it because of your inability to pay the premiums would not be a great outcome.

Travel insurance: Do not make the mistake of not buying it!

Stepping out of the country without travel insurance can be a costly mistake.

Scores of people take foreign trips every year, with many of these journeys being holiday-related. It is easy enough to go on holiday these days – you can book your tickets online, look up good accommodation, shop for necessities and just get going.

There is one more thing that is easy to do – taking travel insurance in India. In fact, everybody – from the airlines to the tour operator you book your trip with – offers to sell you travel insurance. After understanding the bare details, people sign up for the plan that has the lowest premium.

This is a mistake. Taking travel insurance is not about seeking out the least expensive plan, but getting the most comprehensive one. There is no way to predict future problems on your trip – you are well aware of Murphy’s Law that states ‘Anything that can go wrong, will!’ You cannot tell for sure that you or a family member will not fall ill on the trip, or that the vehicle you travel in will not be rammed into by another car, or if a passing pickpocket will not flick your handbag. The point is, it pays to be safe on your holiday so that nothing can rob you of the joy of travelling to a new country and seeing the sights.

Buying a travel insurance policy in India is quite easy. You can easily do so online when you are buying it from reputed insurance providers. Travel insurance plans protect you against the costs of:

Illness on the trip: Eating unusual food, a change in weather, jet lag and being on the road can make you fall ill. Not only will your vacation time be spent going to a doctor, you will also spend a lot of money on expensive treatment. Instead, let your travel plan pay for the treatment.

Lost or stolen bags: Tourists are easy targets abroad, and incidents of mugging and theft are on the rise internationally. Your bag containing your passport, cash and travel documents may be stolen. Or it could be misplaced by the airlines. However, your travel plan reimburses you up to 50% of the value of the lost items in your bag. Also, it pays to duplicate your passport so you may continue your travel.

Flight delays/cancellations: Flight delays and cancellations can scupper your travel plans. There is also the question of getting new tickets at the last moment if the flight is cancelled altogether. But your travel policy can reimburse you for your old tickets if the flight is delayed by over 12 hours.

Accidental damages: In case you cause accidental damage to property, or injure another person on your travels, your travel insurance can settle third party liability claims. You might inadvertently cause damage to another person or property while abroad. Your overseas insurance can pay third party damages.

Why Life insurance as a product is something everyone should have

When I ask you whether you would like to buy a life insurance policy, what would be your intended response? I guess the most likely answer would be ‘No’. Why? Is it because of the premium outgo? The answer to this question would undoubtedly be ‘Yes’.

India is a large country. In fact, its population is second highest in the whole world. Yet, when we look at the penetration of life insurance in our country, the figure is dismal. Let’s see what the numbers say:

The penetration of insurance in rest of the world is far more than that of in India and that too after being such a populated country.

What do you think is the reason of such low penetration? It is a lot of factors actually. Let’s see what they are:

• Lack of awareness – The most common reason which acts as a blockade to insurance penetration is awareness or the lack of knowledge thereof. We in India are not fully aware about the importance of life insurance. We feel, life insurance simply means paying a specified amount of money as a premium every year for promise of a lump sum benefit paid after a long period of time. Since an insurance plan is intangible (you cannot touch or feel it physically), people miss its importance. They believe insurance to be an expense and thus shy away from it.
• Lack of funds – If lack of life Insurance awareness can be tackled, another most important factor to deal with is its affordability. In a country where a majority of individuals are poor, buying an insurance policy often takes a back seat. Meeting the livelihood expenses is more important and as such, insurance is given a miss.
• Ignorance – But what about millions of other individuals who have the required funds, financially literate and are even aware but still don’t have life insurance? The reason is simply ignorance - These individuals believe only in wealth creation and channel most of their savings into other investment avenues like stocks and shares, mutual funds, fixed deposits etc. Life insurance, as such, is given a miss.
• Importance of Financial Planning – Unlike developed countries, financial planning in India is still at its nascent stage. While the educated mass in India is investing in property, mutual fund, gold and stocks, but they do it out of impulse or because somebody else has suggested it. Investments are done without any financial plan or keeping future goals in mind. And thus, the safety security of the family in absence of the bread earner is often ignored. Life Insurance, which can take care of this issue, is therefore ignored. 

Whatever be the reason the fact remains the same. Insurance, as a product, is not seen and understood to be the most important. Most of us therefore ignore the product which has lead to the dismal penetration rates.

What about you? Which reason keeps you from buying a life insurance plan? Is it lack of awareness, affordability, simply ignorance or lack of financial planning awareness? Whatever it is, here is an eye opener for you. Here are some reasons why insurance as a product is something you should have. So let us have a look at them:

Life insurance is most essential for building an emergency fund

Creating a fund which would provide the required finances in an emergency is always advised. If you have set aside funds for those rainy days, you wouldn’t face any financial crisis. When it comes to building such an emergency fund, which instrument lets us do that - Is it the various investment options or an insurance plan? An insurance plan, obviously! Other investment options are purely meant for wealth creation or appreciation. If the sole bread earner meets sudden death, his or her investments would be worth only that much which he or she had invested.

