Check Out Some Important Things About Insurance Plans

It is not possible to know when an emergency may arise in future, hence it is helpful to have a contingency plan in place. An insurance policy or an insurance plan is a great tool to help prepare and protect one from the losses that an unexpected situation may cause.

Important things about insurance plans

An insurance plan is a policy which provides financial protection to the insured. Various types of insurance policies provide financial support and compensation for the loss or damages caused by unforeseen events. For any individual looking to purchase an insurance plan, here are some important things to keep in mind.

The insurance policy is comprised of the premium, policy limit and deductible.

Premium:

The premium is a periodic payment made to the insurance company to avail an insurance policy. The premium is calculated by the insurance company after considering several factors like the age and occupation of the insured, his creditworthiness, probability of default and probable loss. An individual can either pay the premium periodically or make a lump sum payment at the start.

Policy Limit:

The policy limit is the maximum amount that an insurance company will bear in the case of a loss. The insurance premium will be higher if the policy limit is high. The face value of a general life policy is the maximum amount that an insurer will pay to the family of the deceased.

Coverage:

Insurance policy coverage helps one ascertain the various situations in which an insured person can make a claim. It is the amount of risk covered for the insured by the insurance companies. Different policies offer different coverages and command different insurance premiums.

Deductible:

Certain insurance policies require the policyholder to pay a certain amount of money from their own pocket before making a claim. This sum is known as the deductible. Higher deductibles lead to lower claims and lower insurance premiums as well.

Need of Insurance

In today’s day and age, the importance of insurance is more than ever. Uncertain times can lead to many difficult situations. In the case of an emergency, an insurance plan can prove to be vital.

Provides financial protection

One of the most important benefits of an insurance policy is that it provides financial protection to the policyholder. It can pay for the damages or losses that may occur in future. Health insurance and general insurance policies can help protect yourself and your loved ones too.

Helpful in times of emergencies

An insurance plan is helpful during emergencies. As it is not possible to know when an emergency might come up, insurance can provide financial support to get through tough times. There are various types of insurance like travel insurance, automobile insurance, fire insurance, health insurance and life insurance which can help an individual.

Reduces uncertainty

Insurance plans help in reducing uncertainty. It is not possible to know when an unforeseen event might strike and how severe it can be. Hence, an insurance plan can help in creating a contingency plan in case such an event was to occur.

Helps protect your family

Life insurance policies are a great way to financially secure the family of the insured individual in the event of his death. A life insurance plan helps in providing financial support and compensation to the family or beneficiaries of demised to help them maintain their standard of living.

Different types of Life Insurance Policies

There are several different types of life insurance policies that might help an individual.

Term insurance plan:

A term insurance plan is a policy bought for a certain period, like 10, 20 or 30 years or more. This policy does not offer any maturity benefits but offers compensation to the beneficiaries in the event of the death of the insured individual.

Unit Linked Insurance Plan (ULIP):

ULIP is an insurance plan that not only offers insurance coverage but also acts as an investment vehicle. The policy pays the sum assured on maturity or death. A part of the premium paid towards a ULIP is contributed to the life cover, while the remaining part is invested in the market via mutual funds.

Endowment Policy:

Endowment policies give you the coverage and benefits of life insurance but at the same time help you save money. The sum assured is paid under both conditions, death and survival of the insured.

Whole life insurance:

The tenure of the whole life insurance is not defined. Hence, it provides insurance coverage to the policyholder throughout his life. The policyholder pays the premium till his death. The corpus amount is then received by the beneficiary.

Money Back Policy:

This type of insurance policy makes periodic payments as the death benefits to the insured; in case he survives. These policies include both insurance and investment plans.

Tax Benefits on Insurance Plan

Under Section 80C of the Income Tax Act, 1961 an individual can claim the insurance premium as tax-deductible from the taxable income. The limit of the deductible under this section is up to Rs 1.5 lakh.

Under Section 80D, the premium paid for health insurance can be claimed as tax-deductible. This amount can be claimed for an individual or a family member.

Before taking on an insurance plan, one should assess their needs and know the important factors that affect your policy and premium.

FAQs

What are important things in Insurance?

The policy premium, policy limit, deductibles and coverage are important things in insurance.

What are the functions of insurance?

Insurance serves the function of providing financial compensation in the case of loss or damages caused due to an unforeseen circumstance. It also helps in saving and investing.

What is the importance of insurance planning?

Insurance planning is important as it can help you select the suitable policy, plan for the future and help you make financial decisions in order to make sure you pay premiums on time.