What is a Protection Plan?
A protection plan is a life insurance plan that offers you financial coverage wherein the insurance company agrees to pay you a certain amount in the case of an unfortunate event during the policy tenure. In exchange, you agree to pay a predefined amount regularly to the insurance company as a premium. Protection plans are of two types:
Pure Protection Plan: In this plan, the nominee receives a lump sum amount in case of your demise.
Protection plan with saving: Along with life cover, you have the option to plan for your long-term goals like buying a house, child's education, etc.
How does a life insurance protect your family?
Practically saying, life insurance policy is meant for protecting your loved ones in your absence. And if you are the one responsible for the financial security of your spouse, children, or parents, buying a life insurance is a smart way to help make sure they are financially secure in the future. Here are just a few of the ways in which a life insurance can help you protect the ones you love:
| Financial security |
Coverage for expenses |
Cash value component |
| First and foremost, life insurance is a guarantee for peace of mind that your family will have some financial backup in case of a misfortune. The death benefit received from the policy can be useful to fulfill basic needs of the family. |
The insurance money can also help cover the costs incurred during the unfortunate event, which often amounts up to thousands. In addition, it can pay for every day household and kitchen expenses of the family, among other things. |
A cash value life insurance policy with it’s investment component helps build up a cash value. |
| Pay off liabilities |
Medical costs coverage |
| The lump sum received as a death benefit can help provide assistance with things like mortgage payments, dues and loans, in addition to paying for your child’s higher education, marriage etc. Ultimately it could allow your family to maintain their current standard of living without an income loss. |
If in case you were to pass away from a health-related issue, which racked up a substantial amount of medical bills and payments, your life insurance policy could be of great help in paying off those expenses. This would ensure your family doesn’t exhaust their savings and have enough to provide for themselves. |
Which Events are Covered by Protection Plans?
Life insurance protection plans usually cover the following incidents or risks:
- a) Risk of early death
- b) Contracting a life-threatening illness like cancer, heart failure, etc.
- c) Accidental disability (permanent and temporary)
- d) Accidental death
What Should you Look for in a Protection Plan?
Different protection plans come with different features. When you decide to buy a protection plan, below are a few points to look for in a plan:
1. Coverage amount: Decide the amount of coverage you need depending on the day-to-day expenses of your family and also consider your liabilities. When you are looking to buy a protection plan, check if the coverage amount offered is as per your need.
2. Pay-out options: Traditional protection plans offer a lump sum amount to your family. However, a protection plan gives options where the family gets a certain percentage of the sum assured as a lump sum, and the remaining is paid to them every month for a certain number of years. Both the options have their pros and cons. You have to decide which option is best suited for your family.
4. Premium amount you need to pay: The premium amount depends on several factors like your lifestyle, income, age, etc. When you decide to buy a protection plan, check the premium amount that you have to pay. Compare the amount with plans offered by other life insurance companies. If the premium amount is higher, check if the plan has any other additional benefit.
Learn how to calculate premium of your life insurance plan.
3. Riders available: Riders are add-ons that help you customize your plan. Some of the common riders available are terminal illness, waiver of premium, accidental death, etc. Riders give you an additional amount on top of the sum assured you are supposed to receive from your base policy.
How can you Ensure your Family gets the Policy Benefit?
To protect your family with a life insurance, you would want to make sure you are naming the appropriate beneficiaries at the time of filling your policy document. Typically, a beneficiary is the person you would want to receive the policy benefit. Most people prefer adding their spouse or children, but several others might also choose to name their extended family, grandchildren or friends as the nominees. Ideally, you should think about who will be responsible for your debts, mortgage or hospital expenses when choosing a beneficiary.
You can add more than one beneficiary too and Canara HSBC even lets you decide how much of the death benefit goes to each of the selected beneficiary. Moreover, you can also modify your beneficiaries after you buy the policy. However, it may come with a few conditions.
