Insurance means protection. Insurance is a contract, represented by a policy, wherein the insurer gives financial protection or reimbursement against losses to the insured. An entity that provides insurance is known as an insurer, an insurance company, an insurance carrier. A person or entity who buys insurance is known as an insured or as a policyholder.
What is Life Insurance?
Life Insurance is a contract where the insurer promises to pay a sum of money in exchange for a premium, upon the death of an insured person. The purpose of life insurance is to provide a financial benefit to dependents upon the premature death of an insured person. So, you have a child, a spouse, sibling, or a parent dependent on you and your income, you need life insurance.
Types of Life Insurance
- Term Life Insurance Plans: The simplest life insurance policy, which has the lowest premium and can get you maximum cover at a very affordable cost. It gives the nominee an assured sum of the amount if the policyholder dies within the term of the policy. So while the policy term is in place, the death of the insured provides security to the nominees. The drawback is that there is no maturity benefit if the insured survives the term period.
- Endowment Policies: In simple terms, this is life insurance + investment (it gives maturity benefit to the policyholder if the insured survives the policy period). So it includes the sum assured to be payable to the nominee in case of death of the insured but it also assures a guaranteed maturity amount to the policyholder at the end of the term. They come at a high premium cost. Hence, it is suitable for people who can pay a high premium amount and who are looking for protection plus investment plans.
- Unit Linked Insurance Plans (ULIP): These are life insurance + investment which is not guaranteed but linked to market performance. So the general life insurance features apply but if the policyholder survives the term period he/she is eligible to get maturity amount which is not guaranteed but is linked to the market. This can lead to very high gains but the risk is also high. Premiums are also on the higher side due to investment costs. It is suitable for a high-income group that is also looking for medium-term investment.
- Money-Back Policies: These are life insurance protection plan + saving policies which gives regular monetary benefits to the policyholder during the policy term. So it pays death benefits to the nominee during the term. Else it pays survival benefit on the maturity of the policy term. It also pays a regular monetary benefit to the policyholder. The premium cost is affordable. It is ideal for people looking for an investment plus protection plan.
- Whole Life Policy: Covers the life insurance benefit for the whole life of the policyholder. So it covers the whole life of the policyholder. It is different from other plans as all other plans come with a fixed term of the policy. If the policyholder survives the term of the policy the death benefit lapses in other types of insurance which is not the case with this policy. People who want to protect the interest of their family and provide for them irrespective of when they pass away to take up these plans. Such policies come at a higher premium amount. If a policyholder reaches a certain age (between 80-100 years), he is also eligible to get maturity benefits. Apart from death and maturity benefits, it also includes a bonus component.
Different entities offer these policies and often they customize them for the benefit of the policyholder by giving Add-on Benefits like covering disability and critical illness along with life insurance.
An important aspect to not ignore while choosing the life insurance to suit your need is the coverage it is giving. Don’t compromise on coverage. What premium suits your pocket for that coverage and which plan fits the need is something that you need to make decisions on.
Which Life Insurance Company to choose?
The search results and opinions will differ on Google and when you talk to financial experts. However, the top 5 choices are:
- Tata AIA
- ICICI Prudential
Apart from these, many companies are approved by IRDAI. As per the latest information, there are about 24 registered insurance companies.
How to choose the best policy for yourself?
Given below are some pointers which will help you to make your choice. Compare the policies offered by different companies on the following 6 points and you will get the one best suited for yourself:
- No. of term insurance claims
- Amount of claims
- Claims settlement ratio
- Claims settlement amount ratio
- Claims rejection ratio (should be below 1%)
- Claims rejection amount ratio
The above tells you a lot about the insurance company and its reputation. All this is based on data and figures instead of what is being advertised and personal opinions. Another important factor is comparing cost/affordability. The plan can sound very lucrative but if your pocket doesn’t allow it, there is no point in committing to it for the long term.
Video on How to Buy and Choose Life Insurance?