A life insurance policy provides a dedicated sum of money on the policyholder’s death or after a certain period.

A life insurance policy is an agreement between an insurance company and a policyholder whereby the insurer agrees to pay a certain amount of money in return for an insurance premium, either at the insured person’s death or after a predetermined amount of time.

Life insurance safeguards the future of your loved ones by providing a lump sum payment, also known as a death benefit, in the event of an untimely death. Upon completion of the policy term, the policyholder receives a sum assured on maturity or a maturity benefit from the insurer along with bonuses.

What are Life Insurance Policies?

Life insurance policy is an agreement between the insured and the insurer, where the insured is supposed to pay a fixed premium at regular intervals and receive a fixed amount after a fixed duration as promised by the insurer. Life insurance policies are of two types, pure protection and savings plans.

The pure protection plan provides a lump sum payment to the family in the absence of the life insured. A savings plan helps in planning long-term goals and comes with additional benefits.

Types of Life Insurance Policies

• Term Life Insurance Plans
• Term Return of Premium (TROP)
•  Whole life Insurance
• Endowment Policies
• Unit Linked Insurance Plans(ULIP)
• Child Plan
• Money Back Policies
• Whole Life Policy
• Annuity/Pension Plans

1. Term  Life Insurance: This type of life insurance policy comes with a death benefit payable only in the event that the policyholder dies before the term of the plan. The nominee can make a death claim after the policyholder’s death. However, if the policyholder survives the policy term, a death claim cannot be made, and the policy coverage will cease without any maturity value. These policies can be supported with riders for additional coverage, such as accidental death benefits, critical illness benefits, and others.

2. TROP: This is a particular type of term life insurance that comes with the additional advantage of survival benefit where all premiums paid by the insured will be paid back with GST if the insured survives the entire policy term.

3. Whole Life Insurance: This policy covers the policyholder until 100 years of age and ensures financial coverage throughout the policy term.

4.  Endowment Policies: This type of insurance plan combines guaranteed returns and life coverage. This type of plan offers a lump sum payout on maturity and enables the nominee to make a death claim in the event of the policyholder’s untimely death. Some endowment plans also come with the benefit of a bonus over the policy coverage.

5.  ULIP: Unit- Linked Insurance Plans are wealth builder plans that offer the benefits of both an investment plan and an insurance plan. Customers can invest in various funds, such as equity, hybrid, bonds, and others, according to their risk appetite and receive market-linked returns from investments. These plans include a five-year lock-in period, loyalty addition, and the option of partial withdrawal and fund switching.

6.  Money Bank Policies: This type of insurance plan offers a percentage of the assured sum of the policy at regular intervals and returns the remaining portion of the corpus along with a bonus if the policyholder survives the policy term. The entire sum assured will be returned in case of an unfortunate event before the policy term. The policy also offers maturity benefits with lump sum payments.

7. Child Plan: Ensures financial security for the child by fulfilling the child’s future goals using the return on investment. These policies offer life cover to the nominee and fund the balance premium even in the absence of the policyholder.

8.  Whole Life Policy: This type of insurance policy offers 99 years of coverage with family protection for an extended duration. This type of plan is best suited for policyholders with dependents and offers lifetime protection to the policyholder and their children.

9.  Pension or Retirement or Annuity Plans: This is a wealth-building plan for non-working years of the policyholder and offers financial protection to family members as well. This plan comes with various withdrawal options, such as a lump sum payment, regular income, or both.

Some other types of Life Insurance policies also include:

• Children Life Insurance Policy: This life insurance plan is a combination of savings and investment plan specially designed to meet the financial needs of the children in the future. This plan comes with intermediate withdrawal or provision of withdrawal after the child reaches adulthood.

•  Group Life Insurance: This type of life insurance policy is offered to the employees by employers, bank customers, NGOs, non-banking financial organizations, professional groups, and microfinance institutions. This plan offers financial support to the employees and to their family members in case of the untimely demise of the employee. Some group insurance plans come with critical illness coverage, and disability along with outstanding loan coverage for debtors.

Features and Benefits of Life Insurance Policy

The key features and benefits of a life insurance policy are listed below:

Financial Security: The main advantage of a life insurance policy is that it provides the policyholder’s family with long-term financial security in the event of an emergency.

Maturity Benefits: At the conclusion of the policy term, insurance companies might provide the relevant benefit amount as a maturity benefit, according to the type of life insurance policy.

