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Family Life Insurance 

In today’s uncertain world, ensuring the financial stability of one’s loved ones is essential. That’s why many earners opt for family life insurance to provide the necessary financial support their family members need during times of need. Upon the policyholder's sudden demise, life insurance plans provide a death benefit. It involves paying out a lump sum amount to the beneficiaries to help them meet financial obligations. ...Read More

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Family Life Insurance

What is Family Life Insurance?

Family Life Insurance
October 10, 2024

Table of Content

 

A family life insurance plan is a policy that offers comprehensive coverage for each member of the family. Though the policy details vary from one family to another, a family life insurance policy usually includes whole life insurance coverage for the sole earning member of the family and term insurance coverage for spouse and dependents.

What Is a Life Insurance Plan for a Family?

In short, a family insurance policy combines whole-life coverage with term insurance for your family members under a single plan. Usually, the whole-life coverage is given to the family's primary breadwinner, while other members get separate term coverage.

Family life insurance plans undoubtedly play an important role towards providing financial security and stability for loved ones. They act as a safeguard for the financial future of your family. The approximate amount provided by this policy is adequate and eases the financial burden on your family. The payout can be used for educational expenses, everyday costs, pay-off loans and critical financial issues.

Why Your Family Need Life Insurance?

Life insurance is essential for your family in terms of protecting the financial future of your loved ones. This kind of life insurance provides a safety net and ensures your family members maintain a decent standard of living even when you are not around.

Let’s look into the factors stating the importance of life insurance for your family members:

  • Offers Financial Stability

If the policyholder suddenly passes away, the family life insurance policy provides insurance coverage to family members to maintain their desired standard of living.

  • Pays Out During Hours of Need

Life insurance policies pay out during medical emergencies and thereby provide financial security and stability. Apart from this, if there are any legal charges, loan repayment or debt payments, one can choose the life insurance payment to cover such expenses during the absence of the policyholder.

  • Helps in Meeting Critical Expenses

Family life insurance not only provides comprehensive life coverage but also serves a source of income during critical stages of life. Certain insurance plans offer a lumpsum amount during retirement years. Moreover, to meet your child's future expenses, you can choose to buy an insurance policy of your choice.

  • Retirement Planning

The family insurance plan also provides coverage after retirement. Thus, your post-retirement life stays safe and secure financially.

  • Meet Child’s Expenses

If you are worried about your child’s future educational expenses, choose a life insurance policy to build funds. This will make sure that your child can get the highest quality of education in the event that you, unfortunately, pass away before their schooling is complete.

Different Types of Life Insurance Plans for Families in India

Family life insurance policies in India provide financial protection and support during any unforeseen situations for your family members. The features of these plans vary from one insurer to another and are tailored accordingly to meet the needs and preferences of your loved ones.

Let’s explore the different types of family life insurance plans in India:

  • Term Insurance Plans

Term insurance plan is a popular type of insurance policy prevalent in India. As the name suggests, you can purchase this policy for a particular period (say 10, 20, 30 or more years).

However, unlike other types of insurance policies, term plans don't provide maturity benefits. For this particular reason, term insurance policies are comparatively cheaper than other types of insurance plans, making them an ideal choice if you only want life cover.

  • Retirement and Pension Plans

Retirement and pension plans are another type of life insurance policy that provides financial security and stability in your post-retirement years. With a retirement plan, you will receive a lump sum amount or regular income after you retire.  

However, if there is a sudden death of the policyholder during the policy tenure, the nominee or beneficiary will receive the death benefit along with other payouts. This protects your family members financially while providing post-retirement income.

  • Child Insurance

A child insurance plan combines the features of investments and insurance plans, allowing you to meet the financial needs of your child. By opting for this plan, you can build up wealth and meet your child's future needs, such as education expenses, marriage and others.

Since the birth of your child, you can start investing in these plans. Child insurance plans are flexible and allow you to invest your hard-earned money into different funds, considering your financial condition and keeping your goals in mind.

