Life Insurance 101: All You Need to Know About it Works | Aviva India Blog
Life Insurance 101: All You Need to Know About it Works
A life insurance policy is usually taken out when you feel the need to protect your life or the lives of your near and dear ones in case something untoward were to happen in the ordinary course of life. You might think that you’re hale & hearty and nothing will ever happen to you but the fact of the matter is that life is filled with various uncertainties and eventualities. An accident or an illness never comes preannounced and your family might end up paying the ultimate price in such a situation.
Simply put, a life insurance doubles up as a financial safety net as it ensures that your loved ones don’t suffer financially if something was to happen to you. It is something which you don't buy for yourself but instead to ensure your loved ones aren't left with a financial burden to deal with on their own especially as they cope with the physical and emotional impact. Accordingly, a life insurance policy makes sure there's money available to cover for everything from utility bills to home mortgage and any other outstanding loans you might leave behind. The trade-off in the premiums you pay is well worth it in such cases as it’s better to be safe than sorry. Which is why a life insurance policy is a must-have and should be a part of everyone’s financial portfolio.
How Does Life Insurance Work?
Navigating the world of life insurance might seem complicated but it doesn’t have to be. Outlined below are certain pointers which if you, keep in mind, will help you better understand how the life insurance process works.
- A life insurance plan is designed to give you some kind of assurance by providing a defined amount (lump sum) of cash value in case you happen to meet with an untimely demise. It thus makes sure that the people you nominate as beneficiaries will be taken care of even if you’re no longer around to do so. The proceeds from the payout will help replace the lost income and support your beneficiaries who might be reliant on your income for their day-to-day needs
- Upon taking out a life insurance policy, you're required to pay a fixed premium to the insurance company you have chosen as your insurer in exchange for a pre-determined coverage on your life. In case the unthinkable were to happen, the insurance company will release the agreed amount of sum assured to the beneficiaries you have nominated.
- Several factors are taken into consideration while determining the amount of premium you need to pay to get your life insured. The insurer takes into account, your current state of health, your current age, the length and amount of coverage you’re seeking, details about any vices you might have such as smoking or drinking while calculating the premium that might be applicable under your given circumstances. Simply put, the higher the risk, the higher the premium is likely to be. For instance, in case you’re a smoker, you will have to usually pay a premium which is comparatively higher than those paid by non-smokers.
- Your life insurance policy stays in force as long as you continue making the premium payments. However, for any reasons you are unable to make the premium payment, after a specified grace period, the insurance company will stop assuming the risk, which means that your life is no longer covered.
- If you’re looking for options to enhance the protection and seeking additional coverage, you can opt to add riders such as accidental death cover or critical illness and disability cover for a nominal fee. These riders can come real handy as it protects you against a host of unexpected tragedies; lets take for instance the critical illness and disability rider. If you develop a critical illness, you will be paid a lump sum of money that will help take care of your medical expenses thus ensuring you and your family do not suffer any further financial hardships.
How do Insurance Pay-Outs Work?
If the unthinkable were to happen to you, having a life insurance in place will ensure that you have one less thing to worry about knowing that your family will have financial protection. Here's a rundown on how life-insurance payouts work:
- In case of an untoward incident, your nominated beneficiaries will stand to receive the sum assured from the insurance company once they file an insurance claim. It's always recommended that the insurance claim is filed as soon as possible. Thankfully, the process of filing a claim is pretty simple as all one needs to do is fill up a claim form and submit it along with the copy of the death certificate.
- You can nominate your spouse, dependent partner or a close relative. If something were to happen to your primary beneficiary, and if he/she isn’t around if/when something were to happen to you, the policy proceeds will instead be redirected towards the second beneficiary. This is why it’s important that you nominate your second beneficiary after giving it due thought and consideration. Further, it makes sense to review who you've chosen as beneficiaries on a periodical basis keeping in mind the changing life circumstances.
- You have the right to change your beneficiary or the details of your beneficiaries, as many times as you wish to during the policy term by just filling out the required form. Additionally, your beneficiary needs to be at least 18 years of age to be considered eligible to be appointed as a beneficiary. However, if your said beneficiary is a minor, then a guardian must be named for him/her to preside over legal matters until the minor comes of age.
Life insurance is something we can easily afford, and it’s something that will add value no matter what happens in life. You can't predict what the future holds for you but good financial planning can put you in a position of financial control. Make sure you get started on the right path by opting for life insurance for yourself today!
AN Apr 21/18