Ensure to get Insured

All of us work relentlessly for a secure and prosperous future for our families. A very potent tool to achieve this objective is Life Insurance. Though classically looked at as a tax saving tool, financial experts across the globe have consistently ehphasised its original and basic need.

Life insurance ensures a secure and financially independent life of loved ones in the unfortunate event of demise of the bread earner of the family. Income replacement is the top most reason why people buy life insurance cover.

There are many ways of deciding the cover one needs to take. However, the important component of such a decision is the ability of a person to pay for it.

Choosing the product that suits one’s requirement is critical, it changes from person to person. One can choose among four basic life insurance policies - Term Insurance, Whole Life Insurance, Endowment Plan and the Unit Linked Insurance Plan.

Term Insurance provides pure risk cover for a specified period of time. If one lives longer than the policy term, then he receives no benefits. This is the least expensive insurance plan.

Whole Life Policies provide protection for the entire life. It has two components- risk cover and savings (cash value). One can even avail loan against the cash value in case of emergency. Also, future premiums can be adjusted with the bonus amount paid by the insurance company.

Endowment Policies are essentially saving accumulation plans that guarantee certain cash value at the end of the policy term or death. As they provide a high component of cash value and risk protection, they are the most expensive of all types.

Unit Linked Insurance Plans are linked to investments made in the stock market through a life insurance policy. They do not offer an impeccable combination of low life cover and high investment return. They carry high risk in terms of returns and are equally expensive due to the high component of investment.

A life insurance cover should be ideally 10 times one’s annual income. Another way is to find out the assets and liabilities (current as well as future commitments) gap.

Also, need for life cover declines as ones age progresses, as fewer people remain dependent upon you for income support.

One needs to make an intelligent choice from among the various options available. Of course seeking direction from professionally trained financial planner will help.