Navigating financial responsibilities can be overwhelming at times, but the goal is to tick off one box at a time. As a millennial, you might be focused on getting your dream vehicle or heading for a luxurious trip. While these are integral parts of life, it is essential to safeguard your own and your family’s future. What better way to build a safety net than a life insurance plan?
You are probably already familiar with life insurance policies, but when it comes to choosing one, it is essential to understand the fundamentals carefully.
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What is Life Insurance?
Let’s begin with the question: What is life insurance? Life insurance is a type of insurance plan that helps you build a safety net for your loved ones, ensuring their needs are fulfilled even when you are not around. It serves as a contract between the policyholder and the insurance company, where the latter promises to provide a financial safety net for the beneficiary in the event of the insured’s death.
Life Insurance Simplified:
The insurer pays a lump sum amount known as the sum assured/ death benefit to the beneficiary in case of the insured’s death during the policy term, in exchange for premiums paid by the insured individual.
What You Should Know?
- Insured and Beneficiary: The insured is the individual whose life is protected under the policy, and the beneficiary is the one whose name is nominated to receive benefits under the policy.
- Premium: A premium is the regular payment made towards a life insurance plan.
- Death Benefit: Death benefit is the lump sum payment made to the beneficiary in case of the untimely demise of the insured.
- Maturity Benefit: The maturity benefit is the benefit provided to the insured if they survive the policy tenure.
Life Insurance: Understanding the Types
Being a millennial in today’s time, your needs can vary from others; therefore, you have the liberty to choose from different types of life insurance plans:
- Term Insurance
Term insurance is a type of life insurance that provides coverage for a specific duration. If the insured dies during the policy’s duration, the insurance company provides a lump sum payment to the beneficiary.
- Life Insurance for Whole Life
Whole life insurance is typically active for the insured’s entire life. Under this type of life insurance, the insured can establish a safety net for the beneficiary after their death. The premiums are higher compared to term insurance, as whole life plans offer coverage and a savings component.
- Unit Linked Insurance Plan
A unit-linked insurance plan is a type of insurance plan that offers both life cover and market-linked returns. Under this type of plan, a portion of the premium paid towards the policy is used to build a life cover, and the remaining amount is invested in an asset for steady returns. ULIPs come with a lock-in of 5 years.
- Endowment Plan
An endowment plan is typically purchased to combine savings and life insurance coverage. Under this type of plan, the insurance provider promises to pay a lump sum amount to the beneficiary if the insured meets an untimely demise, as well as maturity benefits if the insured survives the policy term.
- Money Back Plan
A money-back plan is primarily a type of endowment plan, but under this plan, the insurer promises to pay periodic payouts as a percentage of the total sum assured. Additionally, in the event of an untimely demise of the insured, the beneficiary is entitled to receive the death benefit regardless of the payouts made during the policy tenure. This way, the insured can enjoy regular income and also build a life.
Choosing the Right Life Insurance Plan
Choosing the right life insurance plan can seem daunting at first, especially when the needs of individuals in today’s time vary significantly and there are an overwhelming number of options available. Here are a few considerations that you can keep in mind to make the right choice:
- Your Financial Goals
The first step towards choosing the right life insurance is to understand your financial goal for which you want to purchase the policy. For instance, if you want an affordable life cover, opt for a term insurance; a life insurance for whole life is a reliable option if you wish to leave a legacy for your loved ones. If you’re looking to create wealth, unit-linked insurance plans are worth exploring.
- Your Needs and Responsibilities
You need to understand your needs and responsibilities in life, for which a policy is needed. These can include your debt, family responsibilities, and post-retirement life goals, among others. This helps in deciding the sum assured amount and the kind of protection you need.
- The Policy Term
Depending on your needs and responsibilities, you need to evaluate the policy tenure. For instance, term insurance is usually a reliable option to build a cover for a specific period. An endowment plan can be ideal when you wish for long-term financial stability.
Summing Up
Purchasing a life insurance plan as a millennial is an essential financial decision, so make sure to choose the right plan that meets your financial needs and provides the necessary life cover to protect your loved ones.
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