Life Insurance is the safest and the most secure way to protect your family or dependents against financial contingencies that may arise post the unfortunate event of your untimely demise. Under a Life Insurance Contract in India, the insurer assures to pay a definite sum to the policyholder’s family on his demise during the policy term.
Life Insurance is an agreement between an insurance company and a policyholder, under which the insurer guarantees to pay an assured some of the money to the nominated beneficiary in the unfortunate event of the policyholder’s demise during the term of the policy. In exchange, the policyholder agrees to pay a predefined sum of money in form of premiums either on a regular basis or as a lump sum. If included in the contract, some other contingencies, such as a critical illness or a terminal illness can also trigger the payment of benefit. If defined in the contract, some other things, such as funeral expenses might also be a part of the benefits.
If mentioned in the contract, a policy may also cover some other costs like funeral expenses as a part of benefits.
Except for the death benefits, a Life Insurance plan also provides maturity benefits. These benefits are provided in the form of a payout if the insured survives the entire term of the policy. Moreover, life insurance schemes also offer several tax benefits under Section 80C of the Income Tax Act, 1961.
The insurance company will determine the premium payment that has to be made by the policyholder to the company. However, the claimant is given the option to choose the term of the policy and the sum assured. A number of factors are taken into consideration while determining the premium amount for every individual. The sum assured is amongst those factors. Higher the sum assured, higher the amount of the premium.
It acts as a financial net for an eventuality linked with human life, such as retirement, disability, accident, death, etc. Life is unpredictable; one can never guess what happens next. In case of sudden demise of the primary breadwinner of a family, apart from the emotional trauma, his/her family is at the risk of a financial crunch. In case this person is the sole breadwinner of the family, his/her dependents face a loss of income.
Though there is no premium calculator that can calculate the worth of a human life, what needs to be done must be done. To calculate the sum assured, the insurer takes your lifestyle and finances into consideration. This sum assured is provided to insured’s family after his/her demise in order to offer them a much-needed financial support. In order to make sure that one’s family doesn’t have to make any compromises due to financial crunches, one should buy a suitable life plan.
Once he/she knows what he wants, the next step is to shop around and compare life insurance plans that fulfill his/her requirement. The best insurance policy is plan that adapts to insurance buyer’s needs. This life insurance will help his/her family to sail through the tough times with grace.
The perks of buying a life insurance policy go beyond protecting one’s family in tough times. Undoubtedly, it is a necessity to safeguard one’s dependents (in case of one’s unfortunate and untimely demise, accidents or physical disabilities that lead to a loss of income), but there is a long list of other benefits, too, that make it a lucrative choice among individuals.
Sadly, most people are not aware of the many benefits associated with it - all they care about, understandably, are the death and disability benefits. However, there is a long list of benefits attached to the policy such as maturity benefits, tax benefits etc.
Till date, many people don’t know that life insurance policies can also be used to secure a loan at a significantly more competitive rate as compared to other modes. One can get a loan from the same company or a bank or NBFC (Non-Banking Financial Company).
The maximum amount of loan an individual will be able to get depends upon the type and surrender value of his/her policy.
Generally, the loan amount is a percentage of the surrender value of the life indemnity policy and it can go up to as high as 80% to 90%. There are few companies that only allow loans amounting to 50 percent of the total premium amount paid by the policyholders to calculate the maximum loan amount they can be eligible for.
Most individuals have never heard about the online payment rebate benefit, but it’s important to note that the payment mode chosen by an individual drastically affects the premium of a life insurance policy. In fact, an insurance company’s servicing cost considerably goes down when an individual opts to pay his premiums online.
This is because there is no cost involved on paperwork in this case. Therefore, the life insurance company is able to save a significant amount on the commission, which is generally paid to the agents.
Varying from company to company, this rebate might have already been given to the policyholders before the online premium rates are quoted to them.
This benefit might surprise many customers, but there are many life insurance companies that offer rebates for a higher sum assured. This is because the servicing cost of all the policies belonging to the same category is almost the same; hence, a higher sum assured means a lower cost of servicing per unit of sum assured, for the insurance company. Subsequently, this translates to higher returns or profits per unit of the sum assured/premium paid, which explains the rebate on the sum assured.
Almost every insurance company offers the periodic payment option to its customers which can be in the annual, half yearly, quarterly or monthly mode.
In this case, the higher the frequency of payment one chooses, the higher the servicing cost will be (comprising of administrative, processing and collection costs) for the insurance company.
Furthermore, if a policyholder chooses to pay his premium at one go for the complete year, the company can use the available funds for investment purpose which automatically means more profits and benefits for the company.
This rebate is often already included into the premium rate offered by the company once a customer chooses the periodicity for the payment.
There are some life insurance companies that provide an option, wherein if the policyholder owns a business, his business partners can purchase his share without any hassles (after the policyholder’s death). In this scenario, the business partner/s will simply have to enter into an agreement with the insurance company and the pay-out received after selling the policyholder’s share will be given to his dependents.
However, it’s important to understand here that the nominee or the dependents of the policyholders do not get a stake in the company.