Death Benefit: The insurer offers financial support as a death payout if the event of the policyholder’s demise. The entire sum assured plus any cumulative bonuses are paid to the nominated individual.

Assured Returns: Following a specified term, life insurance policies guarantee that you will receive a predetermined sum. Your child’s further education costs and other expenses may be covered by the returns.

Tax Benefits: Policyholders are eligible to receive tax benefits on their premium payments under sections 80C and 80D. According to the current tax laws, they are also entitled to tax exemptions under section 10(10D).

Retirement Planning: Annuity-based life insurance policies assist in the preparation of a secure retirement by providing the policyholder with a monthly pension upon policy maturity.

Riders: Add-ons to the existing base plan, like a waiver of premiums, critical illness, etc., help you tailor the life insurance policy plan to meet your unique needs.

Create Wealth: In addition to protection benefits, some life insurance policy types, like ULIP, savings, and endowment plans, also provide wealth creation benefits. Depending on your tolerance for risk, you can select different plans and accumulate savings for your long-term objectives.

Loan Facility: Based on the terms and conditions of the policy, some life insurance plans offer you the facility to borrow a portion of the policy’s value or the sum assured.

Flexible Premium Payment: Depending on your needs, you can select how frequently you pay your premiums. The various premium payment options available are monthly, quarterly, half-yearly, or annually.

Comparison of Different Types of Life Insurance Plans

Life insurance has changed from being a luxury to a necessity, and it now plays a crucial role in how smoothly our lives go. Although the country’s life insurance penetration has not yet kept pace with its population, hundreds of new people enrol in various life insurance plans every day. Selecting the appropriate sort of insurance is one of the most difficult aspects of life insurance, and with so many alternatives available from different firms, it wouldn’t be difficult for those who are unfamiliar with them to become perplexed.

The table below will highlight and compares key aspects related to the different types of life insurance policies in India:

*Note – The term varies from plan to plan, with the numbers mentioned above reflecting an overall average.

How to Save Tax with a Life Insurance Policy?

Being insured in today’s times is of utmost importance. Even if your partner has a life insurance policy and a group policy from his/her company, it is important that you purchase a comprehensive life cover for yourself. Covering your life will not reduce the emotional distress that you may be going through, but a life insurance policy will ensure that you have adequate financial backup during times of need. The insurance market is currently flooded with insurers selling a horde of insurance products and services. While selecting a particular life insurance policy, it is imperative to understand its tax implications.

1. Section 80C of the Income Tax Act Deduction: If you are currently paying a premium toward your life insurance policy or for the life of your parents, children, or spouse, you will be eligible for a deduction under Section 80C of the Income Tax Act. Irrespective of whether your child is a minor or not, the deduction shall be applicable. However, to be able to claim the said deduction, the premium amount (being paid by the policyholder) must not be more than 10% of the sum assured amount, if the policy was issued after 1 April 2012.
2. Section 10(10D) Maturity Deduction: If the premium amount (being paid by the policyholder) does not exceed 10% of the sum assured for plans issued after April 1, 2012, and 20% of the sum assured for plans issued before April 1, 2012, then the maturity amount that the policyholder receives at the end of the policy term will be completely exempt from tax as per Section 10(10D) of the Income Tax Act, 1961.

GST on Life Insurance Premium

Life insurance is not exempted from GST (Goods and Services Tax). The introduction of GST will have an impact on the life insurance industry. The insurance premiums will most likely increase from 15% to 18% in the insurance sector. If you are paying premiums for health, car, and life insurance, you will be affected heavily.

When life insurance companies calculate the premium for each individual, certain factors are taken into consideration. Because life insurance is a form of investment, even low premiums can yield relatively high returns over a period of time. However, availing a life insurance policy with a low premium may not always be possible as you will have to meet certain requirements as laid down by the insurer. However, some individuals tend to avail similar life insurance policies as others at significantly lower costs. The reason for this is that these individuals have made the right life choices that have enabled them to avail lower premiums.

Documents Required for Buying a Life Insurance Policy

Following are the documents you will require to purchase a life insurance policy:

• Passport-sized photographs.
• Age Proof (Driving License / PAN Card / Passport / SSC Certificate).
• Proof of Residence (Passport / Telephone Bill / Electricity Bill / Ration Card / Water Bill / Voter ID).
• Identity Proof (Ration Card / Voter ID / PAN Card / Passport / Driving License).
• Proof of Income (Pension Pass Book / Income Tax Returns / Form 16 / Salary Slip).

