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Death is inevitable, but its timing is uncertain. So, if you are earning for your family, it is essential to insure your life against death. Premature death can cause your family financial loss. Moreover, living too long can also cause you a financial strain if you have not had effective retirement planning done. This is where a life insurance policy comes into the picture.
Life Insurance helps you in financial planning. It is an instrument to meet your short-term and long-term financial goals while providing a financial shield to your family in case of eventuality.
A life insurance policy covers you for a specific amount and up to a specific tenure. If you happen to die within the duration of the coverage, life insurance provides financial assistance to your family. On the other hand, if you survive the policy tenure, then also most life insurance plans would pay a financial benefit.
For example, say you buy a life insurance policy of INR 50 lakhs for 20 years. In case of death within 20 years, the policy would pay the entire amount of INR 50 lakhs to your family so that they can manage the financial loss that they have suffered. Alternatively, if you survive those 20 years and the policy covers survival, you would get a maturity benefit in most plans.
Every individual has a different financial need and to make life insurance policies suitable for the diverse needs of different individuals, various types of policies are available. Each policy fulfils a specific financial requirement and has different coverage features. The different types of life insurance plans which you can find are as follows –
1. Term insurance plans:
Term insurance plans are pure protection plans. They intend to cover the financial loss suffered due to premature death. Thus, these plans cover death during the policy tenure.
There is, usually, no benefit payable if the plan matures. However, some variants of term insurance plans do offer maturity benefit as well.
2. Whole life plans
Whole life plans cover you lifelong, i.e. till 99 or 100 years of age. They are also protection-oriented plans, like term plans, which pay a benefit in case of death before reaching 99 or 100 years of age.
However, nowadays, many whole life plans also have a maturity benefit if you survive till 99/100 years of age.
3. Endowment/Saving Plans
Endowment plans are saving oriented life insurance plans. They provide coverage against the risk of premature death, but they also help in creating a corpus over the policy tenure. Under these plans, in case of death during the term, a death benefit is paid. However, if you survive the tenure and the policy matures, a maturity benefit would be paid.
Endowment plans offer a guaranteed death or maturity benefit and help you create savings while ensuring insurance protection.
4. Money-back plans
Money-back plans are also saving oriented life insurance plans like endowment plans. However, money back plans give money back benefits during the policy tenure according to a predefined schedule. A part of the sum assured is paid at regular intervals under these plans, thereby giving you funds during the term for your needs.
In case of death, the full sum assured is paid irrespective of the total survival benefits already paid. On maturity of a money-back plan, the remaining sum assured is paid.
5. ULIP Plans
Unit Linked Insurance Plans, or ULIPs in short, are investment-oriented life insurance plans. ULIPs give you the dual benefit of investing in the market and enjoying insurance cover. The premiums which you pay are invested in market-linked funds so that you can earn attractive returns.
Moreover, the plan offers coverage against premature death during the policy tenure too. ULIPs, therefore, provide wealth creation and insurance protection under a single plan.
6. Child plans
Child plans are life insurance plans which promise a secured financial future of the child even if the parent is not around. Under these plans, the parent or the child is insured, and the parent is the policyholder.
So, if the parent dies, the policy does not stop. Premiums are usually waived off and paid by the insurance company, and the cover continues till the specified tenure. On maturity, the promised maturity benefit is paid providing the child with the corpus needed for education, career or marriage as per the initial plan of the parent.
7. Pension/Retirement Plans
Pension or retirement plans are those which are meant to create financial independence post-retirement. There are two types of pension plans offered. They are as follows –
8. Life insurance health plans/Hybrid Plans
Life insurance health plans are also available, which take care of your finances in a medical emergency. These plans cover specific illnesses, like cancer or heart-related ailments. In case you suffer from the covered illness during the policy tenure, a lump sum benefit is paid so that you can meet the financial needs which arise after the illness.
9. Life insurance for NRIs
NRI’s can also buy life insurance. They can buy any life insurance policy either when they are in India or from abroad. Premiums can be paid in Indian currency or foreign currency, but claims would only be paid in Indian currency.
10. Life insurance riders
Riders are additional coverage benefits which you can add to your base life insurance policy for enhanced coverage. Life insurance riders cover specific emergencies. A claim for the rider would be paid if that particular emergency occurs. An additional premium is payable for choosing life insurance riders, and the premium is quite low.
