It is a known fact that India is under-insured and when it comes to life insurance, the situation is even grimmer as women, rural residents, millennials and the self-employed are left further behind. While India’s life insurance penetration is comparable to Asian peers at 2.8% of GDP, the protection gap is alarmingly high at 92%. A huge chunk of people in the country lacks basic awareness about life insurance, its importance and offerings. Here are a couple of points one need to know for understanding life insurance better.

It is a myth that life insurance provides only death benefits, conversely; it is much more than that. Life insurance is a risk protection vehicle through which people can insure themselves against the inability to work, set aside money for retirement or protect themselves against the loss of their assets.

Decoding life insurance: It is important for people to first analyse their financial goals and needs before opting for the right protection tool. They should have clarity on what they want to protect and why further analysing when they need to protect it.

A person can choose from any of the below plans depending on his/her life stage and financial needs.

Term Plan is the safest way of arranging financial safety when you are no longer present to provide for your loved ones. Also, if you have a loan you cannot miss having a term plan. Term plan is a comprehensive pure protection tool that comes at a relatively low premium.

Endowment Plan: Providing dual benefit of a life cover and goal based savings under a single plan, this plans offers death benefit or a lump sum payout on the maturity, in case of survival.

Annuity Plan can be one of the best policies for one’s retirement. The policyholder starts receiving a certain fixed amount which can be broken into monthly, quarterly, annual or even a lump sum payment after completion of a pre-specified period.

Unit Linked Insurance Plan (ULIP) comes with an integration of protection and investment wherein the investment can be made in stocks, bonds or mutual funds. Policyholders can customise their investment according to their needs and risk appetite as the returns on investment are linked to market movements.

Claim Settlement Ratio of the company: What are the chances that one would get claims from the insurance company? This is indicated by the claim settlement ratio which is the number of claims paid against total claims received. It is advisable to consider the latest claim settlement ratio before selecting your insurance provider.