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Life Insurance

Compare Life Insurance Plan

Last Updated 15th Aug 2020

6th August 2020 – RBI keeps Repo Rate unchanged at 4%

Type of Life Insurance Policy Term Coverage Maturity Benefits
Term Insurance 5 to 30 years Full risk cover Not Available
ULIP - Unit Linked Insurance Plan 10 to 20 years Investment and insurance cover Available
Endowment Plan 10 to 35 years Savings and insurance cover Available

What is a Life Insurance?

Life insurance are protection plans of insurance companies in which the person pays annual premium to buy the plan in which he is eligible to get a fixed amount in the event of death or maturity of the policy, whichever is earlier. In any life insurance plan, there are three parties involved, the insurance company which is the Insurer, the person buying the policy known as Insured and the person receiving the policy benefit in case of death of insured known as the Beneficiary. The insured person pays a premium amount which can be one time, monthly or annual to claim the maturity value if the policy matures before his death or let beneficiaries claim the maturity amount, in case the insured dies during the policy term. In other words, a life insurance cover is one where the insured person arranges an insurance plan for his 'life', wherein the insurer guarantees compensation to the beneficiary. The claim compensation is a specified amount in the contract.

Benefits of Life Insurance

A life insurance policy is not a simple protection plan for life, but it offers several other financial benefits such as building savings, attractive returns as well an ability to get a loan against insurance policy. Some of the benefits of a life insurance policy are listed as follows:

  • Risk coverage: Human life is all about uncertainty. Thus, it is important for one to be prepared for all risks that come with life. Life insurance cover is an ideal way to invest, keeping the life risks in mind. This insurance coverage will allow one's family members to avail financial help even when the earning member of the family dies. However, he or she needs to be enrolled under the life insurance cover.
  • Develops the habit of savings: Life insurance is a step towards savings and investments that help you utilize funds for future expenses. Further, the policy also allows you to earn income in your retirement period through annuities.
  • Cover for medical emergencies: The modern lifestyle has made people prone to a lot of medical emergencies. Thereby, a life insurance plan is beneficial, as it provides coverage on charges like hospitalization fee and critical illness expenses.
  • Acts as an investment policy: There are many life insurance schemes which offer maturity benefits as well as Guaranteed Cash Values, Money Back offers, etc. which means that the insured can earn on their policy even if the event of their death to claim death benefit does not occur. These monetary benefits allow one to use funds for various expenses like education or marriage of their children, retirement plans or even home construction plans.
  • Loan facility: Many insurance companies allow people to borrow a secured loan against their life insurance policies by keeping it as collateral with the lender. The loan is provided against the surrender value of the policy at the time of application. The limit of the loan amount is based on the LTV ratio, which is 90% in most cases. Interest rates on loans against LIC policy vary across the lenders.
  • Tax benefits on life insurance: Life insurance policy provides tax benefits to the insured person, as per section 80C of the income tax act. As per the section, the premiums paid on the life insurance policy are eligible for tax deductions up to ₹ 1.50 Lakh per year. Tax exemptions can also be availed on the maturity amount under section 10D if the premium amount does not exceed 20% on the sum assured for policies issued before March 31 2012. However, policies issued with effect from April 1, 2012, can avail tax exemption if the premium amount paid does not exceed 10% of the sum assured amount.

Different Type of Life Insurance Policies

Life insurance is an umbrella term that covers various types of life insurance plans under it. These are listed as follows:

Term Insurance

Term insurance is a popular type of life insurance that is bought for a fixed period of time that may range between 5 to 30 years. A term insurance policy is the cheapest policy in comparison to other life insurance policy, as it contains no cash value, and thus no maturity benefits are availed on the survival of the insured. It is ideal for people who just wish to arrange funds for their families in the unfortunate event of their death.

Unit Linked Insurance Plan (ULIP)

A unit-linked life insurance plan serves the dual purpose of investment and providing insurance cover. It can be availed for a period of 10 to 20 years. Thus, the premium collected on this life insurance is collected in two parts, one for the investment or wealth accumulation purpose, and the other for insurance cover. Further, under this insurance plan, one can even withdraw a particular amount. This term insurance is beneficial, as it provides tax exemptions.

