Key goals and major guide for

Life Insurance

Life Insurance can be defined as a contract between an insurance policy holder and an insurance company, where the insurer promises to pay a sum of money in exchange for a premium, upon the death of an insured person or after a set period. Thus, it is an arrangement wherein the Insurance company guarantees compensation of a specified sum, to the beneficiary whose name has been mentioned in the contract in case of happening of the event i.e. Loss of Life for loss of life in return for payment of a specified premium

Why invest in mutual funds

So one pay premiums for a specific term and in return Life Insurance Company provides you with a Life Cover. This Life Cover secures your loved ones’ future by paying a lump sum amount in case of an unfortunate event. In some policies, you are paid an amount called Maturity Benefit at the end of the policy term. Life insurance not only covers the risk arising due to an unfortunate event, but also gives you additional benefits like tax benefits, savings and wealth creation over a period of time. The right life insurance plan from a trusted company can help one get long-term risk cover plus savings, i.e. dual benefits from one solution. 

There are two basic types of Life Insurance plans – 1. Pure Protection 2. Protection and Savings

A Pure Protection plan is designed to secure your family’s future by
providing a lump sum amount, in your absence.

A Protection and Savings plan is a financial tool that helps you plan for your long-term goals like purchasing a home, funding your children’s education, and more, while offering the benefits of a Life Cover.

Commonly used terms in Life Insurance

  • Life Assured: It is the person who is covered under the insurance policy
  • Proposer: It is the person who pays the premiums of the policy. For example: If you have bought the policy for yourself, then you are both the Life Assured as well as the Proposer. Similarly, if you purchase an insurance policy for a family member, then you are the proposer and the family member is the Life Assured.
  • Nominee or Beneficiary: It is the person you appoint at the time of buying the policy to receive the benefits of your insurance policy, in your absence.
  •  Insurer: The insurance company that sells the life insurance policy is called the Insurer (for example, ICICI Prudential Life Insurance).
  •  Life Cover: It is the amount that the Insurer will pay to your Nominee in case of an unfortunate event.
  • Maturity Benefit: For Protection + Savings policies, the Insurer pays a certain lump sum of money on completion of the policy term. This amount is known as the Maturity Amount.
  • Premium: A premium is the amount you pay to the insurer for receiving the benefits of the insurance policy. These payments can be made on a regular basis throughout the policy duration, for a limited number of years or just once, as per the options available under the policy you choose.
  • Premium Payment Term: The number of years for which you pay the premiums is known as the Premium Payment Term.
  • Policy Term: The number of years for which the Life Cover continues.

Benefits of Life Insurance

Insurance provides risk coverage to the insured family in form of monetary compensation in lieu of premium paid.

Insurance companies offer a different type of plan to the insured depending on his need for insurance. More benefits come with the more premium.

These policies also cover hospitalization expenses and critical illness treatment.

These policies also cover hospitalization expenses and critical illness treatment.

Insurance policies come with the guaranteed sum assured amount which is payable on happening of the event.

Insurance companies provide the option to the insured that they can borrow a certain sum of amount. This option is available on selected policies only.

Insurance premium is tax deductible under section 80C of the income tax Act, 1961.

Types of Life Insurance Policies

  1. Term insurance plan: As the name says Term insurance plan are those plan that is purchased for a fixed period of time, say 10, 20 or 30 years. As these policies don’t carry any cash value their policies do not carry any maturity benefits, hence their policies are cheaper as compared to other policies. This policy turns beneficial only on the occurrence of the event.

  2. Endowment policy: The only difference between the term insurance plan and the endowment policy is that endowment policy comes with the extra benefit that the policyholder will receive a lump sum amount in case if he survives until the date of maturity. Rest details of term policy are same and also applicable to an endowment policy.

  3. Unit Linked Insurance Plan: These plans offer policyholder to build wealth in addition to life security. Premium paid into this policy is bifurcated into two parts, one for the purpose of Life insurance and another for the purpose of building wealth. This plan offers to partially withdraw the amount. 

  4.  Money Back Policy: This policy is similar to endowment policy, the only difference is that this policy provides many survival benefits which are allotted proportionately over the period of the policy term. 

