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What Is A Life Insurance Policy And Why Do You Need To Buy One?

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Life insurance is a term used to refer to a policy or cover that allows a policyholder to ensure financial independence for his or her dependents upon death. Assume that you are the only dependent in your family, along with your spouse and children. In such a situation, your death will ruin the whole family financially. By providing financial assistance to your family at the time of your death, life insurance policies ensure that this does not happen.  

In this article, I will take you through the different types of life insurance and the benefits of different life policies and most of these life insurance policies are similar in most countries, only the prices might differ. 

Different Types of Life Insurance Policies

When it comes to life insurance, there are basically seven different types of policies. These include:

  1. Term Life Insurance Policy
  2. Endowment Insurance Policy
  3. Whole Life Insurance Policy
  4. Term Life Insurance Policy
  5. ULIPs (Unit Linked Insurance Plans) Policy
  6. Retirement Insurance (Pension Plans) Policy
  7. Child Insurance Coverage Policy

Term Life Insurance Policy

This is a type of life insurance in which the beneficiary receives a death benefit only if the insured dies during a set time period. If the insured lives to the end of the time, or term, the insurance becomes worthless and they can make no payout or death claim. Term life insurance is a type of insurance that provides income replacement for a defined period of years. Term life insurance is the most affordable sort of life insurance (or one of the most affordable).

2. Policy of Endowment Life Insurance

Endowment plans are life insurance policies in which a portion of the premium is applied to the death benefit and the insurance provider invests the balance. Endowment policies provide help as maturity benefits, death benefits, and periodic bonuses. Part of your insurance premium is invested in mutual funds and the rest is used to pay the death benefit.

3. Policy of Whole Life Insurance

 As the name implies, these policies cover a person's entire life in lieu of a fixed term. Some insurance companies may limit the term or full life insurance to 100 years.

4. Child Insurance Coverage

This is a combination of investment and insurance that provides financial support throughout your child's life. After the death of the parents, it will pay the death benefit in a lump sum.

5. ULIPs (Unit Linked Insurance Plans)

Like endowment plans, a portion of your insurance premiums is invested in mutual funds, with the remainder going towards the death benefit.

6. Money-Back: These policies make periodic payments equal to a percentage of the plan's sum assured. This is referred to as a survivability benefit.

7. Retirement Insurance (Pension Plans)

These policies combine investment and insurance components. A portion of the premium goes to the policyholder's retirement corpus. This benefit is available in a lump sum or every month after the retirement of the policyholder.

The Merits of Life Insurance

If you have a life insurance policy, you can avail of the following benefits.

Tax Benefits: If you pay the full amount of life insurance premiums, you may be entitled to tax benefits under Section 80 (C) and 10 (10D) of the Income Tax Act. So, by buying a life insurance policy, you can save a considerable amount of tax.

promotes saving habits, because premiums must be paid, and buying such an insurance policy promotes the habit of saving money.

Protecting your family's financial future:  The policy ensures that your family's financial independence is protected even after your death.

helps in retirement planning: Some types of life insurance policies can also be used as investment vehicles. For example, pension plans offer a one-time payment after retirement, helping you find your retirement.

Now that you are familiar with life insurance policies, continue reading to learn about different aspects of other types of insurance policies.

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