Insurance

Life Insurance

What is Life Insurance?

Life insurance is a protection against financial loss that would result from the premature death of an insured. The named beneficiary receives the proceeds and is thereby safeguarded from the financial impact of the death of the insured. The death benefit is paid by a life insurer in consideration for premium payments made by the insured. 

Why Life Insurance

Insurance is important because it protects a person or entity from extreme financial loss or responsibility due to an unfortunate emergency, accident or negative unforeseen event. There are many different kinds of insurance, some of which cover a person and some of which cover businesses and other entities. 
We prioritize insurance planning is a must because it is protection to the life cover risk. It will help you understand whether you are under-insured or over-insured and the existing policies can be earmarked in the financial planning structure. 

Life insurance is important to people who want to protect their family from financial distress after their death. It can be used to provide financial security for loved ones. 

Types of Life Insurance

There are two basic types of life insurance policies viz. Traditional Whole Life and Term Life Insurance. A whole life is a policy you pay till death of the policy holder and term life is a policy for a fixed amount of time.

1. Term insurance

Term plans — are the most basic form of life insurance. They provide life cover with no savings / profits component. They are the most affordable form of life insurance as premiums are cheaper compared to other life insurance plans. Online term insurance plans provide pure risk cover, which explains the lower premiums. A fixed sum of money - the sum assured – is paid to the beneficiaries if the policyholder expires over the policy term. If the policyholder survives, there is no pay out.

2. Endowment plans

Endowment plans differ from term plans in one critical aspect i.e. maturity benefit. Unlike term plans which pay out the sum assured, along with profits, only in case of an eventuality over the policy term, endowment planspay out the sum assured under both scenarios – death and survival. However, endowment plans charge higher fees / expenses – reflected in premiums – for paying out sum assured, along with profits, in either scenario – death or maturity. The profits are an outcome of premiums being invested in asset markets – equities and debt.

3. Unit linked insurance plans (ULIP)

ULIPs are a variant of the traditional endowment plan.They pay out the sum assured (or the investment portfolio if its higher) on death/maturity. ULIPs differ from traditional endowment plans in certain areas. As the name suggests, performance of ULIP is linked to markets. Individuals can choose the allocation for investments in stock/debt markets. The value of the investment portfolio is captured by the NAV (net asset value). To that end, there are many similarities between ULIPs and mutual funds. ULIPs differ in one area, they are a combination of investment and insurance, while mutual funds are a pure investment avenue

4. Whole life policy

A whole life insurance policy covers a policyholder over his life. The main feature of a whole life policy is that the validity of the policy is not defined so the individual enjoys the life cover throughout his life. The policyholder pays regular premiums until his death, upon which the corpus is paid out to the family. The policy expiresonly in case of an eventuality as there is no pre-defined policy tenure.

5. Money back policy

A money back policy is a variant of the endowment plan. It gives periodic payments over the policy term. To that end, a portion of the sum assured is paid out at regular intervals. If the policy holder survives the term, he gets the balance sum assured. In case of death over the policy term, the beneficiary gets the full sum assured.

Benefits of Life Insurance

Life insurance offers several advantages not available from any other financial instrument. Life insurance enjoys favorable tax treatment unlike any other financial instrument. Death benefits are generally income-tax-free to the beneficiary. 

• Life insurance provides an infusion of cash for dealing with the adverse financial consequences of the insureds death.
• Life insurance enjoys favorable tax treatment unlike any other financial instrument.
  
  • Death benefits are generally income-tax-free to the beneficiary.
  • Death benefits may be estate-tax free if the policy is owned properly.
  • Cash values grow tax deferred during the insureds lifetime.
  • Cash value withdrawals are treated on a first-in-first-out (FIFO) basis, therefore cash value withdrawals up to the total premiums paid are generally income-tax free.
  • Policy loans are income tax free.
  • A life insurance policy may be exchanged for another life insurance policy (or for an annuity) without incurring current taxation.

Note: All of the above statements are generally true; however the tax benefits of life insurance have certain limitations which under the wrong set of circumstances can cause the tax benefits mentioned to be lost.  Please discuss with your insurance and tax advisor.

• Many life insurance policies are exceptionally flexible in terms of adjusting to the policyholders needs.  The death benefit may be decreased at any time and the premiums may be easily reduced, skipped or increased.
• A cash value life insurance policy may be thought of as a tax-favored repository of easily accessible funds if the need arises; yet, the assets backing these funds are generally held in longer-term investments, thereby earning a higher return.

