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Life Insurance
A life insurance is a contract between a policyholder and an insurer, wherein the company pays the benefits after a set period or upon demise of the individual in exchange for a premium. Opting for a life insurance cover can protect the policyholder’s family from financial strain in case of an unfortunate event, like when the individual passes away.
Life Insurance is a straightforward concept – you basically buy a policy that offers your beneficiary or beneficiary’s compensation when you are no more. You need to have thorough knowledge about life insurance to be able to take a well-informed decision about the type of life insurance policy that will be best suited for your unique needs, the amount of death benefit that you should opt for, etc. Since human life is very precious, you get financially as well as emotionally disturbed when you lose a family member. In such challenging circumstances, life insurance policies offer the much-needed financial peace to your family in your absence. It provides them a lump sum or pay outs in installments, as mutually decided between you and your insurance company at the time of signing the policy. This ensures your family a reliable and stable source of income for meeting basic needs like child’s education, daily expenses, unpaid bank loans or debts (if any), etc.
Types Of Life Insurance Policy
Term Plan
The salient features and benefits of term life insurance plans are:
- For term insurance policies, the beneficiary can avail the lump sum only if the policyholder dies during the policy tenure. After the maturation of the policy, the insurance company is not liable to return the premiums paid. It is a pure life cover with no maturity benefits.
- These are offered for a fixed term, as suggested by the name.
- They do not include cash value, which explains why they are more affordable than other life insurance plans.
- One of the most traditional insurance plans, they are very reasonable and, therefore, easily accessible for everyone. A small annual investment towards a term plan makes the policy beneficiary eligible for a high lump sum amount as life cover and financial security on the unexpected death of the policyholder.
- Life insurance companies in India generally offer term life insurance policies for tenures of 10 or 20 or 30 or 40 years. One of the primary benefits of these plans is that they may come with a built-in option that enables the policyholder to convert them into permanent life insurance plans.
- It offers applicants to select the sum assured / premium amount and premium payment frequency – annual, semi-annual, quarterly to monthly, as per his/her convenience. The total premium amount can be paid in the form of a lump-sum as opposed to payments at pre-determined intervals.
- A term policy is suitable for policyholders who do not expect to get a return for the entire premium payment after maturity. Opt for a term life insurance from a company with a high claims settlement ratio, so that you are assured that your beneficiary can claim without hassles, in your absence.
Endowment Plan
The salient features and benefits of endowment life insurance plans are:
- Yet another traditional life insurance plan, it is similar to term policies in terms of it being payable to the beneficiary only on the death of the policyholder.
- The difference from term life insurance policies lies in the fact that the policyholder is eligible to receive a lump sum on his/her survival through the policy tenure.
- The pre-determined maturity period is also referred to as the survival term Endowment policies may be either like any regular life insurance policy with returns or similar to a ULIP (Unit Linked Insurance Policy).
- Serving the dual purpose of investment and savings, it is suitable for individuals looking for a long-term investment at low risks. — Endowment life insurance plans generally offer healthy returns at lower risks as opposed to other investment instruments like mutual funds.
- Policyholders are eligible for tax benefits under Section 80C of the Income Tax Act, 1961.
- It makes applicants eligible to opt for add-on riders on the payment of additional premium. These riders offer coverage on medical conditions like critical illnesses, disabilities, etc.
- The only drawback of endowment life insurance plans are that the returns are comparatively lower than other market linked investments like mutual funds, and debt and equity-related instruments, it acts as reliable source of income for investors with a low-risk appetite.
ULIP Plan
The salient features and benefits of unit linked insurance plans are:
- Unit Linked Insurance Plans ULIP are life insurance policies especially designed for wealth creation and life protection, thus, offering the dual benefits of investment-cum-protection.
- The premium payments are divided into two parts – one serves the purpose of life cover for the policyholder, while the other part is diverted towards a pool of funds. These funds are then invested in debt or equity mutual fund investments, or a mix of both.
- Unit Linked Insurance Plans ensures policyholders the flexibility to select the amount of life cover, as per their objectives.
- ULIPs generally provides a life cover that is 10 times the annual premium payment.
- Unit Linked Insurance Plans are classified under Debt Funds, Equity Funds and Balanced Funds, which is a blend of both.
