The lifespan of human beings has gone up significantly in recent years. But the risk of premature death is something that’s always present. And in many cases, premature loss of life not only has an emotional impact, but also creates a financial impact on a family. This is truer if the deceased turns out to be the breadwinner.
Here’s where a life insurance policy can come in handy. It can help lessen the financial impact arising out of the death of the policyholder through a pay-out known as death benefit. In addition to this, there are many other features of life insurance as well. Keep reading to find out.
What is life insurance?
A life insurance policy is basically an agreement between an individual and an insurance service provider. According to this contract, the insurance provider is obligated to pay a certain predetermined sum of money upon the demise of the individual. This sum is paid to the said individual’s nominee. In return for this life cover, the individual is required to periodically pay a certain sum of money, known as premiums, to the insurer.
Features of life insurance plans
Now that you’ve gotten a good idea of a life insurance policy, it’s time to take a look at the many features of life insurance –
1. Issued in the name of the policyholder
One of the primary features of life insurance plans is that it is issued only in the name of the policyholder. A policyholder is basically the individual who purchases a life insurance policy and pays the requisite premiums.
Generally, for a typical life insurance plan, there tends to be just one policyholder. That said, that’s not always the case. Some plans, like a joint life insurance plan, allow you to have more than one policyholder.
2. Flexible premium payments
As you’ve already seen above, to be able to enjoy a life cover, you’re required to pay premiums to the insurance service provider. You can also choose the frequency of premium payments that you wish to make.
For instance, you can choose to pay the premiums for your life insurance policy as a lump sum amount. Or alternatively, you could choose to pay them at periodic intervals such as monthly, quarterly, half-yearly, or annually.
3. Customizable tenure
When you purchase a life insurance policy, you’re required to choose the tenure of the plan. The policy offers protection only until the end of the selected tenure, which is known as the policy term. The life cover is only valid during this tenure.
This tenure can be customized according to your needs and requirements. For instance, you can simply choose a tenure of 20 years if you require life insurance coverage for the next 20 years. There are also some life insurance plans that offer you whole life coverage, meaning that they are valid till you attain 99 or 100 years of age. This varies from one plan to another.
4. Customizable sum assured
The sum assured component of a life insurance plan is the pay-out that your nominee gets from the insurance service provider in the event of your demise. Just like the tenure of a life insurance plan, you can also customize the sum assured when purchasing the policy. That said, here’s something that you need to know. The premium that you’re required to pay for a life insurance policy depends on the sum assured amount that you choose. So, for example, the premium for a life insurance plan with Rs. 1 crore as the sum assured is likely to carry a higher premium than a similar plan with just Rs. 50 lakhs as the sum assured.
5. Pay-out on death or on maturity
Another one of the important features of life insurance is that the insurance service provider pays out the sum assured only under one of two incidents - upon the death of the policyholder or upon the maturity of the life insurance plan. For pure term insurance plans, pay-outs are only made on death.
When the insurer pays out the sum assured to the nominee in the event of the policyholder’s death, the pay-out is termed as death benefit. Similarly, when the pay-out is made to the policyholder themselves on maturity of the policy, it is termed as maturity benefit.
6. Ability to assign nominees
Nominees are the individuals who are entitled to receive the sum assured in the event of the policyholder’s demise. Nominees usually need to be assigned at the time of purchase of a life insurance policy itself.
However, you can also choose to assign them at a later point as well. That’s not all. You can also choose to switch your nominees at any point during the tenure of your life insurance plan.
7. Features an investment component
Not all life insurance policies stick to just providing a life cover. Unit Linked Insurance Plans (ULIPs) and savings plans also come with an investment component over and above a life cover. This feature ensures that you get benefits that are paid out to you on maturity.