What is Life Insurance?
Life insurance is a contract signed between a policyholder or insured person and an insurance provider. This contract determines a specific and pre-decided sum (also known as “Cover Amount or “Sum Assured”) to be paid to the policyholder’s family after his/her death. The sum of the insurance policy is paid in lieu of a certain amount of premium.
The plan ensures that you as well as your family members are able to receive the much-needed financial support in case of your untimely demise due to any reason, such as accident, critical illness, and so on. Despite the fact that human life cannot be quantified, a monetary sum can assist the dependents in continuing their lives without abandoning their necessities and requirements.
Why Do You Need a Life Insurance?
To Support Your Family?
Your dependents will receive a lump-sum amount after your death.
To Support Your Child
Be it your children’s education or wedding, you can support your children with a child plan.
To Prepare for Your Retirement:
How Does a Life Insurance Plan Work?
Similar to other insurance policies, a life insurance policy functions in a manner that the policyholder must pay a premium for a set period of time. After the death of the insured person, the insurance company will cover the financial needs of the insured’s family. The amount to be paid by the insurance company will depend upon the premium the insured person paid to the company.
Let’s understand life insurance with a simple example:
Mr. Wilson wants to protect his family in case of his early death. So, he buys a 20-year life insurance policy with a premium of Rs. 15,000 per year. If Mr. Wilson dies within the 20-year term, the insurance company will pay his family the beneficiary amount of Rs. 15,00,000. In case the policyholder is caught up with a terminal or critical illness, the insurance company will pay a lump sum amount for the medical expenses.
Therefore, life insurance provides much-needed financial assistance to the family members of the insured person in the event of emergencies.
What Are the Features of Life Insurance?
Here are some features that help make life insurance coverage a great choice for anyone:
- Coverage for Lifetime
As 75 years is the average age of a person, the majority of the insurance providers will provide coverage till then. Moreover, some life insurance firms offer 100-year coverage as well. If you will buy life insurance at an early age, you as well as your family members can leverage its benefits for the lifetime.
- Fixed Premiums for Lifetime Having life insurance will allow you to pay a fixed premium amount as well as life coverage at the time of selecting and purchasing the plan. This simply means that the premium amount of the life cover will remain the same for the duration of the chosen period.
- Waiver of Premium
In case the policyholder has acquired a permanent physical or mental disability due to any reason, all the future premiums, which otherwise would have to be paid by the policyholder, are paid by the insurance company.
- Have More with Small Investment
In a very nominal amount, you can have maximum gains from purchasing a life insurance policy. You just need to pay hundreds or thousands of rupees per month. Moreover, the sum assured might be in thousands or crores depending on what type of policy you have purchased and what customizations you have done to it.
- Free Lookup Period
There may arise a situation when you are unsure about the life insurance policy you are going to purchase. This happens especially when you get life insurance in hurry and it can lead individuals to make bad decisions while choosing the insurance policy.
While having a life insurance plan, almost all the insurance providers offer 15 to 30 days of the freelook period, in which you can reconsider or re-evaluate your decision. In case you are not satisfied with the policy, you just need to return the original papers and your policy will be canceled by the insurance company.
- Enjoy The Buying Flexibility
When it comes to the methods from where you can buy a life insurance policy, there are basically two – offline and online methods. You can either physically visit the branch office of the company in your nearby region or you can purchase the policy online by visiting the company’s website.
- Pay Easily & Conveniently
One can easily pay for the life insurance plan with various payment options, such as monthly, quarterly, annually, or half-yearly. Most people prefer to pay the premium costs on a monthly basis because it is extremely inexpensive.
When it comes to payment methods, the premiums can be paid through a variety of payment options, such as net banking, NEFT, IMPS, e-wallets, credit cards, debit cards, etc.
What Are the Benefits of Life Insurance?
Individuals can safeguard themselves and their families with life insurance in the event that something bad happens to the insured. The insurer pays an amount equal to the sum assured as indicated in the contract, plus any incentives that may be available.