- For debt funds, the investments are made in government bonds, while for equity funds, the investments are made towards company shares. – As a result, for balanced funds, the total fund is equally divided between equity and debt investment instruments.
- As the portfolio investments in a variety of investment instruments, policyholders of life insurance plans can select their investments as per their objectives and risk appetites. Equity funds generate high returns over a short-term and, therefore, are best suited for investors with high risk appetites. On the other hand, the returns on debt funds are not as high as in equity funds, but act as a steady and reliable source of income over the long term. Hence, they meet the investment goals of investors with low-risk appetites. Investors with medium risk-appetites can focus on investments in balanced funds.
- ULIPs offer the benefit of withdrawing a specific part of the money invested in the life insurance plan during unpredicted personal and medical emergencies.
- ULIPs are tailor-made to meet the long-term financial goals of policyholders like child’s higher education and marriage, retirement plans, etc.
- Policyholders are eligible for tax benefits under Sections 80C, 80CCC and 10(10D) of the Income Tax Act, 1961.
Whole Life Plan
The salient features and benefits of whole life insurance plans are:
- It is also referred to as Straight Life Insurance Plans and Ordinary Life Insurance Plans.
- The premiums, terms and conditions of this policy remain consistent throughout the policy term, provided that timely premium payments are made.
- This life insurance offers the policyholder the flexibility to borrow against the policy, or opt for withdrawal of cash at any time.
- The policy tenure extends to 100 years and the maturity benefits can be enjoyed by the policyholder in the form of a matured endowment, if he/she survives till the date of maturity. This implies that a policyholder would not have to purchase a new life insurance plan after his/her existing policy reaches its maturity.
- These life insurance plans cover policyholders throughout their lives, as opposed to other policies that are for a fixed tenure.
- This life insurance serves the dual purpose of savings and protection.
- Like all other life insurance plans, the beneficiary will be eligible for the lump sum after the death of the policyholder.
- The survival benefits for this policy steadily rise over a period of time, while the premium amount remains constant.
- Policyholders can avail guaranteed level premiums in lieu of premium payments over a limited term.
- The lump sum is paid along with bonuses that are determined by the policy performance. Besides, whole life policies also allow policyholders to withdraw cash as lump sum when the premium payment term reaches its end. Not just that, policyholders can apply for loans against its surrender value, offering you the benefit of not having to approach a bank for the same or against retirement accounts.
- These life insurance plans also offer tax benefits under Sections 80C and 10 (10D) of the Income Tax Act, 1961.
Money Back Plan
The salient features and benefits of money back life insurance plans are:
- Money back life insurance plans, as evident from the name, ensure a lump sum payment to the beneficiary of a policyholder in case his/her unexpected demise.
- The survival benefits are assigned proportionately throughout the policy tenure, i.e., it allows easy liquidity, similar to an endowment life insurance plan.
- Money back insurance plans include insurance cover for the entire policy term, along with benefits.
- They serve as an effective long-term investment instruments that generate healthy returns with low risks, coupled with insurance cover.
- These life insurance plans are best suited for individuals with no health or medical conditions and looking for a stable and dependable source of income.
- Money back life insurance plans include tax benefits under the Income Tax Act, 1961.
- They are customized to offer triple benefits of a steady source of income, long-term savings and regularly disbursements.
- Some life insurance companies also ensure the flexibility to increase the insurance cover in terms of guaranteed death benefits, irrespective of whether the maturity date has passed, provided the policyholder does not reach 100 years of age.
- These life insurance plans are generally accompanied by in-built riders like critical illness, disabilities, etc., offering optimum benefits to policyholders.
- In case you are looking to purchase an insurance policy and find yourself in good health, money back policies are good options as they help in saving on tax as well as provide regular returns in addition to comprehensive life insurance cover.
Pension Plan
The salient features and benefits of annuity/pension life insurance plans are:
- These life insurance plans are tailor-made to enable policyholders plan for their retirement, as apparent from the name.
- There are certain exceptions to retirement planning under these life insurance plans, like early withdrawals.
- Serving as a retirement plan, it acts as a stable source of income during post-retirement years, offering financial security.
