Everyone considers having a peaceful life for their near and dear ones even when they are no more. This is the kind of care that a life insurance policy/assurance policy may provide. Life insurance has come across as one of the important necessities for everyone, particularly amidst the increase in the pandemic scenario. However, before you select a plan that matches your expectations, ensure to know all regarding it. So, here is a deep dive into the same.
What’s a life insurance policy?
Life insurance is bought for a fixed time period that ranges anywhere from 5 years to 100 years. The insured must pay the premium for the policy availed. In return, the insurance company assures to provide a lump sum amount to the policy’s nominee in the case the insured individual expires during the tenure of the plan.
To understand this better, let’s go through the features and benefits of a life insurance plan. These are given below –
- It is bought for a fixed time period
- The premium is paid on an annual basis
- The nominee gets a lump sum payout in the case the insured expires during the tenure
There are two kinds of life insurance policies –
- Protection plus savings (provides maturity benefits)
- Pure protection (covers just the death benefits)
- Health, age, family’s health record, coverage kind, gender, daily habits, occupation, etc., impacts the premium of the life insurance policy
What’s life assurance?
A life assurance plan is a whole or pure life plan. The term i.e., whole life policy majorly means you get this cover for your whole life without any fixed time period. The plan’s nominee receives death benefits when the insured dies. Check out to know the benefits and features associated with a life assurance plan –
- A life assurance policy is bought for a lifetime
- On the insured’s death, the nominee gets the assured funds
- There are zero savings offered in the case of a life assurance policy
What is the point of distinction between assurance and insurance?
The tabular representation below shows the distinctions between life assurance and insurance policy to provide you with complete clarity. Read on to know.
|Life assurance||Life insurance|
|It is bought for the whole life||It is bought for a specific tenure as per the life insurance quotes available to you|
|Pays out the assured money to the nominee in the case of the demise of the policyholder||Pays out the lumpsum money to the nominee in the scenario of the demise of the policyholder during the tenure of the policy|
|There’s zero maturity benefit||There might or might not be any maturity benefit (protection in addition to savings)|
|This is a lifetime plan||This is a short-term plan|
|Just one claim is allowed to be raised||Multiple claims are allowed to be raised.|
Life assurance or insurance – which option is a better choice?
All discussions might boil down to a basic question “Should you opt for a life insurance policy or life assurance policy?”. Well, there might not be a simple and straightforward answer to this specific question. Both policies come with distinct goals to serve distinct requirements. Hence, it is a must that you initially analyse your needs from an insurance plan point of view. If you are eyeing a cover that can even permit you to make considerable savings for your loved and dear ones, life insurance may come across as a good deal. However, if you are looking for a life cover that would provide financial assistance to your family post your demise, you might go with the life assurance policy. Read on to know the advantages and disadvantages associated with both policies and then based on this make an informed decision.
How do life assurance and insurance function?
Life assurance and insurance function in the same manner and are the same as any insurance plan. You make payment of a premium and can get your risk linked with finances covered in exchange. The risk varies based on the policy type.
- In the case of life assurance and insurance, the risk level is more a less similar. In the case of your demise, your family members will witness financial challenges besides the grief of your absence. Financial challenges may be severe in the case you were the significant or sole breadwinner or earning member of the family.
- Premium paid is utilised by the life insurance company for covering the financial loss in order for the family members to sustain their daily livelihood and meet their major financial goals by the deadline. The insurance company make payment of an assured amount to the nominee in the case of the insured’s unfortunate demise.
- Life insurance policies come with affordable premiums, which makes them light on the pocket. The benefits outweigh the premiums you pay. The contribution you make is worthwhile as demise is unpredictable.
An instance of a term insurance policy –
For instance, suppose X, a 40-year-old individual earns an income of Rs 12 lakh every year. Suppose he has no illnesses, and his medical history even is clear. Now, he can get pure life insurance equaling 20 years tenure also known as “term policy” with an assured sum equaling Rs 1 crore. If he dies at the age of 58, then his nominee may be paid a sum assured. However, in the case, X passes away at the age of 65, zero-sum assured would be paid because the policy term was just 20 years.
An instance of life assurance or whole life insurance –
X is 40 years of age and earns an income equaling Rs 12 lakh every year. He has zero known diseases, and his medical history too is clean. He gets a life assurance with a sum assured equaling Rs 1 crore. Now, if X passes away at 74 years of age, then his family would receive a sum assured equaling Rs 1 crore.
When must you use the life assurance or whole life insurance policy?
Saving funds to form a corpus is an important time-tested measure to plan out your future. This method is useful in forming wealth over the long term. But what if, life comes with some other plan? Risks to life, as well as health, do not come with advance notification. Life insurance is a reliable means of meeting your risks and financially safeguarding your family regardless of when you may die. The family can sustain, and your kids can continue with their higher studies as you have prepared a plan. In contrast, whole life insurance often goes a step ahead. They cover up the risk of witnessing any financial loss ensuring your family members do not require struggling for funds. Simultaneously, it provides full coverage for life implying your spouse, nominee, or child will receive a sum assured whenever you die.