Some of the commonly available riders include the following –
A life insurance policy is said to be the quintessential tool in your financial portfolio which protects you financially in case of emergencies.
There are many benefits of owning a life insurance policy which include the following –
1. Life cover
The most important benefit of a life insurance policy is the protection offered against the risk of premature death. No other instrument offers death cover except life insurance. The policy insures the financial loss suffered in case of premature death of the breadwinner and provides the surviving family with death benefit which takes care of their financial needs.
2. Financial security to family
The premature death of the breadwinner can spell financial doom for the family if there is no provision to provide for the family’s financial needs. Life insurance becomes this provision which provides financial relief to the family in the unfortunate case of death of the breadwinner. With the coverage offered, life insurance secures the family’s financial future and provides financial security.
3. Builds corpus
Savings oriented life insurance plans allow you to build a corpus over the policy duration to fulfil your financial goals. So, goals like retirement, child planning, buying a house, etc. can be fulfilled by creating funds through savings oriented life insurance plans which pay a maturity benefit if you survive the policy tenure. Moreover, money back plans also provide you periodic benefits to meet your financial needs and fulfil your financial goals.
4. Availability of loans
Savings oriented life insurance plans, like endowment and money back plans, offer you the benefit of availing a loan under the policy itself. This loan can be taken to meet your financial needs during the policy tenure. Moreover, life insurance policies are considered as assets which you can easily mortgage to avail a loan from a bank or a financial institution. Life insurance plans, therefore, serve as collaterals and allow you access to loans for your financial needs.
5. Tax benefits
Lastly, life insurance plans also offer tax benefits. The premiums that you pay to buy a life insurance policy are allowed as a deduction from your taxable income up to INR 1.5 lakhs under Section 80C of the Income Tax Act, 1961. Even the death, maturity or survival benefits paid by life insurance policies are completely tax-free in your hands under certain terms and conditions mentioned below.
Thanks to the online medium, life insurance plans can now be bought easily online in some simple steps. However, before buying life insurance, it is essential that you compare the available plans. There are more than twenty life insurance companies in the market and by comparing you can choose the best policy which offers you a comprehensive scope of coverage at reasonable premiums. In fact, comparing actually allows you to get the best deal on a life insurance plan.
You can easily compare life insurance policies online. However, before comparing, the following points should be kept in mind –
1. What are your financial goals?
As mentioned earlier, every type of life insurance policy fulfils a particular financial goal. So, the first thing which you should do is assess your financial goals and understand which policy you would need in terms of pure risk coverage, savings requirement, retirement planning, etc. If you want to secure your family from a financial strain, a term plan would be the ideal choice. If you want to plan for retirement, opt for pension plans. So, know your financial goal to select the type of policy needed to fulfil such goal.
2. What is your investment capacity?
Life insurance plans need premium payments to provide you coverage. If you do not pay the due premiums on time, your coverage would lapse. You should, therefore, assess the amount of premium which you would be able to pay over a long term period since life insurance plans are long term plans.
3. Your investment horizon
After you figure out your financial goals and investment capacity, assess the period over which you can invest. This would help you choose the right tenure in the life insurance plan so that the plan would come in handy when you need it to.
4. Comparing apples to apples
When comparing life insurance policies you should compare similar plans with each other. For instance, term plans should be compared with term plans and endowment with endowment. You should not compare term plans with endowment or ULIPs or any other type of insurance policy for that matter.
Now that you know the important points to remember before comparing life insurance plans, here are the parameters on which life insurance plans should be compared on –
1. The coverage benefits
The first thing which you should check is the coverage benefits offered by life insurance policies. Different plans have a different coverage structure. A plan which offers the most coverage benefits would be good since it would provide complete protection. Remember to check the additional rider benefits that can be added with the plan to enhance coverage.
2. Premium rates
The next thing to consider is the premium charged by the insurance policy. When comparing premiums, however, you should also check the plan’s coverage benefits. Premium comparison should be done vis-à-vis the coverage offered so that you can pick the right plan such that the lowest premium doesn’t always mean the best life insurance plan.
3. Discounts offered
Life insurance plans offer discounts on the premiums so that the premiums become more affordable. For instance, discounts are allowed for choosing a high sum assured level, for paying the premium annually, for buying the policy online, etc. These discounts lower your outgo and you should, therefore, opt for a plan which offers the highest discounts.
