A life insurance policy is a contract with an agency. In exchange for premium payments, the insurance company provides the beneficiaries upon the death of the insured. It is paid usually in a lump sum. This is known as a death benefit. Types, importance, benefits and tax benefits of life insurance have been covered in this article in an elaborated manner.
There are many varieties of this policy. Some of the most common types are below.
Term Life Insurance
Term life insurance is designed to provide financial protection. For a certain period of time, such as 10 or 20 years. With traditional term insurance, the amount of the premium payment remains the same for the selected coverage period. After this period, policies can provide continuous coverage, usually with a substantially higher premium payment rate. Long-term policy is generally more expensive than permanent life one.
This income can be used to replace potential income lost in years of work. This can provide a safety net for your beneficiaries and can also help ensure that the family’s financial goals. Goals such as – goals such as paying a mortgage, keeping a business running and paying for college.
It is important to note that although long-term can be used to replace potential lost income, life insurance benefits are paid simultaneously in a lump sum, not in regular payments, such as payment payments.
Comprehensive Life Insurance
Comprehensive life insurance is a type of permanent policy designed to provide as life coverage. Due to the life coverage period, the whole life usually has higher premium payments than the lifetime. Policy premium payments are usually fixed and, unlike the term, the whole life has a cash value, which works as a component of savings and can accumulate taxes deferred over time.
The needs it helps to meet: your whole life can be used as a property planning tool to keep the wealth you intend to transfer to your beneficiaries.
The average penetration and density of this in India is 2.76%. There have been improvements in this area, but overall growth has been quite slow in India. Not many people are aware of the benefits of the policy, and penetration numbers are an indicator of the same thing.
Accidents and mistakes are strong indicators of how fragile human life can be and how we must systemically secure our lives. It is an important tool for ensuring the safety and security of a person’s family. It acts as a protective cover to protect the dependents of the insured persons. If individuals do not secure their lives, dependents face the tragic loss of their loved one, along with several obligations such as rent, loans, SMEs and childcare.
Features of Life Insurance Plans
Life insurance is crucial for families to feel secure and a sense of confidence to continue their lives without losing their daily stability. To help you understand the key features and benefits of it, here’s a quick discount:
- Policyholder: The insured is the natural person who pays the premium for the policy. He Signs a contract with a company.
- A premium is a cost that the insured pays to the life insurance company to cover his life.
- Maturity: The stage in which the term of the policy is concluded.
- Insured: The insured is the person who is insured through insurance. After his death, the insurance company is responsible for providing a financial sum to the dependents.
- Insured amount: the amount that the insurance company pays to the insured’s dependents in the event of those events that are specified in the contract.
- Policy term: the term of the policy is the specified duration (listed in the life insurance contract) for which the insurance company provides life coverage and the period in which the contract is active (listed in the life insurance contract).
- Candidate: a person registered in the life insurance contract is called a candidate. He has the right to receive the pre-established compensation, as part of the policy.
- Claim: Upon the disappearance of the insured, the candidates can submit a request to the insurance provider to receive the default payment amount.
The Key Benefits of Life Insurance Policy in India
Death benefits
Policy allows individuals to protect themselves and their families in the event of any unfortunate event in the life of the insurer. The insurer pays an amount equivalent to the insured amount, as specified in the contract, together with the applicable bonuses. This is the definition of death benefits. It is one of the major points of the importance of life insurance.
Investment components certain whole life insurance policies offer benefits on two aspects of both insurance and investment. You get the best of both worlds with a protective cover as well as high returns on your investment. You can take full advantage of this component by investing in funds that align with your investment horizon and risk appetite. Certain policies allow you to switch between funds according to evolving objectives. The Invest 4G plan offered by Canara HSBC Oriental Bank of Commerce gives you the option to choose from a range of 7 units-related funds and 4 different portfolio management options, according to your preferences.
Maturity benefits (Importance of Life Insurance)
Life insurance policies can also be doubled as a savings tool, offering maturity benefits. If the insured survives the term of the policy and has not been claimed, the total premiums paid will be refunded at the time of maturity of the policy. This way, your plan can have a savings component while providing protection coverage.
Coverage Against Liabilities (Importance of Life Insurance)
To fulfill your dreams and attain your goals, you may have required a certain amount of financial support – in the form of loans, mortgages and other types of debt. Be it student loans or credit card debt, dealing with such liabilities can be a source of great financial strain, without a steady stream of income. While you may have the funds to pay off a part of your loans now, your family may find it difficult to manage such liabilities in the event of your unfortunate demise, owing to the loss of income. Thus, taking a policy ensures that your family has the financial means to steadily meet your loan and mortgage repayments, even in your absence.
Riders
You can opt for riders to enhance your coverage. A number of riders, ranging from Critical Illness to Accidental Total Permanent Disability are available and help protect you and your loved ones against instances where in your life cover may not come into play.
