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Insurance in India has long been associated with a financial experience which is an ‘investment’ and pays you back a sum of money after a fixed waiting period post investment either in lump sum or in instalments.

The literal meaning of the term ‘Insurance’ is – protection against a risk/loss; this loss can be to an individual, a product, an entity or any other situation or person that can be estimated and priced for by an insurance company. This process is also called ‘underwriting’.

So, when it comes to individuals and more specifically life insurance, is it an investment or a mere protection?

Different kinds of insurance products

  1. Term Insurance

This is a classical insurance product and perhaps the cheapest form of coverage where a person pays a fixed amount of premium to an insurance company for a defined period of time called the insurance term. If the person were to die during this term of insurance, the insurance company pays the pre-determined “sum assured” to the family or nominee of the insured. And in case the person survives the insurance term, then no such payment is made to the insured in general.

It is advisable for all individuals to have such an insurance cover and preferably starting early in their working lifecycle so that in the event of an unforeseen mishap, one can provide for their loved ones. It is actually more suited for younger audience since as you grow in age, your earning capacity also grows and chances are that you would be able to leave behind a safety net even without insurance but in your formative years, the ability to save is limited hence such products become quite meaningful.

It is advisable to choose a sum assured which is minimum 10X your annual income.

 

  1. Unit Linked Insurance Plans

These are products that offer a blend of protection and investment/savings benefits. As a result, one receives a certain term insurance benefit in the form of protection against death/disability along with returns linked to stock market linked instruments. Simply put, ULIPs may be viewed as a mix of term insurance plus investment in mutual funds and hence can be considered as an alternate to regular investment through SIP route in mutual funds. However, one must clearly understand the associated costs/ charge structures of these products.

Various product types have been created under the structure of ULIPs including retirement-based insurance, child insurance etc. but at a structural level, all such products attribute a certain percentage of premium for protection and the rest for savings.

 

  1. Endowment Plans

These are also protection plus savings-oriented products, the difference from ULIPs being, that insurance companies typically invest the component of savings towards debt instruments to generate predictable returns. If the insured outlives the policy term, the insurance company offers the person due maturity benefit. Also, such plans may offer periodic bonuses, which are paid through the term of the policy and on maturity. On death, the death benefit is payable to the nominee.

Buying adequate and appropriate insurance should be a high on your priority.

With the advent of online insurance platforms and digital banking solutions, one can buy the right insurance product at the click of a button!

So go ahead and get yourself covered.