Endowment Plan

The endowment life insurance plan has all benefits of a term insurance plan. However, there's one thing that differentiates the two. An endowment policy allows the policyholder to receive a lump sum amount on the maturity date if he stays alive till the maturity date.

Whole Life Insurance

A whole life insurance policy extends till the lifespan of the insured person, unlike other types of life insurance that are set as per specific maturity date. The policy allows the insured to borrow funds against life insurance, and also allows premature withdrawal.

Money Back Policy

A money-back life insurance policy provides survival benefits like an endowment plan. However, the benefits are distributed proportionally over a period, and not in one go at the end of policy term. Thus, the monetary benefits are regular, instead of being 'one-time’. However, the best part about this plan is that the regular benefits won't hamper the ultimate value of life insurance.

Annuity Pension Plan

The annuity pension plan is best suited for people who wish to plan and spend their retirements well. As per this insurance plan, the accumulated funds through the premiums are collected as the insured's asset, the benefit of which is distributed regularly to the insured, after he takes a professional retirement. Thus, it allows a regular source of income for the retired people.

Documents Required for Life Insurance Policy

Buying a life insurance cover is easy and requires basic KYC documents, income documents, age proof and a medical certificate. Following is the list of documents which the person planning to buy insurance has to submit.

  • Age proof which could be one of the following: Driving License, Passport, PAN card, SSC certificates, and birth certificate.
  • Identity proofs which include Aadhaar card, PAN card, Voter ID card, and Passport.
  • Address proofs including voter ID card, passport, and utility bills such as water, electricity, telephone or gas bill, and ration card among others.
  • Income proofs such as Salary Slips in case of salaried and ITRs in case of self-employed and businessmen.
  • Doctors certificate with medical reports which certifies the current state of health of the insured from a registered medical practitioner.
  • Self-Declaration form on the any pre-existing illness or family history of certain diseases.

How to select Life Insurance Policy?

To select the best life insurance policy, one must follow the below-mentioned steps:

  • Conduct proper research: The first step to select a life insurance policy is to undertake good research. There are 24 life insurance companies in India, which offer a host of insurance policies. Thus, before choosing one out of all, choosing the one that gives maximum benefits is important.
  • Know all about the premiums: Paying out premiums is an important part of the life insurance policy. Different sellers offer different facilities for premium payments. These could be monthly, annually, quarterly or semi-annual payments. Thus, before selecting any life insurance policy, consider its premium payment option and choose one that works with your financial convenience.
  • Go through all the terms and conditions: Terms and conditions for a life insurance policy vary across the companies. So, instead of going on with a policy with a general frame of mind, consider going through the Company specific terms and conditions. This will help you hold a clear picture of your life insurance cover, and no future events would shock you thereafter.
  • Ensure your personal information: At times, the mistakes in selecting the life insurance policy lies to the insured's end. People tend to fill in wrong personal credentials the applications form, whether deliberately or by mistake. This could create a dispute between the insured and insurer at the later stages. Thereby, to avoid any misunderstanding and disputes, it is better to always cross-verify your information before making the final application form submission.
  • Be aware of the lock-in period: A lock-in period is the time period that an insurance company offers to the insured, during the initial period of the insurance policy. During this period, a person is allowed to either return the policy or make changes in it. Thus, beware of the lock-in period, and make an informed decision during this time.

Claim Settlement Process for Life Insurance

A life insurance policy is claimed in two situations, that is, on the death of the insured person and on the maturity date of the life insurance policy. While the insurance company will automatically pay the maturity benefit at the time of policy maturity, there is a process to claim death benefit under the policy. To claim the policy, one needs to follow the below-mentioned steps:

  • The claim settlement process begins with the beneficiary or the nominee sending the claim intimation form to the insurance company through offline or online life insurance platforms.
  • The form should give important information like the date of the insured's death, place of death, and the reason behind the insured's person's death.
  • Further, after the form is processed at the Insurance Company’s end, certain documents need to be submitted.
  • These include the death certificate, insurance policy receipts, copies of the insurance policy, legal certificates on the appointment of beneficiary or nominees, and assignment deeds.
  • The successful fulfilment of these documents is followed by verification and claim settlement.