- It is a savings plan in which the premium payments that you make now act as your income during post-retirement years.
- These life insurance plans ensure flexibility to either invest a lump sum amount or to pay through easy installments over a period of -time.
- They offer further flexibility in giving policyholders the option to select between enjoying the pay outs now or at a later date.Annuities are classified under 3 categories, based on their investment tenure. Policyholders can opt for any of these, as per their investment objectives:
- Variable annuity: Variable annuity enables the policyholder to choose their investments and enjoy returns according to the investment performances. You can select your investment instruments based on your financial goals and risk appetites.
- Immediate annuity: These are generally bought by paying a lump sum amount. The pre-determined return starts getting paid almost instantly after the purchase of the life insurance policy. Once the pay outs start, the returns on investment is guaranteed because the payments can no longer be revoked.
- Fixed annuity: Fixed annuity plans serve the dual benefit of guaranteed income and principal investments. What’s more, the policyholder is eligible for fixed payments from the life insurance company throughout the policy tenure. ###Best Life Pension Plan
Exclusion in a Life Insurance Plan
A life insurance policy is an agreement between the insurer and the insured. The insurer would pay the sum assured when the insured pays the premium regularly. This would, however, happen only during the occurrence of an insured event. However, not all situations are covered in a life insurance plan. The life insurance company would investigate in case of an unnatural death of a policyholder. The sum assured is not paid if a death occurs due to any of the below reasons:
- Consumption of drugs, alcohol or any intoxicated stuff
- Participation in any dangerous activity
- Participation in a criminal act
- Due to war
- Due to pre-existing diseases
- Due to pregnancy or childbirth
- Due to self-inflicted injuries or suicide
- Excessive smoking leading to lifestyle diseases
Types of Popular Life Insurance Riders in India
Life insurance companies offer additional riders to supplement your insurance plan. These offers benefits over and above the life covers included in your policy. Opt for riders only if it suits your unique requirements. It is neither wise to be under-insured, nor to be over-insured. Here are some of the useful riders that you may consider while buying a life insurance policy:
- Critical Illness: This add-on rider covers illnesses that are usually not covered in life insurance plans. These offer covers on medical expenditures related to illnesses such as cancer, heart attack, stroke, paralysis, kidney failure, etc. The treatment for such illnesses not only burns a hole in our pockets, but is a cause of emotional turmoil as well. Therefore, being financially prepared for such exigencies is a wise move. Besides, it saves us from emotional stress to a great extent. The lump sum can be availed on the policyholder being diagnosed of any of these illnesses.
- Accidental Death: An Accidental Death rider keeps the policyholder’s family financially covered in case of his/her death. The additional lump sum offered to the beneficiary by such riders enables the family to meet long and short-term financial objectives like immediate family expenditures, outstanding debts of the policyholder (if any), child’s education and marriage, etc. Apart from being a stable source of income, it acts as an emotional support and saves the family from an impending debt burden. Income Benefit Rider This rider assures the policyholder’s family of a reliable and steady source of income after his/her unforeseen death. This rider proves to be especially beneficial when the policyholder is the sole breadwinner of the family. This rider relieves the family from financial stress and instability, securing their lives.
- Waiver of Premium: In situations when the policyholder is unable to pay premiums due to disability or death of the policyholder where the insured and policyholder are different, this rider prevents the life insurance policy from lapsing and ensures that the policyholder can avail the pre-decided maturity benefits.
- Partial and Permanent Disability: There is no guarantee to the kind of surprises that life throws on us, and surprises are not always good. Hence, it is best to be prepared for different eventualities, if it may arise. A partial or permanent disability rider serves as a much-needed financial support for the policyholder and his/her family when there is lack of a steady source of income due to the disability. Insurance companies usually offer 10% of total sum assured on such riders. Since riders offer the aforementioned benefits, it is recommended that you purchase them if they meet your requirements. However, it is essential to do your research and make sure that you do not make any unnecessary purchases as you may end up spending money for something that you may never even use. Go through each of the riders and purchase them only if they provide the benefits that you will actually require at some point in time.
How is your Life Insurance Premium Calculated?
