Life Insurance Plans For Family

by SMCIB on Wednesday, 26 April 2023

Life Insurance Plans For Family

You will do whatever it takes to keep your loved ones safe and happy. When it comes to securing their future, a life insurance policy is the best solution. The main purpose of life insurance is to provide financial protection to your loved ones when you are not around anymore. Life insurance is a contract between you and an insurance company wherein the company covers your financial risks in exchange for a specific fee called a premium. Besides providing financial security, it can also be used to save for long-term goals such as retirement, children’s education and wedding, etc.

When it comes to ensuring financial stability and peace of mind for you and your family, it is crucial to weigh your options carefully. There are many types of life insurance plans in the market today and it is important to pick the right one, so your needs and requirements are catered to.

Let’s have a look at some of the top life insurance plans for families.


Life Insurance Plans For Family

You can consider these life insurance plans to secure your and your family’s futures -

1️⃣ Term Insurance

You should consider term insurance if you have dependents who rely on your income for their goals and needs. It is a cost-effective way to provide them with financial security in your absence. If you pass away while the policy coverage is active, your family will receive a fixed sum of money. This money can be used to pay off outstanding loans/liabilities, take care of day-to-day expenses, cover children's education/wedding, etc. - without sacrificing their standard of living.

Example: David, 30 years old, has a dependent spouse and kid. He purchases a term insurance policy with a sum assured of Rs. 1 Crore and a policy duration of 30 years. He opts for a premium payment term of 15 years and so he needs to complete his premium payments within this 15-year period. He chooses the lump sum claim payout option and appoints his wife, Sara, as the nominee.

  • If David passes away in the middle of the policy duration,
    The insurer will pay Rs 1 Crore as a death benefit to Sara. This amount will be paid in a lump sum since David had opted for the lump sum claim payout option. Sara can take care of the family’s future goals, and any pending loans with this amount.
  • In case David survives the policy period,
    He won't receive anything back.


2️⃣ Child Plan

A child plan allows you to save money systematically and build wealth for your child's future needs by combining insurance and investment. By investing in it, you can ensure that your child's milestones are adequately taken care of while also earning satisfactory returns. It acts as a financial cushion and covers your child's major milestones like higher education or wedding - whether or not you are around.

The major benefit of a child plan is that it remains active even if the parent passes away. And, the insurer will waive the premiums for the remaining policy period. When the policy matures, the child will receive the maturity benefit. In case the child is a minor, the money will be given to an appointee (chosen by you at the time of policy purchase) until the child turns 18.

Example: Punit has a 5-year-old daughter Karishma. He wishes to save up funds for her higher education expenses. He chooses a child plan in 2023 with a sum assured of Rs 25 lakhs and a policy term of 15 years. He needs to pay an annual premium of Rs 70,000. He also opts for a lump sum claim payout option. 

Let’s see how the benefits pan out -

  • If Punit survives the policy term,
    The cover amount of Rs 25 Lakhs will be paid to Punit in 2037. At that time, Karishma will turn 20 years old and be ready to pursue her PG degree. Punit can use the claim amount to meet these college expenses.

  • If Punit passes away unexpectedly during the policy period,
    The policy will still be in effect. And, the insurer will waive the premiums for the remaining years. Once the policy matures, Karishma will be eligible to receive the cover amount of Rs 25 Lakhs.


3️⃣ Endowment Plan

An endowment plan combines insurance and savings, providing financial security as well as guaranteed returns. By investing in this low-risk instrument, you can not only provide financial protection to your family but also reap the benefits of potential returns in the long term. This makes it an ideal option for those looking for a way to leverage their money and reach their financial goals such as buying a home or a car, etc. quickly and efficiently.

Example: Naren buys an endowment policy with a sum assured of Rs. 50 lakhs for a policy duration of 20 years. He intends to save up funds to buy an apartment. He chooses a premium payment term of 10 years and appoints his wife, Leena as the nominee.