  • Money Back Policies

One of the purposes of investing in a family life insurance plan is to build wealth over a specific period. The majority of life insurance policies, however, do not provide funds before maturity. This makes money-back policies important.

Money-back plans return the premiums you have paid in regular instalments. This plays a crucial role towards solving the problem of liquidity. It also continues to pay a certain portion of the sum assured during the policy tenure.

  • ULIPs – Unit Linked Insurance Plans

A Unit Linked Insurance Plan (ULIP) is a well-known insurance policy providing dual benefits of investment and insurance in India. Similar to other different kinds of life insurance plans, ULIPs also provide comprehensive coverage with opportunities to invest in market-linked assets.

The distinguishing feature of ULIP is that it consists of a five-year lock-in period with a risk protection feature. A longer time horizon is usually good for higher returns.

  • Joint Life Insurance

A joint life insurance policy considers two individuals under a single plan. It thereby ensures financial support for your family members in case there is a sudden demise of one of the policyholders. Policyholders must pay the premium amount in regular intervals, similar to an individual term plan.

Because of the involvement of two individuals, purchasing this plan is comparatively cheaper than buying two separate policies.

Benefits of a Family Life Insurance Plan

A family life insurance plan offers financial security to your near and dear ones during any unfortunate incident. It ensures the arrangement of funds for your family to meet daily expenses and future financial goals. Here are some benefits included in a family life insurance plan:

  • Secure Your Financial Future

Purchasing a family life insurance policy ensures financial security for your family members during your sudden demise. It helps in maintaining financial stability, supporting education expenses, and paying off family debts. Additionally, opting for the right savings plan provides additional income and assures financial protection for your family.

  • Create Wealth

Purchasing a family life insurance plan helps accumulate wealth over time with the assurance of providing comprehensive life coverage for your family members. These funds are then further utilised to meet financial goals that can include a child's education, marriage costs, retirement planning, home ownership, or any other unforeseen events.

  • Tax Saving Benefit

A family life insurance plan offers several tax benefits. The money paid as premiums is allowed for deduction from your taxable income of up to ₹1.5 Lakh per year under Section 80C of the Income Tax Act, 1961. Moreover, the maturity benefits and death benefits are tax-exempt under Section 10 (10D).

These deductions ultimately result in lowering your taxable income and saving money for years, considering the policy tenure.

  • Help With Paying Off Debt

During any unfortunate event of the death of a policyholder, a family life insurance policy provides death benefits to beneficiaries to help them with paying off debt. This thereby eases the financial burden of your family members.

Without this financial support, it would be difficult for your family to manage financial burdens. Thus, by taking care of debts, life insurance ensures you keep your loved ones stress-free and maintain a decent standard of living.

  • Rider Benefits

Riders are additional benefits that you can get with your already existing family insurance plan. These riders provide an enhanced safety layer and flexibility to families. Most importantly, by opting for a rider's plan, the overall insurance coverage is enhanced, and several benefits are included that might not be possible to cover under the base policy.

  • Compare Online

Before choosing the right insurance plan for your family, comparing plans online is mandatory. Many official websites allow you to compare different policies and premium amounts. This way, it becomes easier to reach an informed decision and select the plan that aligns with your budgetary requirements.

Not only this, online comparison also lets you avail special discounts and offers and choose the best policy at the most affordable price.

How to Pick the Right Life Insurance Policy for Your Family

To choose the right life insurance policy for your family, make sure to assess their financial needs and long-term goals. Go through the different available policies and how they align with your family's future expenses.

Here are the factors to consider to pick the right policy for your family:

  • Assess Coverage Needs

Assess your family's financial needs, including their future expenses, outstanding debts and income replacement. Select a policy with sufficient coverage amount to meet the desired needs.

  • Premiums

Make sure to check the premium amounts of your life insurance policy and ensure they fit your budget. The premiums should be affordable and sustainable to prevent the policy from lapsing in future.

