An insurance policy is a financial gadget that helps you prepare for unforeseen circumstances that may present themselves due to the unpredictability of life. A life insurance policy is important for a smooth transition for your family in the event of your untimely demise. Let us discuss everything that you need to know when buying your first insurance policy.

What is a life insurance policy?

A life insurance policy is a financial contract between you as the policyholder and an insurance provider or insurer. The agreement states that you can purchase a life insurance plan for a specified sum assured for a specified duration by paying the predetermined premium. In return, the insurance provider guarantees that in the event of your untimely demise, your beneficiaries will receive a lump sum payout of the sum assured.

The terms of your insurance policy will differ based on the types of life insurance that you choose. If you, as the policyholder, pass away during the tenure of your life insurance plan, then your beneficiaries receive the death benefit. However, if you survive the tenure of your life insurance plan, then you may receive the maturity benefit.

You can include riders with your insurance policy to elevate the value of the plan. You may also earn bonuses and profits based on certain investment options included in your life insurance policy.

What are the different types of life insurance?

There are several different types of life insurance plans from which you can choose the best possible option for you and your loved ones:

  1. Term life insurance – It is the most popular and reasonable form of life insurance policy. Term insurance plans are available for shorter durations with sufficient sum assured for very reasonable rates of premium. You can purchase term insurance plans for 10 to 99 years and include add-ons to elevate the value of the payout.
  2. Endowment plans – Insurance plans that also offer bonuses and additional profitable payouts along with the sum assured.
  3. Money-back plans – These are types of life insurance that allow you to withdraw part payments from your insurance policy at regular intervals. If you survive the policy tenure, you receive the remaining sum as a maturity benefit. However, in the event of your demise, your beneficiaries will receive the sum assured as promised during the initial contract.
  4. ULIPs – These types of life insurance allow you to invest directly into unit-linked market shares While also providing life insurance protection. It implies that with your life insurance plan, you can secure the future of your loved ones. However, you can also invest in the current market to earn profits to help navigate your current financial needs.
  5. Group insurance plans – These types of life insurance allow you to secure the lives of multiple individuals under single plans. They are mostly offered by companies or larger organisations that need to provide insurance policies for all their employees.
  6. Retirement plans – With this form of life insurance policy you can set up for your life after retirement and your golden years.

You can choose the right types of life insurance from these options and more by evaluating the needs of your loved ones as well as your current financial situation.

Things to keep in mind when purchasing your first insurance policy

When purchasing your very first life insurance policy, you may not be aware of the different aspects to navigate or to make the most from your investment in a life insurance plan. So here are a few things to keep in mind when purchasing your first insurance policy:

  1. Start with thorough research into the different types of life insurance plans that benefit your needs.
  2. These days, viable insurance providers have online portals where you can check their offerings, prices and benefits. You can make a list and compare plans from different insurers to make an informed decision.
  3. Check the claim settlement ratio of your shortlisted insurance companies. The higher the number, the more likely it is for the insurer to settle your genuine life insurance policy claims.
  4. You can avail of tax benefits on your life insurance policy. Under Section 80 C of the Income Tax Act, if your annual premium is less than INR 1.5 lakhs under the old tax regime or INR 2.5 lakhs under the new tax regime, you are entitled to tax exemption. The death benefit that your loved ones receive in the event of your demise is also exempted from taxes. The maturity benefit in the case that you survived the policy tenure is also tax-exempt if the annual premium falls under the brackets mentioned.

When purchasing your very first life insurance policy, it is important to conduct thorough research to understand the implications, Inclusions, And favourable terms and conditions of the plan. A life insurance policy can be a financial lifesaver if you choose the right kind of policy for you and your loved ones.