Here are the factors to help you understand how your life insurance premium will be calculated:
- Age: Your premiums would be lower if you buy a life insurance plan at a younger age. With your increasing age, your insurer’s level of risk will also increase. Hence, insurance companies will up their premium amount. So, don’t wait till you grey, apply today!
- Gender: Research says that women generally live longer than men. This means life insurance companies interpret men as riskier applicants than women. Therefore, their premiums too are slightly lower than that of men. So, your life insurance premium does depend on your gender too!
- Lifestyle habits: Insurance companies usually calculate premiums based on risk factors like your smoking, intake of drugs and alcohol drinking habit. These habits enhance the chances of lifestyle diseases, making insurance companies charge a higher premium from you. Insurers usually double the premium amount for smokers as compared to what they do from non-smokers.
- Duration of coverage: The longer the duration of your coverage, the greater is the risk undertaken by the insurance company. Short-term life insurance plans have lower premiums than long-term life insurance plans. Though, short term life insurance policies have lower premium than long term life insurance policies, the coverage/ policy term offered is also lower. Plan for a cover that protects you for a longer duration.
- Existing health condition: Most insurance companies makes it mandatory for applicants to submit their health records, which is thoroughly checked for signs of chronic illnesses or potential health problems that might make them high-risk customers. Applicants with clean health records are eligible for availing lower premium rates than those with records of health issues or have symptoms indicating at the same.
- Medical history: The medical history of an applicant is one of the parameters that decide the premium amounts they will be eligible for. The lack of medical history of life-threatening diseases like cancer improves their chances of having to pay a comparatively lower premium than those with medical records that indicate at a high scope of them contracting the hereditary health conditions.
- Obesity: Obesity is the root cause of various medical conditions like blood pressure, coronary heart diseases, stroke, osteoarthritis, cancer, etc. that can lead to further complications. Hence, applicants who are obese are charged higher premium because they are viewed as potentially high-risk customers.
- Participation in adventure sports: Participation in activities that cause an adrenaline rush like mountain climbing, trekking, driving fast cars, bungie jumping, scuba diving, etc. involve high risks. Therefore, insurance companies charge a higher premium from adventure sports enthusiasts than those who do not enjoy such activities.
- Profession: Applicants working in industries like mining, oil and gas, fisheries, etc., are at a higher risk of fatal medical and health conditions. Covering such applicants through a health insurance policy also involves high risk for insurance companies. This explains the reason why such applicants are offered higher premiums than those who are employed in fields that are perceived to be safer like finance, marketing, etc.
Life Insurance Online Payment
Life Insurance Online Payment
Most life insurance companies have embraced digitalization for the convenience of their customers, contributing to customer delight. These payments can be done through the following ways: The available online payment platforms are net banking, debit/credit card, mobile banking, etc. You can also opt for the auto-debit option by giving your bank the mandate to deduct the pre-determined premium amount from your account on specific dates, as per your policy terms – quarterly, half-yearly, monthly, or annually. The payment deduction can be done through, Electronic Clearing Service (ECS), NEFT, Standing Instructions (SI) mandate, eCMS, auto-debit facility, etc., as per your preference. However, these online payments options may vary among life insurance companies. These online payments can be completed by logging into the official website of your life insurance company or through the internet banking platform of your bank.
Life Insurance Offline Payment
For policyholders who prefer making their premium payments offline, it can be done in the form of cash or cheque. Cheques can be deposited by visiting any branch of the insurance company, while cash payments can be done through bank transfers in the name of the relevant life insurance company.
Impact of GST on Life Insurance Plans
The implementation of GST (Goods and Services Tax) has had an impact on life insurance plans as the premium payments are not exempted for it. Services Accounting Code (SAC) is applicable on life insurance premium payments. The SAC for GST classification for services related to life insurance policies, excluding reinsurance services, is GST Code for Life Insurance. For pension services, the applicable SAC GST code is 997131.