  • Type of Policy

Look into the type of policy you are planning to choose. Decide whether to choose a term life insurance policy or whole life insurance. Term life insurance provides coverage for a particular time period, while whole life insurance provides comprehensive life coverage and includes accumulation of cash value.

  • Flexibility

Choose a family life insurance policy that offers flexibility to adjust the coverage level, add riders or change beneficiaries to meet your family's needs over time.

  • Policy Term

Consider your chosen policy's tenure. For example, if you have a young child, you might want coverage that will provide them financial security in the future. Thus, choose a policy term aligning with the long-term goals of your family

Things to Think About When Choosing a Family Life Insurance Policy

Here are the key factors to consider when choosing a family life insurance policy:

  • Coverage Amount

Determining the coverage amount is the first and foremost factor to think about before opting for a family life insurance plan. Consider other factors of your family, including long-term goals, retirement corpus, fixed expenses, and more. Also, determine whether there are any existing resources your family can depend upon to meet expenses and debts under any uncertain scenario. By considering all these questions, you can choose the coverage amount for your family.

  • Premiums

Determining the premium amount for your chosen plan is of utmost importance. For accurate calculation of the premium, use an online premium calculator to determine the required premium you need to pay for the life insurance.

Make a thorough comparison of plans to find out the appropriate policy offering the highest comprehensive coverage aligning your budget and requirements. You should also determine your premium paying term considering your earnings for the upcoming years.

  • Policy Duration

The policy duration denotes the number of years your family stays financially dependent upon you. To find out the ideal policy duration, subtract your present age from the age when you expect your income to stop for accomplishing a desired goal.

  • Riders

Adding a rider to your insurance policy yields additional benefits with comprehensive coverage. It safeguards during any specific situation, such as accidental death, critical illness and others that might not be included under a standard plan.

Including riders in your chosen plan might raise the premium amount but enhances the protection of your family members. Riders also offer flexibility to let you customise the policy and provide additional financial security to your loved ones.

  • Claim Settlement Ratio

The claim settlement ratio is another important factor to consider when deciding on an insurance provider. This ratio denotes the percentage of claims an insurance provider settles in a year out of the total claims. Thus, it is a primary indicator of credibility. The higher the claim settlement ratio, the more reliable the insurer will be.

If your insurance provider is found to be maintaining a high CSR consistently over a specified period, it is unlikely for them to default on their commitment.

How the Insurance Company is Perceived

When choosing a family life insurance policy, the reputation of the company plays a key role. Life insurance companies that maintain a Claim Settlement Ratio of over 95% are reliable and trustworthy.

To check out the CSR, you can visit the Insurance Regulatory and Development Authority (IRDAI) website for different insurance providers in India. Alongside this, go through the customer reviews and analyse whether the claim service of your insurance provider is hassle-free.

Steps to Buy Family Life Insurance Online in India

Buying a family life insurance plan online in India is a simple and hassle-free process for securing your loved one’s financial future. You can explore and select the best insurance plan meeting your family's requirements.

Here is a detailed step-by-step guide on how you can purchase family life insurance in India online:

Step 1: Go to the required life insurer’s page.

Step 2: Provide your name, contact number, gender and date of birth.

Step 3: Fill in the application form with accurate details relating to annual income, type of occupation, educational qualifications and smoking habits.

Step 4: Choose the best whole-family life insurance plan and proceed to pay.

How Much Life Insurance is Right For You?

Choosing the right amount of insurance coverage is crucial to provide financial security to your family. The ideal coverage should include your future expenses, desired financial goals and debts.

Let’s look into the following factors that help to determine how much life insurance will be appropriate for you:

  • Replacements for Lost Income

Life insurance provides comprehensive coverage to your family upon your sudden demise. For an accurate calculation, consider how much you earn annually and for how many years your family can stay dependent on that income. Thus, choose a life insurance offering coverage of about 10 to 15 times your income annually.

  • Liabilities and Debts

Next comes the costs of school fees for your children, tuition fees, vocational activities and approximate marriage expenses. The current and future costs of sustaining your elderly parents and spouse must be included in the coverage as well. Moreover, if you have debts such as credit card bills and housing loans, calculate the percentage of income you need to spend to clear those.