How Does Life Insurance Work?

Here are the details regarding how life insurance works:

• Select the life insurance that suits your needs

• Select the premium payment option, either annual or monthly, depending on terms and conditions

• Life should be informed, and claim should be filed by the nominee in case death of the insured

• Relevant documents should be submitted to file the claim, such as death certificate, identity proof, etc.

• The life cover amount is paid to the nominee only after successful verification of the documents

Importance of Life Insurance

In the unfortunate event of the policyholder’s death, life insurance gives financial security and long-term well-being for the family members. Additionally, it provides a chance to save corpus for a safe future. Here is why life insurance is necessary:

• The financial security of the policyholder’s family is ensured by life insurance. It provides a layer of security for regular expenses and preserves their standard of living in the event of the policyholder’s death.

•  Life insurance allows you to secure the financial security of your family without straining your budget by providing high coverage at reasonable premium rates.

•  In addition to providing a death benefit, life insurance covers serious illnesses and relieves the financial strain of medical bills.

•  Having life insurance can help you prepare for retirement by guaranteeing a consistent flow of income during your post-retirement years.

• Besides providing financial security, life insurance also offers tax benefits under Sections 80C and 10(10D) of the Income Tax Act, 1961, which enable you to save on taxes.

• You can accumulate corpus through life insurance over time, which will give you the financial means to meet future objectives like buying a house, children’s education, etc.

• You can feel secure in the knowledge that your loved ones’ financial future is protected even in the most difficult times.

How Much Life Insurance Coverage is Required

It is essential to determine the appropriate life insurance for your family members. When determining the necessary amount of life insurance coverage, you should take the following factors into account:

Your Family’s Requirements: Before selecting the appropriate life insurance, you should evaluate the financial needs of your family, including total income and total monthly costs.

Existing Debts and Loans: The life insurance policy you choose should cover any outstanding debts or loans you may have.

HLV Calculation: You can obtain a precise estimate of the necessary life insurance by using the human life value calculator.

Medical Emergencies: You should select a life insurance policy that is enough to cover any unforeseen medical or financial emergencies.

Income Replacement: In order to replace your income in the event of your absence, you should select an amount assured that is payable in monthly instalments.

Changes in Your Life Stage: You should select a life insurance policy that is sufficient to cover your various life stages because your life stage could shift during the policy term.

How to Claim Life Insurance?

Life insurance claims are made under two circumstances:

• Death of the life insured
• Maturity of the life insurance policy
• Rider Claims

How to claim Life Insurance in case of Death

The steps to claim Life insurance in case of Death are as follows:

Step 1: Inform insurer with death details.

Step 2: Submit death certificate and claim form.

Step 3: Provide original policy and discharge form.

Step 4: Include assigned policy deed if applicable.

Step 5: Offer legal proof of claimant’s entitlement.

Step 6: Provide any requested additional documents.

How to claim Life Insurance after Maturity

Follow the instructions given below to claim your life insurance after Maturity:

Step 1: Receive bank discharge form from insurer.

Step 2: Accurately complete the form.

Step 3: Submit form and required supporting documents.

Step 4: Receive sum assured and maturity bonus.

How to claim Riders in Life Insurance

To claim your riders in life insurance, follow these instructions:

 Step 1: Pay extra premium for rider benefits.

Step 2: Follow specific claim procedure for each rider.

Step 3: For death-related riders, follow death claim process.

Step 4: For other riders, submit a signed claim form and policy copy.

Documents Required for Initiating Claiming Procedures

The following are the documents required for initiating claiming procedures:

• Post-mortem reports
• Original policy certificate
• Death certificate issued by the local authority
• FIR (First Information Report)
• Claim form which dully filled and signed by the applicant
• Bank statement
• Cancelled cheque
• KYC documents of beneficiary, such as copy of address proof and photo ID proof
• Summary of hospital discharge
• Legal proof of the person making the claim in case he or she is not an assignee or nominee

Guidelines for Beneficiaries Claiming Life Insurance:

• To claim the death benefit, the nominee must file a death claim. Obtain a claim intimation form from your insurer for physical policies or apply online for digital policies.

• The claim intimation should include essential details like policy number, policyholder’s name, place of death, insured person’s name, and the claimant’s name.

• The nominee must complete the required death claim forms and provide proof of death.

• After submitting the forms, the insurance company acknowledges the death claim.