Under section 80C of the Income Tax Act, any amount of life insurance premium paid by a policyholder is eligible for a tax rebate, irrespective of the fact if it’s for oneself, their spouse or their children (premium paid for parents and in-laws is exempted).
The policyholder will get the tax rebate facility for all the premiums he is paying and this benefit is available with all the life insurance companies – be it from private sector or public. This benefit has been explained further below.
An individual can save taxes under Section 80C of the Income Tax Act, 1961. Under this section of the IT Act, the premiums paid towards the policy are eligible for tax deduction. What’s more, the insurance policies, which offer maturity benefits, also qualify for tax deductions on the maturity proceeds of the policy under Section 10 (10D) of the Income Tax Act, 1961.
In order to offer the best coverage, life insurance plans come in two categories. The first is pure life insurance and the second one is a perfect blend of insurance & investment components.
In order to know what insurance plan is suitable for an individual, it’s important to know what types of life insurance policies are offered in the Indian insurance market.
Types of Policies
Pure risk cover
Insurance + Investment benefits
Insurance cover + Savings
Money Back Plans
Insurance cover with periodic returns
Whole Life Insurance
Coverage for a lifetime
To create a corpus for children’s education, wedding etc.
Financial cushion aiding financial independence post retirement
Here are the details of aforementioned plans:
Term insurance is the most basic form of life insurance. It is affordable insurance that one can buy easily, without any hassles.
A term insurance plan offers a death cover for a stipulated time period. God forbid, in the event of the sudden demise of the insured during his/her policy tenure, the provider offers a pre-decided death benefit as a lump sum, or as a monthly or annual pay-out, or as combined benefits to the nominee. The best term plan offers comprehensive life cover at competitive premiums.
Benefits of Term Life Insurance Plans
Note- No payout is paid in case the insured outlives the policy duration.
A unit-linked insurance plan or ULIP is a perfect blend of insurance & investment components. It comes with a long-term investment opportunity along with valuable investment flexibility. It offers combined coverage.
The premium paid towards a ULIP is partly used as a risk-cover for life plan and the remainder is invested in market funds such as debts, equities, bonds, market funds, hybrid funds etc. The selection of the market funds depends purely on the risk appetite of the insurance buyer. The insurer invests the amount in the capital market as per the insured’s preference.
Benefits of ULIPs
Here are the benefits of unit-linked plans.
An endowment policy is a combination of insurance and savings, which invests a particular amount in a life insurance cover and the remaining amount is invested by the provider. In case an endowment policyholder outlives the policy term, the insurance provider offers a maturity benefit to him/her. Furthermore, some endowment policies may offer bonuses on pre-specified periods. If applicable, the bonuses are paid either to the policyholder at the time of policy maturity or to the nominee in case of a death claim.
Endowment policies are also known as traditional life insurance. These plans come with an element of investment. As the risk involved is lower as compared to the risk factor of other investment products, the returns are lower as well.
Benefits of Endowment Plans
Here are the benefits of endowment plans.
One of a kind, money back plans offer a unique type of life insurance coverage. Under a money back plan, a stipulated percentage of the assured sum is paid back to the policyholder at pre-decided intervals. This payback benefit is known as a survival benefit.
Money back is the best insurance policy for those who want their investments to be accompanied by an element of liquidity. Furthermore, these plans are eligible for bonuses as declared by the provider (if any).
Benefits of Money Back Plans
Here are the benefits of money back plans.
A whole life insurance plan offers insurance coverage for as long as the insured lives. There are a few providers who offer insurance coverage up to 100 years of age. Contrary to the coverage offered by term plans, This plan offers an extensive insurance cover.
The assured sum is computed when the insurance plan is purchased and is payable to the nominee after the demise of the insured along with bonuses (if any). It is the best insurance policy that the policy has to offer at such low premiums.
A variant of whole life insurance is available in the market that clubs the benefits with ULIPs. A whole life ULIP offers extensive coverage along with the benefit of high returns.
Note- In case the policyholder outlives the 100 year cover, the insurance provider pays the benefit of matured endowment coverage to the policyholder.
Benefits of Whole Life Insurance Plan
Here are the benefits of money back plans.
A child plan acts a tool to generate funds for the insured’s child. A child plan helps one build a corpus especially for a child’s education and wedding. Generally, child plans either provide installments on an annual basis or a 1-time payout once the insured child is 18 years of age. Child plan offers best benefits.
In the unfortunate event of the untimely demise of the insured’s parent during the policy term, immediate premium payment is payable by the insurer. In such cases, some insurance providers waive off future premiums but the plan continues till maturity.
Child Plan Benefits
Here are the benefits of child plans.
A retirement plan, also known as an annuity or pension plan, helps the insured accumulate a corpus for his/her retirement. Typically, retirement plans provide installments on an annual basis or a 1-time pay-out once insured is 60 years of age. The plan offers vesting benefit in case the insured outlives the policy term and a death benefit in case of the insured’s demise.
Note- In case of the insured’s demise while his/her policy is active, insurance companies pay a pre-decided amount to insured’s nominee.
Retirement Plan Benefits
Here are the benefits of retirement plans.