All You Need to Know About Life Insurance

Life Insurance:

Life insurance is a contract between a person seeking insurance and the insurance company. Person seeking insurance pays a certain amount to the company and in exchange, the insurance company agrees to pay a lump sum of money which is called a death benefit, to the beneficiary, if the person dies while the policy is in force.

Who can apply for Life Insurance?

Any person with financial dependents like wife/husband, children or parents should take life insurance. If the person passes away, the family might go into financial burdens like repaying debts, education for kids or even funeral expenses. Life insurance will be a support to handle such financial challenges and ease out the burdens.

Are there any variants in Life Insurance?

Yes, there are two kinds of life insurance, one is term life insurance, and the other is permanent life insurance.

Term life insurance usually comes with a term period like 10 years or 20 years. If a person passes away during this period, the beneficiaries will get the death benefit. If the person insured lives beyond the insurance policy term, the coverage would expire, and they will not receive any benefits.

Permanent life insurance is for entire life period. If the person continues to pay the premiums, his/her beneficiaries will get the death benefit when the person insured dies.

How is Life Insurance Different than Health or Accidental Insurance?

There are few aspects that make Life insurance, health and accidental insurance different from each other.

Health insurance is meant for paying the medical expenses if a person gets ill or injured. Accidental insurance is the sum given if a person gets injured or dies in an accident, where as life insurance provides a death benefit to the beneficiaries if a person dies because of any reason. It could be due to health issues, injuries or even a natural death.

Though these three insurance types are meant to give financial protection to the person insured or the beneficiaries, they cover different things.

• Life Insurance: It pays the sum insured to the nominees/beneficiaries when the person insured dies. The cause of death is not the trigger for this. It could be due to health problems, age or an accident – life insurance provides financial support to the kith and kin of the person insured. Particularly to the person mentioned as beneficiary or nominee in the policy documents.
• Health Insurance: If a person took health insurance and he/she gets sick or injured and is hospitalised, the medical expenses, starting from doctor visits, hospital room charges, surgeries and all other medical costs as mentioned and covered in the policy documents. Some health insurances come with annual free health check ups and OPD medical visits coverage as well.
• Accidental Insurance: This insurance provides coverage if a person gets injured or dies due to an accident. It could be used either to cover the medical expenses, rehabilitation or give death benefit to the beneficiaries if the person insured dies in the accident.

To summarise, life insurance is for when a person dies, health insurance is for a person’s medical expenses and accident insurance is for when a person gets injured or dies due to an accident.

What are the benefits a person can get from Life Insurance?

There are different benefits of having a life insurance. The key benefits are follows:

• Financial protection for your loved ones. Life insurance will give that financial security for the loved ones, which a person would like to give.
• A sense of security. The fact that the family gets financial support even after our death that they won’t be left vulnerable for financial hardships is the best assurance any person can have. And this sense of security in turn allows to work stress free and be peaceful.
• Tax benefits. The death benefit given to beneficiaries from a life insurance policy is usually not taxable.
• Small amounts, big benefits. The life insurance can be started with as less as ₹500 per month which is hardly cost of two movie tickets.

How to choose a Life Insurance Policy?

There are few factors one needs to consider, while choosing a life insurance policy. They are:

• Sum Insured: This is the total amount the beneficiaries would receive post the death of the person insured. Decide how much do you want as sum insured.
• Your Income and premiums: One should estimate their expenses and how much they can afford as premium.
• Type of policy: Deciding what type of life insurance a person wants, term life insurance or permanent life insurance.
• The insurance company: One needs to do a thorough study of companies offering life insurance their terms and conditions and choose the one that suits their needs.

How to apply for Life Insurance:

To apply for life insurance, one needs to fill up an application and provide some personal information, such as age, health information and occupation. One may be required to take medical checkups to ensure there are not pre-discovered chronic illness.

Once a person takes life insurance coverage, they need to start paying premiums as per the frequency fixed in the policy.

Conclusion

Life insurance is an important financial feature that will help a person protect their loved ones even after their death.

This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.