A beginner's guide to life insurance

2020 saw a virus bring the whole world to a standstill. And just when it seemed like the worst was over, the second wave of the COVID-19 pandemic came out of nowhere and wreaked havoc across the nation.

Nearly four lakh people died and many of them were their family's breadwinners. Reportedly, half of those who died were aged below 60 years.

It all goes to underscore the importance of having a sound financial back-up plan in the form of a life insurance policy to protect your family financially in your absence.

With so many families left to fend for themselves owing to the loss of the sole income-earning member, a life insurance policy in such situations can come to the rescue as it can help the family to overcome financial difficulties, if not the emotional setback.

Why is life insurance important?

Life Insurance is a financial cover for a contingency linked with human life, such as death. While a value cannot be ascribed to a human life, a monetary sum could be determined based on the loss of income in future years. Since there is loss of income to the household when human life is lost, the payout from a life insurance plan can provide comfort in such times by compensating for the lost income.

Life insurance is a means towards ensuring that your immediate family has some financial support to fall back on in the event of your untimely demise. It could be to repay debt like a home loan or achieve financial goals like children's higher education or old-age care for parents or spouse.

How much insurance cover do I need?

There's no perfect formula. Consider your present lifestyle and future needs while arriving at a figure. In case the sum assured is not carefully evaluated based on the future needs of the family, the insurance proceeds may exhaust sooner than you know.

The concept of life insurance is that if something unfortunate happens to the policy holder, his/her family can continue leading a comfortable life. That is possible only if the payout under the insurance policy is enough to compensate for the lost income due to the death of the policyholder for a reasonable number of years.

Which insurance policy is right for me?

There are various types of life insurance plans available in the market but most popular among them are Term Insurance Plans and Unit Linked Insurance Plans (ULIPs).

Term Life Insurance

In a term life insurance plan, the policyholder pays premium to the insurance company to get coverage against death. In case of the policyholder's demise within the policy period, the insurance company pays the sum assured to the nominees.

Term insurance is one of the preferred life insurance product as it provides a significantly large cover at affordable premiums.

Unit Linked Insurance Plans

ULIP or Unit Linked Insurance Plan is a type of life insurance policy, which offers you the benefits of market-linked wealth creation and life insurance coverage. They are amongst one of the preferred choices for securing one's long-term life goals.

As a policyholder, you have the opportunity to invest in a number of market-linked ULIP funds depending on their risk profile and investment horizon. At the same time, you get to enjoy the benefits of life insurance cover. Through the investment component, you can invest in equity, debt funds or a combination of both.

Both term insurance and ULIP plans come with tax benefits at the time of investment as well as at the time of maturity, as per the Income Tax Act 1961, subject to specified conditions.

Insurance is, by and large, a useful tool to have at your disposal. Life throws unexpected curve balls at us when we least expect, and it's good to have the means to tackle those situations in some capacity, at least.

Similarly, at mPokket, we realize that despite your prudent financial planning, from time to time, you might face a financial emergency of some form. During those trying times, you'll need a trusted friend by your side, someone who will not just provide moral support but will help you out financially as well.

mPokket is one of the best instant loan apps in India when you need some quick credit. You can easily obtain an instant student loan or salaried loan. Simply download the mPokket online loan app. Register by uploading a handful of documents, and post-approval, borrow instant online loans of up to Rs. 45,000! mPokket instant loans for students online and loans for salaried are both credited straight to your bank account within 10 minutes.

You might also like: 5 things to keep in mind for achieving financial freedom