• Gather all necessary supporting documents. Submit the documents to the insurance company for the claim settlement process.

• The company will review the forms and documents before making a claim settlement decision.

Benefits of a Life Insurance Policy

Life Insurance policies offer several different benefits to individuals and some of them are mentioned below:

• Provides financial protection in case of an unforeseen death.

• It is a long-term investment with fixed payments.
• It covers medical expenses and critical illnesses.
• It promotes long-term savings and financial security.

• Regulated for secure, long-term financial growth.

•  Provides a steady income in retirement.

• Allows participation in economic growth with no investment risk.

• Offers the option to borrow against the policy.

• Covers loans and mortgages in unforeseen circumstances.

• Provides tax benefits to save money.

What’s the Average Cost of a Life Insurance Plan and what Affects the Price?

Life insurance policies are known for insuring the life of the insured and also for providing a lump sum amount to the insured’s family after the former (the insured) passes away. The insurance market is flooded with numerous insurance policies offered by various insurance providers. Hence, choosing a life insurance policy that best suits one’s needs has become a convenient process.

However, before investing in a life insurance policy, it is important to analyse the cost and one’s needs, and invest accordingly.

Factors Affecting Life Insurance Policy Premiums:

The following are the factors affecting life insurance policy premiums:

• Weight and Obesity: Overweight or obese individuals may face higher premium rates.
• Occupation Risk: Risky professions, like race car driving, can lead to elevated premiums due to the higher associated risks.

• Smoking: Smokers typically pay higher premiums due to increased health risks.

• Heavy Drinking: Excessive alcohol consumption may result in additional premium costs

Factors Affecting Life Insurance Policy Premiums

Following are the factors that are taken into consideration by life insurance companies for the calculation of premiums:

1. Age
2. Gender
3. Health records
4. Medical history
5. Smoking
6. Drinking
7. Type of policy
8. Profession
9. Lifestyle choices
10. Obesity

Life Insurance Premium Calculation

These are the basic steps involved in calculating premium for Life Insurance:

Step 1– Collect Personal Information: Insurance companies gather essential data about the individual seeking coverage. This includes details like age, gender, medical history, and lifestyle choices.

Step 2– Evaluate Health and Lifestyle: Underwriters assess the applicant’s health status, considering factors such as pre-existing medical conditions, tobacco use, and overall fitness. A healthier lifestyle typically leads to lower premiums.

Step 3– Analyze Personal History: Motor vehicle reports and medical information are examined to gauge risk. Past incidents or health issues may impact the premium.

Step 4- Statistical Data and Actuarial Analysis: Insurance providers use mathematical calculations and statistical models to determine the risk profile of the applicant. Actuaries, who are experts in risk assessment, play a crucial role in this step.

Step 5- Risk Assessment: Actuaries predict the likelihood of the applicant making a claim on the policy. The higher the perceived risk, the more the individual will pay in premiums.

Step 6- Mortality and Sickness Tables: Actuaries create tables that outline potential losses due to illnesses or death. These tables are based on mathematical data and historical trends.

Step 7- Modeling Risk: Actuaries use the mortality and sickness tables to build models that estimate the likelihood of the applicant falling ill or passing away during the policy term.

Step 8- Determine Premium: The final step is to calculate the premium based on the individual’s risk profile. Those with a higher probability of claiming benefits will be charged higher premiums, while healthier, lower-risk individuals will pay less.

Grace Period in Life Insurance

Here are the details regarding grace period in life insurance:

• In case the policyholder fails to pay premium on time, grace period allows them to clear the due

• Grace period is of 30 days for life insurance plan during which premium can be paid

• Time period of grace varies in some life insurance plans

• The benefits of life insurance plan remain active during the grace period

Cash Value of Life Insurance Plans

The following are some of the details of cash value of life insurance plans:

• Earning and Borrowing: This component earns interest and is available for borrowing or withdrawal.
• Financial Flexibility: You can use the cash value as a source for loans or premium payments.

• Wealth Building: It aids in accumulating wealth while enhancing your life cover.

• Premium Allocation: Your premium is divided into two parts – one for wealth creation and interest earnings, and the other for financial security.

• Maturity or Emergency: Once sufficient cash value accumulates, you can receive it at maturity or utilize it for emergency loans.

What are the Late Charges on Life Insurance Premiums?