Life Insurance Claim Process
Death Claim
In the event of your unfortunate death during the policy term (the policy is yet to mature), your beneficiary/beneficiaries can claim for your life insurance policy. This claim can either be a ‘death claim’ or a ‘life insurance claim’. During a death claim, your beneficiary or a family member should intimate the claim by calling Coverfox.com. There can be an early death or death due to aging. It is completely based on the time since the policy was bought. An early death is when you die within three years from the policy commencement date. Your beneficiary/beneficiaries will have to approach Coverfox.com or the insurance company and fill the claim intimation form. The below documents would be required:
- Completely filled claim form
- Death certificate
- Identity proof of beneficiary/beneficiaries
- Age proof of the policyholder
- Life insurance policy details
- Assignment deeds
- Legal evidence of title in case the policy is not nominated
- Medical reports and doctor’s certificate
- Post-mortem report
- Police inquiry report
Document Checklist - Life Insurance Claim Process
Natural Death: The below documents need to be presented during a natural death claim:
- Completely filled in Claim settlement form
- Original death certificate issued by the local authority
- Copy of medical reports, death certificate, and admission notes, test results, discharge summary, etc.
- Policyholders age and identity proof
- Age and identity proof of beneficiary/beneficiaries
- Proof of the bank account of beneficiary/beneficiaries
- Proof of the policyholder’s current address
Accidental or Unnatural Death (Including Suicide): The beneficiary or a relative of the policyholder should intimate the claim by calling Coverfox.com or the insurance company. The below mentioned documents need to be presented for a hassle-free claim settlement process:
- Completely filled Accidental Death benefit form
- Death certificate
- Police FIR copy
- Medical or the doctors report confirming the cause of death
- A statement mentioning the date, location and situation of the accident had occurred
- Proof of Identity and relationship that the beneficiary/beneficiaries share with the policyholder
Accidental Disability and Dismemberment Claim: The below documentation needs to be presented for processing the claim:
- Original policy copy
- Medical records like investigation reports, discharge summary, etc.
- Policyholders age proof and identity proof
- Photo and identity proof of the beneficiary/beneficiaries
- Bank account details of beneficiary/beneficiaries
- Address proof of the policy holder
Critical Illness: The below documentation needs to be presented for processing the claim:
- Original policy copy
- Medical records like investigation reports, discharge summary, etc.
- Policyholders age proof and identity proof
- Photo and identity proof of the beneficiary/beneficiaries
- Bank account details of the beneficiary/beneficiaries
- Address proof of the policyholder
Terminal Illness: The below documentation needs to be presented for processing the claim:
- Original policy copy
- Medical records like investigation reports, discharge summary, etc.
- Policyholders age proof and identity proof
- Claimants photo and identity proof
- Bank account details of the claimant
- Address proof of the policy holder
Waiver of Premium: The below documentation needs to be presented for processing the claim:
- Original policy copy
- Medical records like investigation reports, discharge summary, etc.
- Policyholders age proof and identity proof
- Claimants photo and identity proof
- Bank account details of the claimant
- Address proof of the policy holder
The insurance company would investigate the genuineness of the claim and respond about the settlement accordingly. In case of incomplete documentation, the insurance company would raise a requirement and inform the insured’s nominee.
How Much Life Insurance Cover Do You Need?
There are many benefits of buying life insurance. However, the main objective of a life insurance plan is to provide life cover to the assured. The sum assured is the financial compensation in case of the untimely demise of the insured during the policy tenure. Hence, it is important to decide the right life insurance cover while buying a life insurance policy.
How much life insurance cover do you need depends on:
- How many family members are financially dependent on you?
- How much is their financial dependency?
- At what age will you retire?
- Is your spouse working? If yes, you can plan the premium amount based on the ratio of contribution to the family’s income.
- How much will your children’s education cost?
- Do you have any loan to be paid-off? You are likely to consider the loan amount as your life insurance cover. Because you do not want your family to suffer or undergo hardships to repay debts against your name, in case of unfortunate eventuality.
- What are your retirement goals? How much money would you require once you retire?
For children’s education, you can plan separately with the help of a child plan. To plan your retirement, you can invest in a retirement plan.
If you are planning to buy a pure life insurance cover – a term plan is highly recommended. Opt for a life insurance cover that is 8 to 10 times of your annual income.
For example, if annual income is Rs.5 lakh, the life insurance cover (sum assured) should be approximately Rs.40 lakh. Regardless of the life insurance plan you purchase, you must check the claim settlement ratio of each life insurance company to assess the reliability and efficiency of their services.
