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6 Terms You Should Know Before Buying A Life Insurance Plan

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As you move forward in life, your goals and responsibilities may change considerably. It is crucial to keep the financial aspect of your life organized to go through these changes comfortably. Choosing a suitable investment plan for your goals helps in ensuring it. Depending on the current life stage, the best investment plan for you might be different from what your peers choose.

In general, most people consider life insurance as one of the priorities of an investment plan. It is a financial tool that helps you secure your family’s future against unfortunate circumstances. When you are insured, it gives you the peace of mind that your loved ones will achieve their goals even in your absence.

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However, before you go forward with an investment plan that includes life insurance, you must be familiar with different life insurance terms. It is best to be informed and avoid any disappointments in the future. Let’s take a closer look at some of them.

 

1. Sum Assured

The primary reason for buying life insurance is to provide coverage for the insured’s life. Simply put, the insurer pays a certain amount to the nominee in case of the insured’s untimely demise. The sum assured is the predefined amount that the insurer agrees to pay as life cover to the family members.

If the insured passes away during the policy tenure, the nominee is entitled to the payment, as per the policy terms. As an investment plan, life insurance requires you to determine the sum assured at the time of policy purchase.

It is up to the policyholder to select the sum assured that would be adequate for your family needs. It helps consider long-term goals, lifestyle habits, and debt repayments when deciding the sum assured.

 

2. Policy Period 

Life insurance is a long-term investment plan essentially. You can take coverage for your whole life if required. The policy period is the duration for which you are covered under the benefits of the policy. There are different life insurance policy types with varying terms related to policy periods.

The insurance provider offers risk coverage for the entire policy period. Depending on the current life stage, you can select a suitable policy period when choosing this investment plan.

 

3. Premium Payment Period

When you buy life insurance, you have to pay a certain amount as a premium to keep the coverage in force. The premium payment period is the duration for which you are liable to pay the premium. It can be less than or equal to the life insurance policy period.

The premium amount for an investment plan depends on the sum assured and the policy period. You can also pay the entire premium within a specific period under the limited pay option before the policy tenure ends.

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Also, there are various premium payment options available with life insurance policies. For instance, you can pay monthly, quarterly, half-yearly, or yearly for this investment plan with regular premium payment.

 

4. Riders

 Riders are meant to give you additional benefits with your life insurance policy. They are tools to customize your investment plan to suit your requirements better. You need to pay an extra premium to avail of the rider’s benefits along with the base plan.

With a preferable rider, you can get more comprehensive financial security for your family. For instance, the benefits of a critical illness plan include coverage for several life-threatening diseases such as cancer, kidney failure, and paralysis.

At the time of purchase, confirm the selection of different riders with your insurance provider. Apart from the critical illness rider, you can add accidental death benefit rider, waiver of premium rider, disability benefit rider, and more with your plan.

 

5. Maturity Benefit

The maturity benefit in life insurance is the amount that the policyholder receives if he survives the policy tenure. Pure term plans, the most common type of life insurance, do not offer maturity benefit to the policyholders. However, you can get the premiums paid back as a maturity benefit by choosing the return of premium option. You can choose it if it suits your investment plan.

 

6. Death Benefit

 The death benefit refers to the amount that the insurer pays to the insured’s family. If you are looking for life insurance policies, you may have come across this term multiple times.

The death benefit is the primary reason why people buy a life insurance policy. You may think that the sum assured and death benefit are the same. But death benefit may also include an additional bonus or benefit from riders.

Presently, more people are finding life insurance as an indispensable part of their investment plan. The gross premiums from life insurance in India stood at $71.1 bn in 2018 and are only expected to grow as the need for financial security is becoming more urgent.

Hence, make sure to understand various life insurance terms thoroughly and follow the best investment plan for long term benefits.

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Praneet Samaiya
the authorPraneet Samaiya
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