Essay On Life Insurance

1000 Words4 Pages

Life Insurance – a Risk Cover or an Investment Tool

Life insurance policies are products which cover the risk of death. A person particularly the earning member runs the risk of losing his/her life and thereby leaving the family with troubles of future earnings. Under life insurance the amount of benefit to the insured is fixed and therefore they act as life assurance contracts. Regular premiums are paid by the insured during the tenure of the contract and in return the insurance company covers the risk of death. In the event of unfortunate death, the family or legal heirs of the insured are paid the death benefit amount. This is the traditional way the life insurance works but today the insurance companies have a variety of products which …show more content…

The thumb rule that some Financial Planners use is that a family should be covered upto 20 years of annual expenses that the family generally incurs. In simple words if the annual expenses of a family are Rs 6 lakhs then the family should be covered for Rs 1.2 crores. The policies should be split among the earning members of the family. The coverage can be by means of a combination of various policies. This will ensure that in the event of the death of the earning member, the family can at least continue to survive at the same standard of living. The importance of life insurance should be understood by every person and that too at an early age. It is also necessary that a person understands the policy well with respect to the rights and benefits associated with the insurance contract. In a country obsessed with tax and persons who want to save tax as well as receive tax free terminal benefits in a policy should read the clauses carefully and understand whether the policy under consideration is tax friendly or not. Younger persons can opt for ULIP as they can take more risks for higher return. Some ULIP’s have tenure of 10 years but the premium is paid only for 5 years. Traditional policies for a longer term of 20 to 30 years can also attract youngsters as they may also give better returns. There are also one time premium policies to invest larger sum in life insurance which give death cover and

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