Life insurance, on the other hand, promises a much higher benefit in case of a sudden death. This benefit is irrespective of the amount of premiums you paid under the plan. Take the example of a term plan for instance – Suppose, the Sum Assured opted by you is ` 50 Lakhs and you are paying annual premium of ` 8,000. Your age and chosen plan tenure are also assumed to be 30 years each. In case of your sudden death, say 10 years after buying the plan, your nominee stands to receive Rs. 50 Lakhs. How much was your investment into the plan? Only ` 80,000 (` 8,000 annual premium x 10 years), isn’t it? Had you invested ` 8,000 every year even in the best investment avenue offering the highest returns, would the corpus amount be Rs. 50 Lakhs? The answer is ‘NO’. This is the beauty of a life insurance plan. It helps in creating an emergency fund which comes to your family’s rescue when you are not around.  

Life insurance helps in meeting various life goal

Besides providing emergency funding, life insurance also helps in meeting various life goals which you have. Here is a list of some major life goals of every individual and how life insurance helps in fulfilling these:

• Emergency Fund – Funding for emergencies is the primary goal of every individual and as discussed above, life insurance helps in meeting this goal. Term insurance plans are designed in such a manner that they meet this specific goal. They allow high levels of coverage at very affordable premium rates. Moreover, these plans have a long tenure for a longer protection period.
• Children’s future – When we settle down and have kids, we want to secure their future. That is why we make investments with a long-term perspective which would mature when our children would require them. But what if death hampers this plan? When we are not around who would provide for education of our children? A child plan helps in this regard. Child plans promise to pay a lump sum immediately after the parent dies. The plan continues and the subsequent premiums are paid by the life insurance company. When the plan completes its intended tenure the promised benefits are paid again. Thus, these plans ensure that the dream which you had for your child would not be ruined because of your death. These plans, thus, secure your child’s future.
• Wealth creation – If investment is on your mind, life insurance has a solution for you. Unit Linked Insurance Plans are specially designed life insurance plans. They offer the dual benefit - insurance protection as well as investment returns. These plans are like mutual fund schemes where the premium collected is invested in a diversified market portfolio or a portfolio of assets you choose. Since the portfolio reflects the market movements, the returns are market-linked and attractive.
• Retirement Planning – You wouldn’t like to forget your golden years of retirement, would you? Planning for a comfortable retirement is essential where we wouldn’t have to worry about our finances. That is why we invest for our retirement. Life insurance pension plans help us plan our retirement too. These plans earmark a financial plan for our retirement and pay pensions throughout our lifetime.

Isn’t life insurance all-inclusive? Whatever be the reason of your investment, life insurance has a solution for every need. 

Life insurance saves tax

The final benefit which a life insurance plan provides is tax exemptions. Whatever you invest and whatever you get back, both are tax free. Whether you buy a term plan, child plan, Unit Linked Insurance Plan or Pension plan, premiums paid are exempted from tax up to a limit of ` 1.50 Lakhs under Section 80C of The Income Tax Act 1961. Similarly, the plan benefits received on maturity or on death are also tax free under Section 10(10D) of The Income Tax Act 1961.

Life insurance is not a concept or an idea. It is a product, though intangible, which every one of us should have. Whatever be our requirements and whatever life stage we are in, a life insurance product finds its application. While a term insurance plan is useful in each life stage, other plans depend on your requirements. For instance, when you are young and want to invest, ULIPs could be your answer, whereas a child plan makes sense for a parent. Individuals in their middle ages should plan for their retirement. So, a different life stage has a different life insurance requirement. But the bottom line doesn’t change - Life insurance is essential. Before you buy a life insurance plan though, do your homework. Know some important aspects which should factor in your purchase decision. These aspects include:

• The coverage – Ensure an optimal coverage. When buying a term plan, choose coverage as per your Human Life Value or any other calculations which would ensure a sufficient corpus to meet your family’s financial requirements in your absence. Since premiums are cheap, a high cover should be availed. When buying a child plan, take a cover which would be sufficient for funding your child’s future planning. Similarly, pension plans should be bought keeping in mind the pension which would be sufficient to meet your expenses post retirement. So, avail of a suitable coverage when buying any life insurance plan.
• The term – The term of the policy should also be chosen to coincide with your requirements. Term plans should ideally have the highest tenure while child plans and pension plans should have a term completing at that time when the funds would be required. In case of ULIPs, the term should depend on your investment horizon.
• The premiums – While premiums are essential in determining affordability, they should be compared against the coverage available. The best plan should have the highest coverage at the most reasonable premium. Compare the different plans for their premium rates and coverage feature before you settle on one.

Life insurance is a very potent product if it is properly utilized. Term plans are the best and the most important life insurance plans which should never be given a miss. Other plans depend on your requirements. Assess your requirements and add one or more life insurance product in your financial portfolio today. And yes, bury your ignorance or lack of knowledge. Life insurance is important and you should opt for a plan in your best interest.

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