What is Life Insurance - Types of Life Insurance Plans in India
Life Insurance is a financial cover for risks associated with an individual’s life, like death, disability, etc. The individual here is effectively the bread-winner for the family whose unfortunate demise/disability could adversely affect the family’s future income and accomplishment of other financial dreams/goals.
What is Life Insurance?
Life Insurance is a financial cover for risks associated with an individual’s life, like death, disability etc. The individual here is effectively the bread-winner for the family whose unfortunate demise/disability could adversely affect the family’s future income and accomplishment of other financial dreams/goals.
Let us take the example of Gautam who is 30 years old. Gautam works in a private company and his monthly salary is Rs. 50,000/-. In his family, there are his wife, one child (2 years old), and dependent parents. Gautam and his family are living life in a fairly satisfactory way.
Now in the above example, the entire family’s well being is dependent on the income that the breadwinner (Gautam) gets from his salary. In the case of the unfortunate event of loss of life of Gautam, the whole family’s present and future are disturbed badly. Hence in order to safeguard the family’s future and to ensure that everything goes on smoothly(Financially) even in the absence of breadwinner, life insurance is of paramount importance.
Let us understand in detail different aspects of life insurance policies
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What are the different types of Life Insurance policies?
Types of Life Insurance Policies:
- Term Insurance
The term insurance policy is designed for providing high insurance coverage to an individual. This policy is normally taken for income substitution in the event of loss of life. Protection is available for a fixed period of time in Term Insurance policies. Premiums charged in a term insurance policy are usually lower with respect to the coverage provided in the policy.
In the event of death, the insured’s dependants are paid Sum Assured. In Term Insurance, normally no benefit is payable if the policyholder survives the term. To get the premiums back on the survival of term higher premiums are to be paid.
- Endowment Policy
An Endowment Policy is a savings cum insurance policy in which policyholders get maturity proceeds on certain maturity date. In the event of unfortunate demise or disability to the insured during the policy term, the Sum Assured is paid to the nominee. If policyholder lives through the policy term, the maturity proceeds on the policy are paid.
- Money-back plans:
In money back plans, fixed percent of the sum assured is returned to the policyholder periodically. On maturity, the balance amount is paid as maturity value. Insurance is available for the full Sum Assured during the term of the policy.
- Child Plans
Child plan policies are taken to provide insurance cover for the life of the parent for the benefit of the child. In such policies, the parent plans to get funds according to the needs of the child for example higher education, marriage, etc. In some child insurance plans, there is a facility of premiums in the unfortunate event of the death of the parent during the term of the policy.
- Annuity (Pension) Plans
Annuity plans provide regular income along with life coverage. Different types of annuity are as follows:
- Immediate Annuity
In immediate Annuity policy, the Annuity(Pension) payment starts immediately. The premium for the policy for immediate Annuity is to be paid once in a lump sum in one installment only.
- Deferred Annuity
In deferred Annuity policy, the policyholder pays regular premiums for the policy, till the vesting age/vesting date. He/She has the option to pay in a single premium also. The premiums accumulate with interest and fund, and, are available on the vesting date. The insurance company manages the investment of funds and the policyholder has the option to withdraw 1/3rd of this corpus accumulated fund on the vesting age/vesting date tax-free. The balance amount of 2/3rd of the fund is utilized for the purchase of Annuity (pension) for the policyholder.
- Unit Linked Insurance Policy(ULIP)
Unit Linked Insurance Policies (ULIPs) offer a combination of both investment and risk cover. Such policies give individuals the option for investment in their paid premiums. The investment is normally market-linked.
What is meant by Sum Assured (SA) in a LI policy?
Sum Assured(SA) is the amount that would be paid to the insured’s beneficiaries/nominees upon his/her (insured/policyholder) unfortunate demise.
Does ULIP offer guaranteed returns?
Investment returns from ULIP are normally not guaranteed. When someone invests In unit-linked products/policies, the investment risk in the investment portfolio is borne by the policyholder. Depending upon the performance of the unit-linked fund(s) chosen; the policyholder gets returns.
Can policyholder ask for a refund of premium if not satisfied with the policy, after purchasing it?
The policyholder can go for a refund of premiums if he/she is not satisfied with the terms and conditions of the policy. But he/she has to exercise this option within 15 days of receipt of the policy document. This 15 days period is called 'free look period'
If a premium payment is missed, will the insurance cover be lost?
If the premium is paid within the grace period following the due date, the policy will not be subject to a penalty or loss of coverage.
How does group life insurance policy differ from a personal/individual life insurance policy?
Group life insurance is issued as a master policy to a group (an employer or an association). The members of the group are given a certain fixed cover which is uniform for everyone. The entire risk of all the members covered in the policy is considered while deciding upon the premium amount.
What are the Tax Benefits of Life Insurance Products?
The premium on Life Insurance products is deductible under section 80(C) of the Income Tax Act, for calculation of taxable income. The present limit for the maximum tax rebate is Rs. 1.50 Lakhs under the said section. Also, the maturity proceeds (in the case allowed by the policy) are deductible from tax under section 10(10D).