How to Choose the Best Life Insurance Plan?
There are many life insurance companies in India, and each company offers wide range of life insurance plans designed for varied needs of their customers. Therefore, you should know the factors you need to consider while buying a life insurance policy that is best suited for you.
Consider the Following before Buying a Life Insurance Policy
Buying a life insurance policy is not really a big deal. But no one wants to unnecessarily pay a bomb for the type of policy they want to buy or purchase a policy that is actually not as per their requirement. Therefore, you should know what you are investing in to be able to make a conscious decision about the life insurance you should opt for.
- Review the policy Analyze and evaluate your life insurance requirements and review your policy at regular intervals. Certain changes like marriage, an addition of a family member, job change, etc. calls out for a necessity to re-evaluate your insurance needs.
- Analyze your coverage The amount of income you offer to your family members who are dependent on you, your loans and financial expenses would help you analyse the coverage you should opt for on your policy. This will enable you to efficiently secure your family financially in your absence.
- Ensure your premium payment capacity Ensure you have capacity to pay the premiums. If the policy lapses due to non-payment, it will not only adversely affect your future financial goals, it will also dent your savings. Therefore, it is essential that you review the amount of premium you will be able to pay and decide on the life insurance policy accordingly.
- Compare quotes from different insurers Before finalizing on a particular insurance policy, ensure that you compare the life insurance plans of different insurers. This would give you the scope to narrow down your search as per your requirement post comparing the quotes, features, benefits etc. of different insurers. It is a known fact that online life insurance policies are cheaper than the offline ones. Therefore, it is highly recommended that you buy online life insurance plans.
- Read your policy document carefully Reading your policy document is very important. There are certain exclusions to life insurance policy covers that you should be aware of, so that you can prevent misunderstandings and claim rejections later. Hence, knowing what is not covered is equally important to know along with knowing what is covered!
- Do not jump for riders unnecessary If you increase the coverage offered under your basic life insurance policy, you may consider buying riders that would fulfil more requirements such as health etc. However, select the riders wisely. Opt for only those that are aligned to your unique objectives. Do not jump for them, if they are not required.
Frequently Asked Questions
Yes, you can borrow money against a whole life insurance policy.
Yes, it does affect your premium. Smokers to have pay slightly higher premium than non-smokers.
Yes, you can become the policyholder of multiple life insurance policies, provided you meet certain terms and conditions.
Yes, there are life insurance policies that are specially customised for the unique needs of children. Such plans enable parents or legal guardians to financially plan and secure their child’s future in their absence for goals like higher education, marriage, etc.
Life insurance policies do not cover the following:
- Injury of loss of life due to participation in illegal activities
- Self-inflicted injury and suicide
- Participation in adventure sports
- Waiting period of 3 months since the registration of life insurance policy
- HIV and other sexually transmitted diseases
Every policy comes with a waiting period after which your cover gets activated. The waiting period for most health policies is 30 days but we suggest checking with your insurance provider on the same.
Bonus in life insurance refers to the additional amount that a policyholder is eligible to receive during the policy term or at its maturity on having made the required premium payments within the pre-determined time frame. This amount is a percentage of the sum assured that the insurance company pays from the profit generated by it during a financial year. Only a with-profit life insurance policy is eligible for it.
One can transfer his or her title, rights and interest in a life insurance policy to another entity by assigning it. This is generally done for providing security against a loan or securing the financial interest of the other individual. Once the life insurance policy is assigned, the assignee will get the benefits from it. The policyholder has to send the assignment form to the insurer, mentioning the policy details that have to be assigned. Along with this, the individual needs to send the original policy and assignee’s KYC documents. The assignment can be endorsed on the life insurance policy copy or a notarized assignment, confirming it can be executed.
Yes, life insurance policies usually cover accidental death. If the policy specifically states that it does not cover death by accident or the individual feels there is a need for additional sum assured in case of accidental death, then an accidental death benefit rider can be attached to the base plan..
Every life insurance policy comes with a free-look period, which is 15 days from the date of policy issue. During this time, you can return the policy in case you are not comfortable with any terms and conditions mentioned in the policy and wish to cancel it.