Things You Should Know Before Buying Life Insurance

This short article tries to answer some common questions regarding insurance, and life insurance in general.

Short Term Insurance vs. Long Term Insurance Policy

Based on the maturity period of insurance policy, insurance can be broadly divided into two types: Short Term Insurance Policy and Long Term Insurance Policy.

What is Short Term Insurance Policy?

Short Term Insurance Policy is a policy that has a maturity period of 1 year. Normally, Short Term Insurance Policy covers the areas such as health insurance, auto insurance, business insurance, house insurance, etc. You will have to renew the policy every year. If nothing happens during the insured period, you do not get any benefits.

What is Long Term Insurance Policy?

Long Term Insurance Policy is a policy that has a maturity period of 5 years, 10 years, 15 years, even 20 years. Generally speaking, Long Term Insurance Policy covers life insurance. You will have to pay the premium annually until the maturity period and then get the benefits.

Life Insurance vs. Non-Life Insurance

Insurance can be broadly categorized into two types: Life Insurance and Non-Life Insurance.

What is Life Insurance?

A life insurance policy is a policy that covers health insurance as well as life insurance. The maturity period can be for a short term as well as a long term. Health insurance takes of your medical bills whereas life insurance covers accidents, terminal illness, and loss of organs.

What is Non-Life Insurance?

Non-life insurance policy is a policy that covers the areas like auto insurance, house insurance, business insurance, etc. Non-life insurance generally is for short time. Non-life insurance will cover the loss or damage against your insured property. Let's say, you have insured your car and your car is damaged in an accident. Your insurance company assesses the damages and provides benefits accordingly. However, if your insured property is not damaged during the insured period, you do not get any benefits.

Insurance Vs. Assurance: What’s the Difference?

 A lot of people confuse insurance with assurance. Let’s look at the similarities between insurance and assurance and the difference between assurance and insurance.

Insurance and assurance are similar in the sense that they both provide coverage against loss and damages or any hazards. The major difference between insurance and assurance is the term period. While insurance covers the damages and loss for a certain time, assurance covers over an extended period of time. For example, you buy a life assurance for the term of 20 years, your policy will give coverage only for 20 years and upon maturity, you can collect the benefits. However, an assurance policy will give coverage for the entire life and will give benefits to your nominee after your death.

Generally speaking, an insurance policy is for you, an assurance policy is for your family (kids or spouse).

Reasons Why You Need a Life Insurance?

Life is uncertain, anything can happen at any moment. You are trying to cross a street, a car hits you and you lose your leg. Here lies the importance of getting life insurance. While life insurance cannot give back your legs, it will surely cover the loss in terms of money. This is the most obvious reason for getting life insurance, however, there are many other reasons why you need life insurance.

After the maturity period, you get your insured amount along with a bonus. The money will help you in old age.

In case of death, during the insured period, your premium will be waived off and your nominee can get the benefits.

If you want money immediately but have no other source, you can get a loan by using your insurance policy as collateral.

Life Insurance Term: 5 Years 10, Years, or 20 Years?

A life insurance policy is an insurance policy that covers terminal illness, loss of organs due to accidents, and also death. If nothing happens during the insurance tenure, you will get your insured amount along with a bonus. You can get a life insurance policy for the term of 5 years, 10 years, or even 25 years. But this also means you are paying premiums for the entire term, which might be financially daunting if you have a limited income. By the way, how do you decide the term for your life insurance policy?

When I was buying a life insurance policy, I wanted to choose 15 years term. However, for the amount that I wanted to insure, I did not have enough money to pay for my first premium. If I chose 20 years period, the money I had at that time would be just enough to pay for my first insurance. Therefore, I chose 20 years term.

First published on Trendri, in author's name