Here are some details regarding late charges on life insurance premiums:

• Policyholders will need to pay penalties on late charges on life insurance premiums

• The penalty amount varies depending on policy and the insurer

• To revive the policy through ‘reinstatement’, policyholders need to pay all the outstanding premiums with applicable interest rates will be applicable

• Late payment charges also depend on the duration for which premium payment is due

•  Life insurance plan can be revived within five years of last premium paying date

How Can You Avoid Paying Late Fees in Life Insurance?

The following are some of the significant points that you should remember to avoid paying late fees in life insurance:

• Select auto-debit option so that you do not miss out on premium payments

• Select reminder option before premium payment date to avoid delayed payment

• Keep track of the premium payment reminders

• Opt for yearly premium payment instead of monthly payments to avoid missing out on regular payments

Life Insurance Exclusion

The exclusions under life insurance plans may differ from one policy to another. However, there are certain exclusions that almost all policies agree with. Mentioned below are some important ones:

• Death caused while performing criminal or unlawful activities
• Death caused by man-made disasters like war, riot, etc.
• Suicide or any self-inflicted injury
• Death caused while participating in adventure sports or any dangerous activities like bungee jumping, rock climbing, etc.
• Death from HIV or any other sexually transmitted diseases
• Death or harm caused by indulging in illegal intoxicants
• Death caused during the waiting period is not covered by life insurance policies

FAQs on Life Insurance

1. How much life insurance cover does a person need?The amount of life insurance coverage required depends on factors like income, expenses, and liabilities. Evaluating these factors helps determine the appropriate coverage amount.
2. What is the average life insurance cost per month?The average monthly cost of life insurance depends on factors such as the type of policy, your age, health, and the sum assured. Term plans are generally more affordable than traditional or unit-linked plans.
3. Why is term life insurance better than whole life insurance for some people?Term life insurance offers high coverage at lower premium rates, making it suitable for those seeking cost-effective protection for a specific period. Whole life insurance combines death benefits and savings but comes at a higher cost.
4. How do term insurance policies offer higher life coverage than other types of insurance policies?Term insurance premiums are primarily allocated to create a life cover, while other plans use part of the premium for different purposes, making term insurance more affordable and focused on pure protection.
5. When does life insurance cover begin?Your life insurance coverage starts on the Risk Commencement date, which is the date when the insurer approves your insurance application.
6. What are the major differences between a non-participating policy and a participating one?Non-participating policies don’t allow policyholders to share in the company’s profits, while participating policies enable policyholders to participate in the company’s profits, though the dividends may vary based on investment returns.
7. What happens if my policy is canceled during the free-look period?During the free-look period, you can cancel your policy without cost. After this period, canceling the policy may involve a small fee.
8. Are life insurance payouts taxable?As per Section 10(10D) of the Income Tax Act, sums assured, and bonuses received under the policy are usually tax-free. However, there are exceptions in certain cases.
9. Is it better to take a single cover policy or a joint life insurance policy?Single cover policies cover individuals separately, while joint policies cover both individuals under one policy. Joint policies result in a single payout, whereas two single policies provide two separate payouts.
10. When should you buy life insurance?Ideally, purchase life insurance in your late 20s or early 30s. The timing may vary based on the number of dependents and family health history.
11. Do life insurance premiums increase with age?Premiums for whole life policies remain fixed, while term insurance premiums may increase if you renew the policy after the initial term, as age is considered a risk factor.
12. What is a graded premium life insurance policy?Graded life insurance features initially lower premiums that increase yearly for a set period before becoming fixed for the rest of the policy term.
13. What is the ‘Surrender Value’ of a policy?The surrender value is the amount refunded if the policy is canceled and is based on premiums paid and policy duration. Certain insurance companies offer loans against policies, utilizing the surrender value as collateral.
14. What is a policy’s ‘Free-Look Period’?The free-look period allows policyholders to cancel within the first 15 days of purchase and get a refund. Cancellation during the free-look period is free, but a small fee may apply after the period
15. What are Riders?Riders are additional policy benefits, such as critical illness coverage, available for an extra premiums.
16. How can I verify the authorization of the agent selling me the life insurance policy?You can ensure their certification by checking the agent’s IRDA authorization card.
17. Can I get life insurance for my parents?Yes, you can purchase life insurance policies for your parents, depending on their age and health. There are policies designed specifically for older individuals or senior citizens.
18. What is a Money Back Plan?A Money Back Plan combines insurance and investment, offering periodic returns during the policy term and a lump sum at the end of the policy term.

News about Life Insurance