In layman's terms, insurance allows one to cover or recover any possible or probable financial and/or material losses in a variety of situations.
To this end, insurance companies offer a number of policies to suit different needs and circumstances.
Life Insurance has always been fairly uni-dimensional, dealing with policies that cover loss of life, or in some cases, livelihood.
Types of Life Insurance
Depending on what you are looking for, the market offers Plain Vanilla Insurance (or Term Plans) and Investment Plans under Life Insurance.
You can add 'riders' (additional clauses) to most insurance plans. These range from Accidental Death Benefit riders to Overseas Travel riders.
Most insurers require a pre-insurance medical examination although this may be waived depending on the age of the individual. Any handicap should be discussed with the insurer in advance so that there are no problems when the policy matures.
Plain Vanilla Insurance or Term Plans
This is plain insurance, nothing more. The premium is very low: for about Rs.2,800 a year, a 30-year-old woman can get a cover of Rs.10 lakh for a 20-year term. That's Rs.56,000 spent over 20 years.
If the insured person expires during the policy term, her nominees receive the benefits. But there is no maturity benefit at the end of the term if she outlives the policy term. Instead of paying annually, you can also go in for a one-time payment.
For example, 'Lifeguard Single Premium' is a Term Plan offered by ICICI Prudential Life Insurance. A 30-year-old can get a cover for Rs.10 lakh by paying a one-time premium of Rs.26,880 which would cover a period of 15 years.
As an advisor with ICICI Prudential Life Insurance, Alankrita Datta recommends, "Older people find this policy quite beneficial as they can purchase a cover for up to Rs.1 crore, for a period of 5 to 15 years. The age for entry is between 18 years to 55 years."
Let's take the case of Mr X who, at 35 years, takes a term plan - Met Suraksha (Term Assurance) for instance. The plan is for 25 years and the yearly premium chosen is Rs 7,900. But unfortunately, Mr X passes away 10 years after buying the policy, at the age of 45. Until this time, he has paid a total of Rs.7,900 per year, which is a sum of Rs.79,000 as insurance premium. MetLife will pay his beneficiary Rs.20 lakh as death benefits. You can see that term plans secure the future of the family even if the earning member is no more.
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