4. Claim Settlement Ratio
Claim Settlement Ratio (CSR) depicts the claim settlement history of the insurance company for that Financial Year. It is calculated as a percentage of claims settled by the insurance company against the total claims made. The higher the ratio the higher the claims the company has settled. A high CSR is favourable for you too as it increases the probability of settlement of your life insurance claims too. So, when comparing insurance plans, compare the CSR of insurance companies and choose a company which has a high CSR so that your claims can be settled easily.
Keep these points in mind and then compare and choose the best life insurance policy.
In technical terms, premium is the consideration paid for the life insurance policy. In simple terms, premium is the amount that you pay to the insurance company to insure your risk. The amount of premium payable for a life insurance policy depends on various factors. Insurance companies consider these factors and then calculate the premium to be charged. The factors include the following –
The older you get the higher your mortality risk becomes. That is why premiums are directly dependent on your age. The older you are the higher would be the premium and vice-versa.
Females are statistically proven to outlive males. Females, therefore, have a lower mortality rate and are charged a lower premium than males.
If you are engaged in a dangerous occupation which increases your mortality risks, the premiums would be higher. For example, coal miners, police personnel, individuals in the aviation industry, etc. are charged a higher premium than individuals with a desk job.
4. Lifestyle habits
If you smoke or drink, premiums would be higher because these lifestyle habits impact your mortality risk. Life insurance companies, therefore, have separate premium rates for smokers and non-smokers where premiums for smokers is higher than premium for non-smokers.
5. Medical history
If you have had medical complications in the past or if you are suffering from any medical illness, it impacts your mortality risk. Premiums in this case would be higher compared to premiums charged if you are healthy.
6. Family history
Some medical illnesses and diseases are hereditary in nature. Thus, if you have a family history of adverse medical complications, your premiums would increase since there would be a higher probability of hereditary medical complications suffered by you.
7. Policy details
Premiums depend on the sum assured chosen, tenure, premium payment term and frequency. Here’s how –
8. Riders selected
If you choose riders and add it to your base life insurance plan, your premium would increase because each rider comes with an additional premium.
9. Discounts availed
As mentioned earlier, life insurance plans offer premium discounts. Your premium would, therefore, be calculated after considering all the discounts for which you are eligible.
Claims under a life insurance policy occur when the insured event happens. Life insurance claims can be of the following types –
|Types of claim||Meaning|
|Death claim||Claim payable when the insured dies|
|Maturity claim||Claim payable when the policy matures and the insured is alive|
|Survival claim||Claim paid in money back plans at specified intervals|
|Health claim||Claim payable in life insurance health plans when the insured suffers from a covered illness|
Every claim requires you to follow a specific process for settlement. Here are the claim processes of these different types of life insurance claims –
The insurance company would send a discharge voucher ahead of the maturity or money back date
You should fill this discharge voucher and submit it to the insurance company
The insurance company would then settle your maturity or survival claim through electronic transfer or through a cheque
The Claim Settlement Ratio of all Life Insurance Companies in India show the percentage of claims settled by the insurance company in a financial year. This ratio is published by the IRDA and helps you to compare and pick the best insurer. Here are, therefore, the Claim Settlement Ratios of all life insurance companies for the Financial Year 2019-20 –
|Name of the insurance company||Claim Settlement Ratio|
|Max Life Insurance Company Limited||99.22%|
|ICICI Prudential Life Insurance Company Limited||97.84%|
|Kotak Mahindra Life Insurance Company Limited||96.38%|
|Aditya Birla SunLife Insurance Company Limited||97.54%|
|TATA AIA Life Insurance Company Limited||99.06%|
|Life Insurance Corporation of India||96.69%|
|HDFC Life Insurance Company Limited||99.07%|
|SBI Life Insurance Company Limited||94.52%|
|Exide Life Insurance Company Limited||98.15%|
|Reliance Nippon Life Insurance Company Limited||98.12%|
|Aviva Life Insurance Company Limited||97.53%|
|Bajaj Allianz Life Insurance Company Limited||98.02%|
|PNB MetLife India Insurance Company Limited||97.18%|
|Sahara India Life Insurance Company Limited||89.45%|
|Shriram Life Insurance Company Limited||91.61%|
|IDBI Federal Life Insurance Company Limited||96.47%|
|Canara HSBC OBC Life Insurance Company Limited||98.12%|
|Bharti AXA Life Insurance Company Limited||97.35%|
|Future Generali India Life Insurance Company Limited||95.28%|
|Star Union Dai-ichi Life Insurance Company Limited||96.96%|
|IndiaFirst Life Insurance Company Limited||96.65%|
