What is life insurance?
Life insurance pays a lump sum to your nominated beneficiaries if you die during the policy term. Its main purpose is to replace lost income, pay off debts, fund children’s education, or cover funeral and final expenses. Some plans also offer savings or investment components.
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Main types of life insurance
- Term insurance: Pure protection. Pays only if the insured dies during the term. Cheapest way to get high cover.
- Whole life: Provides cover for life and may build cash value. Premiums are higher.
- Endowment / money‑back plans: Combine protection with savings — pay a maturity benefit if you survive the term. Returns are usually lower than pure investments.
- Unit‑linked (ULIP): Insurance + investment. Part of premium buys life cover, part goes into investment funds. Returns depend on market performance.
- Child plans & pension plans: Designed for education funding or retirement income.
Who needs life insurance?
Anyone with financial dependents or liabilities should consider life cover. Primary earners, parents with young children, people with mortgages or business loans, and those who want to transfer financial risk to family members all benefit.
How much cover do you need? (simple rule)
A common starting rule is 10–15× your annual income plus outstanding debts and future expenses (education, marriage). Adjust for existing savings, spouse income, and planned retirement support.
How premiums are calculated
Premiums depend on age, health, smoking status, occupation, sum insured, policy term, and plan type. Term plans cost far less for the same cover compared to whole life or endowment plans. Add‑ons (riders) like critical illness or accidental death increase premium.
Term vs whole life vs investment plans — quick comparison
Term insurance gives maximum cover for minimum premium and is best when the main goal is income protection. Whole life provides lifelong cover and cash value but at higher cost. Investment‑linked plans (ULIPs, endowments) combine saving with protection but have charges and market risk; use them only if you want both insurance and investing in one product.
Key features to check before buying
- Sum insured & term: Ensure cover lasts until major liabilities (mortgage repayment, children grown).
- Premium payment term: Single, limited‑term, or till whole life — pick what matches your cash flow.
- Death benefit & maturity benefit: Understand exactly when and how benefits are paid.
- Grace period & loan facility: Check grace period for missed premiums and whether policy loans are allowed.
- Riders: Accidental death, critical illness, waiver of premium — add only what you need.
- Exclusions: Suicide clause, misstatement of facts, war/illegal acts — know the waiting periods or limitations.
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Step‑by‑step: How to buy the right life policy
- Calculate target cover using income multiple (10–15×) plus debts and future costs.
- Choose plan type: term for pure protection; whole life/endowment/ULIP if you need savings/investment.
- Compare quotes from at least 2–3 insurers for the same sum insured and term.
- Check policy wording: exclusions, surrender rules, cash value calculations, and premium escalation (if any).
- Decide riders based on needs (critical illness, accidental death).
- Undergo required medical tests truthfully — non‑disclosure can void the claim.
- Complete nomination and beneficiary details accurately.
- Keep policy documents safe and set renewal/payment reminders.
Common mistakes to avoid
- Choosing low cover because premium is cheap — under‑insuring leaves dependents exposed.
- Buying investment plans for insurance only — separates investment and protection for better clarity.
- Not updating the cover after life changes (marriage, child, loan).
- Hiding medical history or smoking status — may lead to claim rejection.
- Ignoring riders that could be cost‑effective for your risk profile.
Claim process (brief)
On the insured’s death, the nominee files a claim with the insurer submitting death certificate, policy copy, ID proofs, and any required documents (medical records, post‑mortem if applicable). Insurer reviews and pays the claim or gives a written reason for rejection. If delayed or disputed, use the insurer grievance process and ombudsman.
Riders worth considering
- Critical illness rider: Lump sum on diagnosis of listed serious illnesses.
- Accidental death benefit: Additional payout if death is due to an accident.
- Waiver of premium: Waives future premiums if the policyholder becomes disabled.
- Income benefit: Pays a regular income to beneficiaries instead of lump sum.
Short FAQ
Q: Is term insurance enough?
A: For income protection, yes — it gives the highest cover for lowest cost. Add riders if you want extra protection.
Q: Can I convert term to whole life later?
A: Some policies offer conversion options; check terms and age limits.
Q: What happens if I miss a premium?
A: There is usually a grace period. For non‑payment beyond that, policy may lapse or enter a reduced paid‑up state depending on plan.
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Sample comparison table (paste into your editor)
| Provider | Plan name | Type | Sum insured | Annual premium | Key features | Riders available |
|---|---|---|---|---|---|---|
| Insurer X | Secure Term Plus | Term | $500,000 | $150 | High sum at low cost; level cover | Critical illness, accidental death |
| Insurer Y | LifeLong Whole | Whole life | $250,000 | $900 | Lifetime cover with cash value | Waiver of premium |
| Insurer Z | Wealth Builder Endowment | Endowment | $200,000 | $1,200 | Maturity benefit + insurance | Accidental death, premium waiver |