Tax Benefits of Life Insurance
Tax benefits of life insurance are under the umbrella of section 80C of the Income Tax Act (ITA), which shows tax benefits of life insurance individuals can reduce their tax debts by investing in specific instruments. Term insurance is one of them in tax benefits of life insurance. According to section 80C, the premium paid for the policy is eligible to obtain a maximum tax deduction for Rs. 1.5 lakh. Also, in section 10 (10D), all payments you receive from the insurance policy are not fully taxable (provided your premium does not exceed 10% of the insured annual amount) in tax benefits of life insurance. If you have opted for a health-related rider, such as a critical illness or a surgical care rider, you can also use tax deductions under 80D from the ITA. this is a gist of tax benefits of life insurance.
Liability Coverage (Importance of Life Insurance)
To fulfill your dreams and achieve your goals, you may have requested a certain amount of financial support – in the form of loans, mortgages, and other types of debt. Whether it is student loans or credit card debt, managing such debt can be a source of great financial strain without a steady stream of income. While you may have the funds to pay off some of the loans now, it is difficult for your family to manage such obligations in the event of an unfortunate death due to loss of income. Thus, taking out a policy ensures that your family has the financial means to consistently meet your loans and mortgage repayments, even in your absence.
Types of Life Insurance
With so many different types of life insurance, you may be wondering which one to choose. We are here to help you make that decision. The different types of are:
Universal Insurance
Universal life insurance has a cash value, as does the entire policy. Your premiums are for both cash and death benefits. But there is a twist: you can change premiums and death benefits without receiving a new policy. Basically, even though you have a minimum premium to keep the policy in place, you can use the cash value to pay the premium. This means that if you have enough money in cash, you can use it to skip full premium payments, leaving the accrued interest running.
Variable Insurance
Variable life insurance is similar to whole policy, in that both have a cash value, but the functions of cash values are quite different.
With an entire policy, the cash component of a cash account is a savings account. This is why, although growth may be small compared to other investment options, there is a guaranteed minimum rate. It also includes payments with dividends from the insured company.
A variable amount of Insurance cash is more like an investment. The money paid into it goes into a series of mutual sub-accounts similar to funds, where you can get a decent increase, but you can also lose money depending on the market. The value of cash is more or less placed on the stock market.
Variable Universal Insurance
A variable universal life insurance policy takes the best (or worst, depending on how you look at it) of the other two policies: You can adjust the value of the premium and death benefit while investing cash in the amount of policy cash.
But this types of life insurance also comes with many of the same risks as the other two. Again, this policy is more complicated than most people need, and it isn’t your best investment or insurance option.
Simplified Issue Insurance
Usually, when you apply for life insurance, you go through a paramedic examination. As part of the underwriting process so that the insurer finds out how risky it is to insure. The exam helps them determine their premium rate.
With this, you can skip the medical exam. This is the “simplified” part of this type of policy. You do not have to go through the medical examination, but you have to fill in a health questionnaire, answering questions such as if you smoke, you have been diagnosed with serious illness and soon.
Guaranteed Issue Insurance
Guaranteed life insurance takes the concept of simplified one. For the health exam – a step further in that you don’t have to answer any questions about your health. As long as you can pay the premium. The insurer will cover you. it needs only age, sex and state of residence.
This types of life insurance is attractive to the elders. Basically for ones of declining health makes it prohibitively expensive to obtain coverage with other types of insurance. This is useful for older applicants.
Final Expense Insurance
Are you still looking for a way to cover funeral costs? If you have covered life insurance with a guaranteed issue. You are in luck because there is a special policy for this purpose.
Final expense insurance is a distinctive type of policy. It covers the costs of anything associated with your death. Whether it’s medical, burial or cremation costs – regardless of the final literal expenses.
FAQs Regarding Everything About Life Insurance
Life insurance is a contract between a person and a life insurance company to reimburse its beneficiary (usually spouse or child) at the time of his or her disappearance. The reimbursement amount is decided in advance based on the terms of the policy.
Life Insurance is not necessary, but it is a smart investment to make, especially if you have a dependent husband and children. Give your family the benefit of financial support even after your death. Besides, it offers many advantages and offers a lot of flexibility to the investment.
The amount you receive at maturity depends on the amount of the premium you pay. The maturity benefit you need depends on your standard of living, income, spending habits, etc.
The cost of it depends on the type of policy you take out, the amount of the premium you pay, the amount insured, your age, and the benefits you expect to receive when your policy matures.
Some more FAQs are provided here for all of you. Do go through all of them if you have any doubts.
Editor’s Note | Life Insurance In India
The life insurance company in India is likely to contract in 2020, with an increase of 0.9% in 2020, compared to 8.8% increase recorded in 2019, due to the outbreak of Covid-19. The new business premium for life insurers in India shrank for the second month in April, with business significantly affected by the Covid-19 outbreak and subsequent blockade. According to the Development Insurance Regulatory Authority of India, in April the new business premium fell by 32.6% to 6. 6,728 from 9,928 crowns in the same period last year.