Health Insurance

Health insurance is a type of insurance coverage that covers the cost of an insured individuals medical and surgical expenses. Depending on the type of health insurance coverage, either the insured pays costs out-of-pocket and is then reimbursed, or the insurer makes payments directly to the provider.

In health insurance terminology, the "provider" is a clinic, hospital, doctor, laboratory, health care practitioner, or pharmacy. The "insured" is the owner of the health insurance policy; the person with the health insurance coverage.

In countries without universal health care coverage, such as the USA, health insurance is commonly included in employer benefit packages and seen as an employment perk.

In case of a medical problem that necessitates surgery/hospitalization, the insured is reimbursed by the health insurance company either directly in cash or indirectly through payment to the hospital / clinic. Taking health insurance is one of those things an individual cannot ignore given the rising costs of treating health problems. Inflation in medicare or medical treatment is a lot higher than general inflation or inflation in other categories like food and clothing. While inflation in most categories is in single digits, inflation in medicare is often higher.

Car Insurance

Car insurance (also known as auto or motor insurance) is done to protect your vehicle from unforeseen risks. It basically provides protection against the losses incurred as a result of unavoidable instances. It helps cover against theft, financial loss caused by accidents and any subsequent liabilities. The cover level of Car insurance can be the insured party, the insured vehicle and third parties (car and people). The premium of the insurance is dependent on certain parameters like value of the car, type of coverage, vehicle classification; voluntary excess etc. Car insurance gives confidence to drive peacefully. In emergencies it acts like a boon to the insurance holder.

With so many car insurance companies for customer base in the market, it is quite difficult to make a decision like choosing the right policy and insurer. Figuring out the right insurance policy, fulfilling the requirement and being cost effective can be time consuming. Many a times car insurance may seem complex but having it saves you spending a fortune later.

As with all insurance, before signing the insurance contract you should carefully read the policy document and product disclosure statement and make sure you ask your insurer about any aspects of the policy that you do not understand.

Travel Insurance

An insurance product designed to cover the costs and losses, and reduce the risk associated with, unexpected events you might incur while traveling. It is often pitched as the best protection for those traveling domestically or abroad. Many online companies selling airplane tickets or travel packages allow consumers to purchase travel insurance (also known as travelers insurance) as an added service. Some travel insurance policies cover damage to personal property; rented equipment, such as a rental cars; or even the cost of paying a ransom in the case of a kidnapping.

Be it business or pleasure travel, having a trouble free trip is what everyone looks forward to. Illness is uncertain, it can spoil the planned trip. But with insurance in hand, medical bills are taken care of. Other difficult situations like loss of passport or baggage while traveling can also add on financial difficulties. These are all covered by travel insurance. Travel insurance usually covers medical expenses, financial or any other looses incurred while traveling. Travel insurance is arranged at the booking of a trip to cover exactly the duration of that trip. Travel insurance offers coverage for Student travel, business travel, leisure travel, adventure travel, cruise travel, and international travel. Irrespective of the nature of uncertainties, a suitable travel insurance fulfilling the requirements can offer the coverage needed while away from home.

Travel insurance is frequently purchased as a package that includes several different types of coverage. Many travel insurance plans sold in the U.S. also include 24/7 emergency travel services, such as replacing lost passports, cash wire assistance and re-booking canceled flights.

Home Insurance

Home insurance, also commonly called hazard insurance or homeowners insurance (often abbreviated in the real estate industry as HOI), is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to ones home, its contents, loss of its use (additional living expenses), or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory. It requires that at least one of the named insureds occupies the home. The dwelling policy (DP) is similar, but used for residences which do not qualify for various reasons, such as vacancy/non-occupancy, seasonal/secondary residence, or age.

The home insurance policy is usually a term contract-a contract that is in effect for a fixed period of time. The payment the insured makes to the insurer is called the premium. The insured must pay the insurer the premium each term. Most insurers charge a lower premium if it appears less likely the home will be damaged or destroyed: for example, if the house is situated next to a fire station; if the house is equipped with fire sprinklers and fire alarms; or if the house exhibits wind mitigation measures, such as hurricane shutters. Perpetual insurance, which is a type of home insurance without a fixed term, can also be obtained in certain areas.