Insurance & Investment
There are some life insurance policies that offer two lucrative benefits of both insurance and investment. This simply means that one part of your premium goes towards insurance and the other part is invested in debt, equity, etc. With a strong protective covering and higher returns on your investments, you certainly get the best of both options.
Double Your Savings with Maturity Benefits
A life insurance plan also acts as a saving instrument by providing maturity benefits. In case the policyholder lives to the end of the policy term without any claims, the total amount of premiums is refunded at the policy’s maturity time. For example, if you pay a yearly premium of Rs. 10,000 for a 30-year term insurance policy, you would receive the premium money back (Rs. 3,00,000) along with the bonus amount. This is only when you survive the policy tenure and you have paid all of your premiums.
Tax saving is an additional benefit when it comes to purchasing a life insurance plan. As per Section 80C of the Income Tax Act, 1961, you will be subjected to get tax benefits. Simply putting, whatever premium amount you pay for your life insurance policy, it is eligible for having a maximum tax deduction of up to Rs. 1,50,000. Besides, any payouts that you will receive from your life insurance policy will be entirely tax-free under section 10(10D). In case you have chosen for an additional health-associated rider, you are subjected to avail tax deductions under Section 80D of the Income Tax Act.
Be it your children’s education loan, credit card loan, building capital for your business, or retirement plan, dealing with such kinds of liabilities can lead to great financial as well as mental pressure. And when there is no steady source of income, such liabilities can prove even more challenging. Therefore, in order to attain your important goals, you need a significant amount of financial support that life insurance can easily provide.
Enhance Your Life Insurance With RIDERS!
Life insurance policy comes with a multitude of riders, such as Critical Illness Rider, Accidental Death Rider, Cashless Treatment Rider, etc. They provide extra protection to the individuals as well as their family members in cases where basic life insurance coverage may not come into play or need.
What Are the Types of Life Insurance?
1. Term Life Insurance
One of the most popular life insurance plans is term life insurance. It lasts for a set amount of time and then expires at the end of the term. The best part about a term plan is that the premiums are reasonably priced.
Because the premiums are cheap, these plans are suitable for persons who have just put their initial steps in growing their careers. The plan pays out a fixed amount in case of the demise of the insured person within the tenure.
2. Unit Linked Insurance Plans
By combining investment and insurance, ULIPs (Unit Linked Insurance Plans) provide you with the best of both spheres. Thus, you will get both life insurance as well as investment options when you will choose ULIPs. Most of the ULIPs have a lock-in period of 5 years, thus it can be considered as a long-term investment strategy. As ULIPs are linked to the capital markets, they have a great potential to deliver top-notch results in comparison to traditional life insurance plans.
However, one must check out the risk appetite and various risk factors before purchasing a plan. It is because there is also a risk of low returns and everything primarily depends upon the market’s performance.
3. Child Insurance Plan
A child insurance plan is specifically designed to protect your child’s future. It helps develop an education fund to support your child’s hopes and objectives in addition to providing life insurance. The plan combines investment and insurance features to help you build wealth for your child’s future needs. You can start investing in such plans as soon as your child is born to ensure a bright financial future for your child.
4. Endowment Plans
An endowment plan is a type of life insurance policy that provides both a life insurance plan and a savings account. If you purchase the finest saving plan, you can save regularly throughout time and receive a lump sum payment at maturity. If you have long-term financial goals, like supporting your child’s education, setting up your own business, purchasing a new home, or living a luxurious retirement life, purchasing an endowment plan can help you to achieve them all.
5. Whole Life Insurance
Whole life insurance is a sort of permanent life insurance that covers the insured for the rest of their lives as long as the premiums are paid on time. It is distinct from term life insurance, which provides coverage for a specific period of time. In addition to providing a death benefit, whole life insurance has a savings component that can develop financial value over time.