|Edelweiss Tokio Life Insurance Company Limited||83.44%|
|Aegon Life Insurance Company Limited||98.01%|
|Pramerica Life Insurance Company Limited||98.42%|
Source: IRDAI Annual Report 2019-20
As you must have seen in the benefits, life insurance policies allow tax benefits. You can earn tax benefits not only on the premiums paid for the policy but also on the benefits received from the plan. Here are the various Sections of the Income Tax Act, 1961 which allow tax benefits on life insurance policies –
|Income Tax Section||Benefit allowed|
|Section 80C||The premium that you pay for a life insurance policy, except a pension policy, is allowed as a deduction under this Section. The maximum limit of deduction which you can claim is INR 1.5 lakhs per annum|
|Section 80CCC||Premiums paid towards a pension plan are allowed as a deduction from your taxable income under this Section. The limit of deduction is INR 1.5 lakhs which includes deduction under Section 80C per annum|
|Section 10 (10A)||Under deferred annuity plans you can withdraw 60% of the accumulated corpus on maturity of the policy. This withdrawal is called commutation of pension. However, only 33% of the corpus can be withdrawn tax-free under this Section. If you wish to commute more than 33% of the accumulated corpus, the rest of the amount would be taxable in the hands of the annuitant and would be taxed as per slab|
|Section 10 (10D)||The maturity or survival benefit received from a life insurance policy, including any bonuses, is allowed as a tax-free income in your hands under this Section provided the premium is not more than 10% of the sum assured.|
Death benefit is also tax-free in the hands of the nominee, irrespective of the premium amount.
|Section 80D||If you invest in a life insurance health policy or a critical illness rider, the premiums paid towards such coverage would be allowed as a deduction from your income under this Section. The maximum available deduction is INR 25,000 which increases to INR 50,000 if you are a senior citizen.|
If the whole life policy does not provide any maturity benefit but covers only the risk of premature death, you cannot avail a loan. However, if the policy has a saving element and offers maturity benefits, loans can be availed.
Yes, smoking and drinking does affect your life insurance premium. This is because they increase your health risk which, in turn, increases your mortality risk. So, if you smoke and/or drink, your life insurance premiums would be higher.
Yes, you can have as many life insurance policies as you want. However, when buying new plans you should disclose the details of all the policies that you own to the insurance company.
Yes, there are life insurance plans for children. Many unit linked plans and other savings oriented plans allow coverage to children aged 91 days and above. Moreover, child plans might also cover children. You, as a parent or guardian, can become the policyholder paying the premiums of the policy while the insurance cover would be granted on the life of your child.
To change the nominee you would have to submit a written request to the insurance company. There might be a relevant form which you should fill and submit to change the nominee. Moreover, with online services now being offered by insurance companies, you can log into your account and propose a change of nominee online too.
Guaranteed returns mean that the returns of the policy would be guaranteed at the time of buying the policy. This feature is allowed under endowment and money back plans where the death and maturity benefit are guaranteed.
Many endowment and money back life insurance plans attract bonuses declared by the insurance company. This bonus is calculated on the sum assured and added to the benefits of the policy. Accrued bonus means the total bonus added to the policy from the policy start date to the present date.
Life insurance plans are primarily meant to offer you coverage against the risk of premature death. They are, therefore, protection oriented plans and a good option for financial security. If, however, you are looking for investment returns, you can invest in unit linked life insurance plans which invest your premiums in the market and offer you returns along with insurance coverage.
Yes, you can exit from a life insurance policy before the completion of the tenure. This is called surrendering the plan and when you do so you get a surrender value. Surrender value is, however, not available under all types of life insurance policies, like term plans. Thus, in the plans without any Surrender Value, if you exit before policy completion, you would not get any benefit and the premiums paid would be forfeited by the insurance company. Thus, you need to check if that particular plan offers Surrender Value or not.
In life insurance plans you have to pay the premiums on the due date to continue coverage. If the premiums are not paid within the due date, an additional time period is allowed for the payment of the due premium. This period is called the grace period during which the coverage of the policy continues. However, if the premium is not paid even within the grace period, the policy lapses and the coverage come to a stop. Thus, policy lapse means stoppage of the insurance cover offered by the life insurance policy due to non-payment of due premiums.
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