  • Education Expenses

Make sure to consider the educational costs for your children, including school, college tuition fees and any post-graduate studies. Make a rough estimation of the expenses spent on education fees. Choosing a life insurance plan providing adequate coverage ensures that your child's education will never be compromised, even in your sudden demise or any unfortunate incident.

  • Daily Living Expenses

A proper life insurance plan must cover your family's daily living expenses, such as food, housing, utilities, and more. For accurate estimation, calculate the cost associated with maintaining your family's lifestyle for years. This will provide financial security and stability for your family members in future, even in your absence.

  • Medical Costs

Consider the medical costs your family might face, including health insurance premiums and emergency medical expenses. Choosing a life insurance plan thereby ensures financial support for your family without worrying about savings.

  • Inflation

Inflation means a rise in people's purchasing power and a reduction in the value of money. Thus, while choosing a life insurance plan for your family, consider the effects of inflation. Choosing a plan adjusting for inflation will be beneficial. Thus, select a high coverage to ensure the financial security of your family as the cost of standard of living might rise in the future.

  • Support for Special Needs

There can be some family members with special needs. Thus, providing them with additional coverage is essential. Choose the life insurance plan accordingly. This will help to ensure that they have access to the required resources and services.

  • Current Savings and Investments

While choosing a life insurance plan, make sure to consider your current savings and investments that your family can depend upon. The presence of these financial resources can lower the required insurance coverage and safeguard your family members during your sudden demise.  

 What’s the Cost of Family Life Insurance?

The cost of a family life insurance plan depends on various factors such as age, medical history and required life coverage. The cost of family life insurance can be reduced significantly by purchasing a term life insurance. Term life insurance plan provides comprehensive coverage at affordable prices.

Usually, a term life insurance policy is less expensive than a whole life insurance policy. On the other hand, insurance plans like endowment policies and ULIPs provide additional income over the years, although they are more expensive. You should approach several insurance providers and compare their features, prices, and services to find the best plan.

What Happens If You Die Without Family Life Insurance?

If you pass away without family life insurance, your debts and expenses will be on your loved ones. They might have to struggle and face difficulty with covering funeral costs, monthly expenses, outstanding debts and more.

Paying credit card bills will even become their responsibility, thereby adding further financial responsibility. To meet them, they might need to sell assets and downsize their standard of living. Thus, your family might have to face financial instability in the long term.

Summary

Choosing the best family life insurance is a critical step towards protecting the financial well-being of your family members. It provides peace and comfort knowing that your family will have enough funds to cover their daily expenses, meeting debts and educational costs even in your sudden demise.

Thus, carefully choose a policy after a thorough evaluation of your family's needs and preferences. A right life insurance policy assures your loved ones financial protection without adding additional financial burden in the future.

FAQs on Family Life Insurance

1. What type of life insurance is best for a family?

A family term insurance plan is a type of life insurance considered best for a family as it provides a substantial sum assured at a nominal cost for several family members.

2. Can I modify my family life insurance policy in the future?

Yes, you can modify your family life insurance policy in the future. Life keeps on changing, and thus, your insurance policy should also adapt to your evolving needs and preferences.

3. What happens if I miss a premium payment?

If you miss a premium payment, the insurance companies usually provide a grace period for premium payment. Still missing the premium payment date results in policy lapse, and you will be prevented from receiving insurance benefits.

4. What is family life insurance?

Family life insurance is an insurance plan providing financial support and protection to your family members during your sudden demise. It is a policy designed specifically to attain a separate peace of mind, offering beneficiaries a lump sum amount and managing financial difficulties during times of need.

5. What is the waiting period for a family life insurance policy?

The waiting period for a family life insurance policy differs from one insurer to another. However, usually, the waiting period remains between 30 days to 180 days. Within this period, if any issues arise, your insurer will not cover your claims.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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