Types of Protection Plans
You can buy the following two types of protection plans:
- 1. Defined Benefit Protection Plans
- 2. Defined Contribution Protection Plans
Defined Benefit Protection Plans
a) Term Insurance Plans
Term insurance plans are pure protection life insurance plans with the following benefits and features:
- Large life insurance sum assured
- Increasing sum assured to keep up with your growing needs & life
- Low premium cost
- Can offer income security to your family
- Additional riders available for extra sum assured
- Premium waiver in case of severe accidental disability
b) Critical Health Plans
Critical health plans provide financial support in case you contract a life-threatening disease:
- Large sum assured
- May cover minor conditions for a few illnesses
- You can choose an increasing sum assured to keep up with inflation
- Covers almost all life-threatening illnesses
- Disbursement regardless of the actual treatment cost
- Can offer income security to the family for a few years
- An integral part of iSelect Star term plan from Canara HSBC Life Insurance
Defined Contribution Plans
c) Mediclaim Insurance Plans
Mediclaim plans are also health insurance plans. However, the benefits of these plans are:
- Lower cost of medical attention
- Benefit disbursement depends on the actual cost incurred
- You may have to share the cost of treatment
- Premium changes with your age
- Benefit does not depend on the illness or cause of hospitalisation
Eligibility Criteria for Buying a Protection Plan
Below are the eligibility criteria for buying a protection plan:
a) The minimum age for buying life insurance protection plans is 18 years
b) The maximum age may vary from 75 to 99 years depending on the type of policy
c) You should have a sound financial background
How Does a Protection Plan Work?
Mr. Shayam is 30 years old and buys iSelect Star Term Plan with a life cover of Rs 1 crore. The policy term is 30 years, and he needs to pay an annual premium of Rs 12,000 for the next 30 years. He has added the following riders to the policy:
a) Accidental Disability Rider for premium waiver
b) Accidental Disability Rider for additional Sum Assured of Rs. 20 lakhs
c) Accidental Death Benefit Rider for additional Sum Assured of Rs. 20 lakhs
He does not need to add a critical health rider as it is available as default to all policyholders. Additionally, he has divided the life cover of the policy to be paid in the following manner:
- 50%, i.e., Rs. 50 lakhs in a lump sum
- The remaining 50% to be converted to a monthly income of Rs. 35,000 p.m. which will grow at 10% every year
Scenario 1: Mr. Shayam survives the policy tenure without an incident
The policy will terminate and nothing is payable to the family or Mr. Shayam.
Scenario 2: Mr. Shayam meets with an accident in the 10th policy year and suffers from a permanent disability.
All future premiums for the policy will be waived off and the life cover will continue without any premium payment. Mr. Shayam will also receive Rs. 20 lakhs in a lump sum from the policy.
Scenario 4: Mr. Shayam meets with an accident which results in his demise
The policy will terminate. The family will receive Rs. 70 lakhs as a lump sum death benefit. The monthly income for the family will start from the next month.
How to Calculate the Amount your Family will Need?
Now that you know how life insurance can provide financial protection to your loved ones, it’s time you calculate an estimate of the coverage you need for your family. The easiest way to calculate a sufficient life cover for you and your family is to multiply your annual income or family’s expenses by 10. So for instance, if your annual income is Rs.10 lakhs, you should opt for Rs.1 Crore cover.
The other method of calculating life cover for your needs is called the ‘human-life-value’ method. Here, you need to consider the value of all your future income, exclusive of your personal expenses, EMIs and life insurance premiums and taxes, till the age you retire, typically 60.
Take this example, considering you are a 35-year-old male with an annual salary of Rs.10 lakhs. You have to make arrangements to provide finances for your family for up to 25 years (retirement at 60 years). Assuming your annual expenses, all inclusive are 2.5 lakhs, your family will face a shortfall of Rs.7.5 lakhs. Now, if this shortfall is calculated for 25 years at an expected rate of 8.5% per annum (factoring in inflation at 6%), then the ideal cover for you should be Rs.1.4 crore.
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