6. Money Back Policy
A money return policy is a sort of life insurance that pays out money at predetermined intervals. Throughout the policy’s term, a percentage of the sum assured is repaid to the policyholder. If the policyholder dies while the policy is still active, the beneficiaries will get the entire sum assured, regardless of any Survival Benefits that have already been paid. In a nutshell, money-back plans are liquid endowment plans.
7. Retirement Plans
Retirement plans aid in the accumulation of a retirement fund, thus allowing you to fully enjoy your post-retirement years. You have the option of naming your spouse as the beneficiary of your life insurance policy. In case something happens to you, your family will be financially prepared for surviving. In addition, getting the best retirement plan will assist you in paying for medical bills during your retirement years.
What Are the Best Life Insurance Plans Available?
What Are the Riders Under Life Insurance?
Critical illness Rider
Under this rider, critical illnesses such as multiple sclerosis and cancer are covered. The rider includes more than 100 critical diseases. Regardless of the overall expenses paid during the actual medical treatment, the critical illness rider gives an upfront lump payment amount.
Accidental Death Rider
The accidental death of the insured person is covered under this rider. In case the insured person dies due to an accident, the nominees of the policyholder will receive the sum assured along with the rider benefits. This rider provides financial protection to the family members of the insured person in case of his/her sudden demise.
This rider assists in the event that the insured is permanently incapacitated as a result of an accident, rendering them unable to work for a living. Depending on the policy terms, the insurer pays a specified sum assured for a set period of time. Most insurers typically pay a percentage of the rider’s accrued benefits per month for a set number of years.
If the insured is permanently or partially disabled as a result of an accident, rendering him/her unable to work for a living, the permanent disability rider comes as assistance. Depending on the policy terms, the insurer pays a specified sum assured for a set period of time. Most insurers typically pay a percentage of the rider’s accrued benefits per month for a set number of years.
Premium Waiver Rider
In case the policyholder is critically ill, disabled, or dead, all the future premiums are paid by the insurance provider. This rider takes off the financial burden from the insured person’s shoulder. As the insurance provider continues to pay premiums for the policy term, there is no effect on the sum assured.
Which Factors Affect Life Insurance Premium?
Gender is the second most important factor that affects the cost of your premium. Biologically speaking, women are more likely to live longer than men due to various reasons. This simply means that women need to pay fewer premiums than men.
History Of Your Health:
Before purchasing a life insurance policy, the insurance company may ask you to go through a medical exam in order to access your health records. In case the individual has some history of medical conditions, such as heart disease, bypass surgery, etc., the premium rates will increase accordingly.
In addition, the insurance company will also evaluate your future medical conditions by checking your cholesterol levels, weight, blood pressure, etc. On the basis of such metrics, the premium rates will be determined.
The Type of Policy:
The particulars or characteristics based on which you have chosen the policy is another factor that impacts your life insurance premium. Policies that are purchased for long-term and larger benefits usually have higher premium rates than those which are short-term and have fewer benefits.
How To Choose the Best Life Insurance Plan?
It can be difficult to choose the right type of life insurance, but it is a pivotal decision. Here are some guidelines to help you choose the best life insurance policy:
What’s The Buying Process?
- Contact The Insurance Company: You can either visit the branch or can call on the insurer’s toll-free number for purchasing the life insurance policy.
- Submit Your Application: Once you have chosen your life insurance policy and the insurance provider, you are required to go through the documentation processes.
- Be Prepared for Medical Exam: Once all the documents are submitted, the insurance company will schedule a medical exam to make sure that you are not suffering from any kind of terminal illness. In case there is a terminal illness, your application may be rejected.
- Providing Portfolio: The company will then provide the portfolio as per your requirements.
- Start Paying Premiums: Once you are done with the medical examination and everything is clear, the insurance company will give a green signal to your policy. Your job is done! You just need to pay the premiums regularly.
All the insurance companies are well-equipped with a dedicated team in order to assist you with your queries. Be it the documentation process or the follow-up maintenance of the policy, the insurance providers are always on their toes to serve their customers in the best possible manner.