  5. Whole Life Policy: Unlike other policies which expire at the end of a specified period of time, this policy extends up to the whole life of the insured. This policy also provides the survival benefit to the insured.  In this type of policy, the policyholder has an option to partially withdraw the sum insured. Policyholder also has the option to borrow sum against the policy. 

  6. Annuity/ Pension Plan: Under this policy, the amount collected in the form of a premium is accumulated as assets and distributed to the policyholder in form of income by way of annuity or lump sum depending on the instruction of insured.

Claim Settlement Process

On the happening of the event, the beneficiary is required to send claim intimation form to the insurance company as soon as possible. Claim intimation should contain details such as Date, Place, and Cause of Death. On successful submission of claim intimation form, an insurance company can ask for additional information about 
1. Certificate of Death 
2. Copy of Insurance Policy 
3. Legal Evidence of title in case insured has not appointed a beneficiary 
4. Deeds of assignment 
On successful submission of all the document, the insurance company shall verify the claim and settle the same.

Principles of Life Insurance?

Life insurance is based on a number of principles that are tailored to meet market conditions and ensure insurance companies make profits, while offering security policies to insured individuals. There are broadly four major insurance principles applied in India, these being:

  • Insurable Interest – This principle pertains to the level of interest an individual is expected to have in a particular policy. The interest could be a family bond, a personal relationship and so on. Based on the interest level, an insurance company can choose to accept or reject an application in order to protect the misuse of a policy.
  • Law of large numbers – This is a theory that ensures long-term stability and minimises losses in the long run when experiments are done with large numbers. 
  • Good faith – Purchasing an insurance is entering into a contract between company and individual. This should be done in good faith by providing all relevant details with honesty. Covering any information from the insurance company may result in serious consequences for the individual in the future. This being said, the insurer must explain all aspects of a policy and ensure that there are no unexplained or hidden clauses and that the applicant is made aware of all terms and conditions.
  •  Risk & Minimal loss – Insurance is a risky and companies have to do business and make profits keeping in mind the risk factor. The principle of minimal risk states that the insured individual is expected to take necessary action to limit him/her self from any hazards. This includes following a healthy lifestyle, getting a regular health check-up and more.

Points to Consider for Life Insurance

Research: As an applicant for life insurance, there are numerous policy options at your fingertips to choose from. It is essential that you do your research before making an informed decision on purchasing a life insurance policy, as it can help you save money and receive maximum benefits.

  • Read terms and conditions: The terms and conditions of an insurance plan contain all relevant information regarding the particular policy. Make sure that you read the fine print in detail and completely understand it before purchasing an insurance policy of your choice.
  • Remember lock-in period: There are instances when individuals purchase insurance policies without making an informed decision and later realise that they are unhappy with the insurance policy. In such scenarios, some insurance companies offer a lock-in time frame, which is a short time usually 15 days where a policyholder can return the policy to the insurer and purchase another in case they were unsatisfied with the initial purchase.
  • Consider premium payment options: Almost all insurance providers offer premium payment options consisting of annual, semi-annual, quarterly or on monthly basis. It is essential that you opt for Electronic Check System (ECS) payment that will periodically debit your bank account with the required insurance amount. Also, you can choose from a schedule that will allow you to make a premium payment with the convenience of interval payments.
  • Don’t Mask Information: There are times where individuals try to hide information when filling out the insurance application form. All personal credentials and medical history must be accurately presented to the insurance company. Misinformation can cause serious issues when trying to make claims later on.

Life Insurance Companies in India

Some of the prominent life insurance companies in India are: 
1. LIC – Life insurance corporation of India 
2. SBI Life Insurance 
3. ICICI Prudential Life Insurance 
4. HDFC Standard Life Insurance 
5. Bajaj Allianz Life Insurance 
6. Max Life Insurance 
7. Birla Sun Life Insurance
8. Kotak Life Insurance

We all are uncertain of the future and although no one wishes anything unfortunate to happen to them, we should be prepared for unforeseen circumstances. Having a life insurance policy is a financial cushion that makes sure your family is well protected. A life insurance policy hence is a very small investment compared to the greater peace of mind it will bring you.