7 Things You Should Know About Life Insurance Policy
Published On Dec 31, 2021
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Insuring your life for the financial responsibilities of your dependants must be paramount before proceeding to any other aspects. Set your goals, expectations and other expenses that may crop up during your lifetime. Look for plans that will give your family stability when you are no more.
In this article we will discuss at length the various types of life insurance available for you.
Types of Life Insurance Policy
Here's a list of the various types of life insurance policies available for everyone:
1. Term Life Insurance
Term life insurance is a type of life insurance that provides benefit to the beneficiary only if the insured dies a specified period. If the policy holder serves until the end of the period the Insurance Coverage ceases without value and Payout or death claim cannot be made. Term life insurance is income replacement that remains active for a specific number of years.
2. Whole Life Insurance
Whole life insurance is an insurance plan that provides you coverage throughout your lifetime provided the policy is active. Whole life insurance policies also contain a cash value component that increases over time. You can withdraw your cash value or take out a loan against it as per your convenience. In addition, in case of your unfortunate demise before you pay back the loan, the death benefit paid to your beneficiaries will be reduced.
3. Endowment Policy
It is defined as a type of life insurance policy that is payable to the insured if he or she is still living on the policy's maturity date or to the beneficiary otherwise. Endowment plans provide you with a dual combination of protection and savings. In this policy, if the insured dies during the term of the plan, the nominee receives the sum assured plus the bonus or participating profit or guaranteed additions, if any. The bonus of profit is paid for the number of years that the insured survives on the policy terms.
4. Money Back Plan
Money back plan gives you money during the policy tenure. It gives a percentage of the sum assured at regular intervals during your policy terms. If you live beyond the term of the Insurance policy then you will receive the remaining portion of the corpus and the accrued bonus also at the end of the policy term.
5. Savings and Investment Plans
These are the type of insurance plans that provide you the assurance of lump sum funds for you and your family's future expenses. While providing an excellent saving tool for your short term and long term financial goals, this sum also assures your family a certain sum by way of an insurance cover. This is a broad categorization that covers both the traditional and the unit linked plans.
6. Unit Linked Insurance Plans
ULIPs are a type of insurance plan that provides you with a dual advantage of Protection and flexibility in Investment. It is a type of life insurance where the cash value of the policy varies according to the current net asset value of the underlying investment assets. The premium paid is used to purchase units in Investment assets chosen by the policyholder.
Important Benefits Of Life Insurance Policy
Here are some common uses of life insurance benefits:
1. Paying Final Costs
Life insurance policy benefits can be used to help pay for final expenses after you pass away. This may include funeral or cremation costs, medical bills not covered by health insurance, estate settlement costs and other unpaid obligations.
2. Paying Off Debt Or Replacing Income
Life insurance benefits can help replace your income if you pass away. This means your beneficiaries could use the money to help cover essential expenses, such as paying a mortgage or college tuition for your children. It can also be used to pay off debt, such as credit card bills or an outstanding car loan.
Some people purchase life insurance with the intention of leaving the death benefit as an inheritance to their loved ones. If you'd like to have a specific person receive your benefits as an inheritance, the Insurance Information Institute (III) suggests naming your chosen heir as the beneficiary on your policy. This will ensure that your life insurance benefits fall into the hands of the person you intended to receive it.
4. Paying Federal Or State Estate Taxes
Depending on state laws, your heirs may need to pay an estate tax upon receiving an inheritance. The III says that life insurance benefits may be used to partially or completely offset this cost. It'd be a good idea to consult with your insurance provider or a financial professional to understand how estate taxes may affect your beneficiaries.
5. Charitable Contributions
Life insurance policies can also be created with your favorite charity as a named beneficiary, the III says. This can help ensure your philanthropic goals are met after you pass away, and that benefits are provided to your charity of choice.
Life insurance is not just to fulfill the daily expenses of the family in the absence of a breadwinner. It should be capable enough to ball out the family during large financial exigencies. So, one should always choose one or two best types of life insurance which can support his or her family in different stages of life.
Also read - Does Term Insurance Provide Survival Benefits?
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.