Tax Saving with Life Insurance Policy

Insurance has become a popular thing in modern life. It is not only an insurance but also a good source of investment. Thus, it is important to know how this popular insurance cum investment facility can add more to your pocket with tax benefits. Some of the tax benefits offered by the Life insurance policy are listed as follows:

  • Tax exemption under section 80C of the income tax act: Section 80C of the income tax act provides a tax exemption on the premium paid on the life insurance policy. This exemption is applicable to all premiums paid towards the life insurance policies of self, children, spouses or even parents. However, to claim this deduction, the annual premium amount paid should not exceed the sum assured amount by 10% if the life insurance policy is availed after April 1, 2012.
  • Tax exemption under section 10D of the Income Tax Act: Section 10 D of the income tax act allows exemption on the sum assured plus bonus paid on the maturity of the policy. However, for life insurance policies issued after 1 April 2003 and before 31 March 2012, the benefit can be valid only after the premium amount does not exceed 20% of the sum assured. Also, for the insurance policies issued on and after 1 April 2012, the premium should not exceed 10% of the sum assured.

FAQs

Which life insurance is best?

Different types of life insurance have various benefits associated with them. If you wish to avail life insurance with pocket-friendly premiums, then term insurance is the best for you. Further, the unit-linked insurance plan is best if one intends to go for both investment and insurance at the same time. Similarly, for people who wish to plan their retirements, the Annuity pension plan is the best. Therefore, to choose the best life insurance, it is important first to access your own needs and then choose an insurance plan.

Does life insurance expire?

The expiry of a life insurance policy varies across the different types of life insurance. As listed in the table below:

Type of Life Insurance Term
Term Insurance 5 to 30 years
Endowment policies 10 to 35 years
Unit Linked Insurance plan 10 to 20 years
Money back policy 5 to 25 years
Whole life policy Lifetime, could be 40 years in some cases
Annuity pension plan No fixed term

What happens if you live past your life insurance?

The consequences of outliving a life insurance policy vary across different types of life insurances. In case a person outlives the term insurance policy, the maturity value is forfeited. However, the term insurance can be renewed on a year to year basis up to the age of 95, on payment of extra premiums. Further, if you outlive the endowment policy, the insurance company usually pays the sum assured as a maturity benefit. Unit linked insurance plans, on the other hand, are linked to investment options for up to 10-20 years. Thereby, they are sum-assured, or the fund value is handed over to the policyholder upon the maturity of the insurance plan. However, if you go for a return of premium life insurance cover, then the premium amount is returned though, one needs to pay an extra price on these policies than a regular term policy.

What is the main purpose of life insurance?

The main purpose of a life insurance policy is to provide financial support to the insured person's family in case of his or her death. A life insurance policy provides peace of mind to the policyholder that his family won't bear any financial hardships in his absence.

What is not covered by life insurance?

Though life insurance covers the death of the insured person, yet there are specific clauses which are not covered by life insurance. These include deaths due to suicide, intoxication, homicide or natural calamity such as tsunami. Always check the coverage and events that are excluded from the eligible claims for the policy before making a decision to buy a policy.

Can you be denied life insurance?

Life insurance companies can deny insurance policy to people on the grounds of existing life-threatening diseases, additional risk due to the nature of the profession, strong family history of certain diseases as well as advanced age. In these cases, the insurance company can decide to charge a higher premium which may make the policy expensive and unaffordable for customers in such health segments.

What will cause you to be denied life insurance?

Life insurance can be denied to you in various situations, such as being overweight or obese, lack of income, diagnosis of hepatitis B or C, high blood sugar level, history of cancer, and history of drug abuse or alcoholism. Apart from that, the nature of your job could also lead to a life insurance denial, for instance, jobs like that of logging workers, pilots or flight engineers, fisherman, roofers, steelworkers, construction labourers amongst others are considered deadliest by many life insurance companies.

What medical conditions affect life insurance?

There are various medical conditions that can affect your ability to buy cheap and attractive life insurance and get maximum claims and benefits. These are high cholesterol, diabetes, obesity, high blood pressure, anxiety, asthma, heart disease, sleep apnea, early stages of cancer, depression, and mental health of an individual. Further, undergoing cancer treatment, HIV or AIDS, alcoholism and drug use, recent heart attack, or family history could prevent you from getting life insurance. Therefore, it is advisable that one takes life insurance at younger ages, as the policies become costlier and even unavailable as one gets older.


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