- Visiting The Company’s Website:
A life insurance policy can be purchased online by visiting the insurance company’s website.
- Filling Details:
The customer must provide basic information such as his or her name, date of birth, smoking habits, contact information, estimated life insurance, and income.
- Choosing The Plan:
Once you enter all the necessary details, suitable plans with features, benefits, and premiums will be displayed. Following a review of the features of each insurance, a customer can select the most appropriate option by clicking on the provided options.
- Submitting Documents:
Following that, the customer must upload proofs of identity, address, and health-related documents and reports. During the form filling process, the customer is given a list of documents to upload.
- Issuing Of Policy:
The insurance firm will decide whether or not to provide a life insurance policy after verifying the documents and medical reports. If a policy is issued, the customer will receive confirmation and policy documentation.
- Paying Premiums:
The buyer must then pay the premium online. The payment method will be determined by the frequency selected. A confirmation message or email will be sent to the customer’s registered phone number or email address upon successful payment.
How To File a Claim for Life Insurance?
- Demise of the policyholder, and
- Maturity of the policy
Demise of the Policyholder
- Informing The Insurance Company:
Inform the insurance company as soon as possible through the toll-free number or over email.
- Sharing Important Details:
All the important details, such as the name of the policyholder, place of death, policy number, and name of the claimant must be shared with the insurance company.
- Processing Of Claim:
In order to initiate the process of claiming, all the necessary documents must be submitted to the insurance provider.
Once you have done with the submission of the documents, the insurance company will verify them to give to settle the claim.
After verification of the documents, the company starts the process of settling the claim.
Maturity of the Policy
- Informing The Policyholder:
The insurance provider generally informs the policyholder at least 1 to 2 months before the maturity date. All the details, such as maturity date, maturity amount, etc., are provided to the insured person.
- Signing The Discharge Voucher:
In the occupancy of the witnesses, the policyholder must sign the Discharge Voucher.
- Sending Back Discharge Voucher:
The discharge voucher, along with the original copy of the policy form, is delivered back to the insurance company once the policyholder has signed it.
- Determining The Maturity Benefits:
Based on the original copy of the policy bond, the maturity benefits are determined and then provided to the policyholder by the insurance company.
- Receiving The Claim Amount:
The policyholder can now receive the claim amount based on the premiums paid.
Duly filled claim form
Original copy of the policy form
Death certificate of the insured person
Supplementary documents, such as post-mortem reports, doctor’s certificates, etc.
Investigation reports (in case of police inquiries)
Discharge form (signed by the witnesses)
Frequently Asked Questions
Before providing life insurance, the insurers carry out various processes, such as assessing risk factors, medical examinations, etc. After analyzing the health history, current health status, and future health risks, the premium rates are determined. In case the risks are greater, the premium rates go higher and vice versa.
In the event of the insured’s death, the nominee or dependents named by the policyholder at the time of purchase of life insurance receive a death benefit. This means that even if the death of the person (in whose name the policy is purchased) is caused by a health-related issue such as a COVID-19 outbreak, it will be covered under the policy.
In case you are caught up lying, cheating, stealing, or doing any other fraudulent activities, the insurance company may deny to settle the claim or cancel the policy.
You must tell your insurance company if you have smoked in the last 12 months. If you don’t divulge it straight away and subsequently do, you may be charged a high premium or your policy may be canceled.
No, it remains the same.
No. Deaths caused due to the ‘Act of God’ are not covered under the life insurance plan.
The amount of life insurance you require is determined by your lifestyle, spending habits, income, and the objective for which you wish to save. For instance, if you want to save for your child’s education, you need to consider the associated financial liabilities and then determine the amount of your life insurance.
Yes. Under any life insurance policy, you will be provided with a variety of options for paying premiums, such as yearly, half-yearly, quarterly, and monthly.
Yes. You need not pay any tax on the maturity of your life insurance policy. The amount you will receive as a maturity benefit will be subjected to tax deductions under the Income Tax Act, 1961.
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