What is Life Insurance?
It is a contract between you and an insurance company in which the company provides your beneficiary(ies) with a certain amount of money upon your death. In return, you make periodic payments (premiums) in an amount that depends on medical history, age, gender, and occupation. An insurance policy offers much more than just tax planning and investment returns. It offers you the ability to plan for unforeseen events that could affect your family's financial problem adversely.
Before Taking a Life Insurance Policy please read through the following articles to analyse your insurance need for the hour.
Step1 : Evaluate your life insurance needs - Life Insurance is one of the most popular savings/ investment vehicles in India. Ironically, its probably the least understood too.
An insurance policy offers much more than just tax planning and investment returns. It offers you the ability to plan for unforeseen events that could affect your family's financial profile adversely.
Step2 : Understand the key concepts
Insurance options range from policies with low premium that offer you almost no returns to those with high premium that effectively offer post-tax returns of around 8% to 9.5% p.a.
These returns are at the lower end of fixed-income returns available today and hence are relatively unattractive.
We recommend you buy an insurance policy skewed towards investment returns only if you are in the high-tax bracket, prefer to invest in low-risk, fixed-income options and have exhausted all the other such investment options available.
As you grow older, you may not have as many dependents (your children would become self-dependent) or your wealth may reach a level where it can support your dependents’ financial needs in the event of your death.
These possibilities bring us to the interesting question on whether you should insure yourself for whole life or for a limited term. Obviously, the cost of insurance for the latter is lower.
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