Tuesday, March 29, 2011

Basic concept of insurance :

What is life insurance?

      Life insurance ensures that your family will receive financial support in your absence. Put simply, life insurance provides your family with a sum of money should something happen to you. It protects your family from financial crises.

      In addition to serving as a protective cover, life insurance acts as a flexible money-saving scheme, which empowers you to accumulate wealth-to buy a new car, get your children married and even retire comfortably. Life insurance also triples up as an ideal tax-saving scheme.

Why do I need life insurance?

Who will take care of my family if tomorrow something unfortunate happens to me?” If this question bothers you, then Life Insurance is the answer.

Of course, under any circumstances, the loss of a loved one is a traumatic experience. But, if your family is also left without sufficient money to meet basic living needs or prepare for future goals, they will have to cope with a financial crisis at the same time. A Life Insurance plan ensures that your family is financially secure even if tomorrow you are no longer around to care for them.
Key Benefits of Life Insurance

Life insurance, especially tailored to meet your financial needs

Need for Life Insurance

Today, there is no shortage of investment options for a person to choose from. Modern day investments include gold, property, fixed income instruments, mutual funds and of course, life insurance. Given the plethora of choices, it becomes imperative to make the right choice when investing your hard-earned money. Life insurance is a unique investment that helps you to meet your dual needs - saving for life's important goals, and protecting your assets.

Let us look at these unique benefits of life insurance in detail.

Asset Protection

From an investor's point of view, an investment can play two roles - asset appreciation or asset protection. While most financial instruments have the underlying benefit of asset appreciation, life insurance is unique in that it gives the customer the reassurance of asset protection, along with a strong element of asset appreciation.

The core benefit of life insurance is that the financial interests of one’s family remain protected from circumstances such as loss of income due to critical illness or death of the policyholder. Simultaneously, insurance products also have a strong inbuilt wealth creation proposition. The customer therefore benefits on two counts and life insurance occupies a unique space in the landscape of investment options available to a customer.

Goal based savings

Each of us has some goals in life for which we need to save. For a young, newly married couple, it could be buying a house. Once, they decide to start a family, the goal changes to planning for the education or marriage of their children. As one grows older, planning for one's retirement will begin to take precedence.

Clearly, as your life stage and therefore your financial goals change, the instrument in which you invest should offer corresponding benefits pertinent to the new life stage.

Life insurance is the only investment option that offers specific products tailormade for different life stages. It thus ensures that the benefits offered to the customer reflect the needs of the customer at that particular life stage, and hence ensures that the financial goals of that life stage are met.

How much insurance do I need?

Before buying an insurance policy, it is always important to find out the amount of life insurance cover you need. The following factors should be considered before buying a life insurance policy:

    * Your age and number of dependents
    * Your annual income and annual expenses
    * Your outstanding liabilities like home loan, car loan, etc.
    * Your investments / savings
    * Your lifestyle expenses
    * Monies you would require in future

As a thumb rule, it is suggested that you should have an insurance cover of around 5 to 10 times of your annual income. A good financial advisor in your neighborhood can help you ascertain your appropriate insurance cover.

What is your Human Life Value?

Beyond all doubt, your life is invaluable. Yet, there is a certain worth that can be attributed to the financial support you offer your parents, spouse or children. This worth is referred to as Human Life Value (HLV). In the future, if your family does not have the protective blanket of your presence, they will no longer be able to enjoy the benefits of the income you earned. Put simply, Human Life Value is the present value of your future earnings.

Why should you calculate your Human Life Value?

You should calculate your Human Life Value so you can accordingly invest in insurance plans that provide your family with adequate finances and hence security even in your absence.

How do you determine your Human Life Value?

Your Human Life Value is determined by 3 factors:
1. Your age
2. Current and future expenses
3. Current and future income

As a thumb rule, if you are 30 years of age, you should insure yourself for an amount approximately 8 times your annual income. At 35, your investment should be close to 6 times your income. Of course, the exact amount of your investment should be determined by the number of people who depend on you, your existing investments and your life stage. For example, if you are 30 years of age and have two children and parents to provide for, the amount you invest should be reflective of your requirements.

Calculate your Human Life Value NOW

Use our quick and easy Human Life Value Calculator to determine your Human Life Value and the corresponding amount you should invest. Start right away!

What are the tax benefits available?

      Life Insurance as a tax saving tool, offers savings under various sections of the income tax act. Some of the key tax benefits offered are as follows:
          o
           Life insurance plans are eligible for tax deduction under Sec. 80C.
          o
           Pension plans are eligible for a tax deduction under Sec. 80CCC.
          o
           Health insurance plans/riders are eligible for tax deduction under Sec. 80D.
          o
            The proceeds or withdrawals of our life insurance policies are exempt under Sec 10(10D),
            subject to norms prescribed in that section.

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