Life insurance is basically a financial tool that serves as a financial shield against the uncertainties and contingencies that may crop up in your life. You sign an agreement with the insurance company under which it protects your life risks and you pay a fee to them.
Main objectives of life insurance -
- To protect your loved ones from any financial hardship if you pass away during the policy period.
- Some life insurance plans also assist you in accruing wealth as well as meeting your financial milestones like buying property, saving for retirement, etc.
However, before you invest in any life insurance policy, you need to understand what the policy has to offer. Only then will you be able to determine whether it suits your and your family’s needs. In this article, we will look at the key features of life insurance policies to help you make an informed decision.
Key Features of Life Insurance
Here are the features of life insurance policies you need to be aware of -
A premium is a specific fee that needs to be paid by you to the insurance company in exchange for financial protection, i.e., insurance coverage. It can be paid monthly, quarterly, half-annually, or annually - depending on your preference. It is determined by an array of factors, including your age, health status, lifestyle, coverage amount, policy duration, etc.
2️⃣ Death Benefit
The death benefit represents the primary reason for purchasing life insurance and is the amount of money that is paid out to your nominee upon your untimely demise when the policy is in force. It provides crucial financial support to your loved ones, helping them navigate through difficult times. They can use this money to cover a variety of expenses, including outstanding debts, daily living expenses, and other financial obligations.
The amount of the death benefit is usually determined at the time of policy purchase and can either be a fixed or variable amount, depending on the policy type. Please note that it is only paid out if the policy is active at the time of your passing away.
3️⃣ Maturity Benefit
It is the amount of money that you receive when the policy matures. The maturity date is the end of the policy period. You can find the same in the policy document. If you outlive the policy period, the maturity benefit is paid out to you. It can be used for various purposes like funding your retirement life, buying an asset, starting a new business, etc.
However, it is important to note that not all types of life insurance policies offer a maturity benefit. For instance, term insurance policies, which provide coverage for a specific period, don't offer any maturity benefit. This means that if you survive the policy duration, you will not receive any payout.
4️⃣ Survival Benefit
The survival benefit is an exciting feature available in certain life insurance policies that can provide you with a valuable financial cushion during your lifetime. It is the amount paid to you if you survive a specific period during the policy term. This money can be utilised to meet any unexpected financial obligations or emergencies that may arise within the policy term. Moreover, it can act as a dependable source of recurring income, supplementing your other income streams.
Note: Not all types of life insurance policies offer a survival benefit. Whether or not survival benefit is provided will depend on the policy you choose and its features.
5️⃣ Policy Term
The policy term is a critical aspect of any life insurance policy as it determines the duration for which you are covered by the insurer. It can vary widely depending on the type of policy. Some policies last for a few years, while others may provide coverage for your entire lifetime.
6️⃣ Loan Facility
Some life insurance policy types offer a loan facility as well. This feature allows you to use the policy as collateral and obtain loans against it, after a specific period. Instead of borrowing against other assets like your home or gold items, you can use your life insurance policy to secure a loan and cover your financial obligations.
Note: Not all life insurance policies offer this option. For example, term insurance plans do not provide such loan facilities.
7️⃣ Cash Value
Some life insurance plans generate a cash value that accumulates over time as you continue to pay your premiums. The longer you hold the policy and pay premiums, the higher the cash value will be. This cash value is a valuable asset that you can use in several ways - you can borrow against it, use it to pay future premiums, etc.
Note: Not all policies offer a cash value, so it is essential to understand the terms and conditions of your policy before purchasing it.
Riders are add-ons that you customise your life insurance policy with. They provide an extra layer of protection against specific risks that might otherwise leave you vulnerable. They are a smart and easy way to enhance your life insurance coverage. Purchasing riders is a hassle-free process as it doesn't involve any additional medical examinations or paperwork apart from the ones you've already completed for your base life insurance policy.
Some of the common riders include -
➔ Hospital care rider
➔ Surgical care rider
➔ Waiver of premium rider
➔ Critical illness rider
➔ Accidental disability rider
➔ Accidental death benefit rider
Life insurance offers a range of benefits, including financial protection for loved ones, long-term savings opportunities, loan facilities, etc. Before you invest your hard-earned money, make sure the features and benefits offered by the policy align with your and your family’s needs. So, invest in the right plan today to guarantee a better tomorrow.