  • If Naren survives the policy term,
    He will receive Rs. 50 lakhs. This money can be used to fund the apartment.
  • If Naren passes away in the middle of the policy term,
    The insurer will pay Rs 50 lakhs as a death benefit to Leena. Once the payout is made, the policy will terminate.


4️⃣ Guaranteed Income Plan

A guaranteed income plan is a combination of insurance and investment. It is a great way to ensure that your family's financial future is secure, while you also have steady, recurring returns. Regardless of market conditions, you receive a fixed percentage of the sum assured or the annual premium you've paid under the plan periodically. You can use these periodic payouts to meet your financial obligations or save for certain financial goals, such as your child’s education, home down payment, etc. With this plan, you get insurance security and investing potential - all under one roof.

Example: Rachel buys a guaranteed income plan with a sum assured of Rs. 30 lakhs for a policy duration of 20 years. She also chooses a premium payment duration of 10 years. According to her policy, she will receive 10% of the sum assured as a recurring payout (or survival benefit) for five years once her premium payment period gets completed. And the sum assured will be paid in the event of policy maturity or death - whichever happens first.

  • Survival Benefit
    Survival Benefit = 10% of the Sum Assured

                        = 10% of 30,00,000

                        = Rs. 3 Lakhs

Once the premium payment term gets over, Rachel will receive this survival benefit annually for 5 years. She can use this money to meet her household expenses such as her house rent, EMIs, etc.

  • Maturity Benefit
    If Rachel survives the policy period of 20 years, the insurer will pay her a maturity benefit of Rs. 30 Lakhs.
  • Death Benefit
    If Rachel passes away during the policy period, the insurer will pay her nominee a sum of Rs 30 Lakhs.


5️⃣ Retirement Plan

Retirement plans help you achieve financial security during your golden years. They help you take care of your retirement needs. These plans generally fall into two categories: pension accumulation plans and annuity plans.

  1. Pension Accumulation Plan
    Pension Accumulation Plans can be linked or non-linked.
  • Non-Linked Pension Accumulation Plan
    Under this plan, you need to pay premiums for a specific period of time. Once the policy matures, you'll receive a fixed amount of money to fund your retirement goals and take care of your family.

  • Linked Pension Accumulation Plan
    Under this plan, your savings are invested in market-linked instruments and let them accumulate over time. Once the policy matures, you will receive a lump sum payment that you can use to fulfil your retirement goals and meet the needs of your family.

  1. Annuity Plan
    Under an Annuity Plan, you are required to make premium payment/s for a stipulated period of time, which will accumulate into a fund. The fund will be converted into an annuity, i.e., a steady stream of income based on the annuity rate determined by the insurer. You will receive this income periodically after you retire which can be used to meet your everyday expenses such as utility bills, groceries, medical bills, etc. and other financial obligations.

Thus, a retirement plan can be a great tool for saving for retirement and achieving your long-term goals.

Example: Mahesh is a 50-year-old bank employee and intends to retire at 60. He wants to secure a comfortable retirement, so he buys an annuity plan.

Let’s assume he invests Rs 1,00,000 per year (excluding taxes) for 10 years. He wants to receive the payout immediately every year for a period of 20 years. The annuity payout will begin one year after the premium payment period gets over.

Let's say the annuity rate is 5%.

So, Annuity = Total Premiums Paid (minus taxes) x Annuity Rate

                          = (100,000 X 10 years) x 5%

                          = 10,00,000 X 5%

                          = Rs. 50,000

Therefore, Mahesh will receive Rs. 50,000 every year as an annuity payout for a duration of 20 years.

Wrapping up!

A life insurance plan is an invaluable tool for saving and investing in the future. It serves to protect your family's financial future as well as help you accumulate money to achieve your and your family’s financial goals. Before investing your money, take the time to evaluate the different options and then select the right product that best suits your and your family's needs.

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