Life insurance is a legal agreement between the policyholder and the insurance company that commits the latter to paying out the death benefit in the terrible event that the life assured passes away. A maturity benefit is given to the life guaranteed in the event that they live through the entire policy term. A critical illness rider allows one to elect to receive compensation in the event of a critical illness. Term plans, child plans, retirement plans, money-back plans, and unit-linked insurance plans are some of the several types of life insurance (ULIPs). All other forms of life insurance policies offer an investment component to help the policyholder satisfy their needs for wealth building, with the exception of term plans, which are pure protection plans.
HOW DOES LIFE INSURANCE WORK
Many people frequently contemplate life insurance while making financial plans to ensure their future. In the event of your untimely passing, a life insurance policy can assist you in ensuring the financial security of your family. It is crucial for you to comprehend how a life insurance policy functions and how your nominees or beneficiaries can collect the earnings of your life insurance policy at the time of purchase.
A life insurance policy is a legal agreement between the policyholder and the insurer, in which the insurer agrees to provide the life assured with life insurance in return for recurrent premium payments. The life assured is the person who is covered by the life insurance policy, and the policyholder could either be the life assured or the person who bought the policy, depending on the circumstances. The policyholder or life assured may elect to make yearly, semi-annual, quarterly, or monthly premium payments.
Given that the life insurance policy is active and the life assured passes away unexpectedly while the policy is in effect, the nominee or beneficiary will get a death benefit that will enable them to meet their financial obligations and objectives in the absence of the life assured. The life assured will receive surviving benefits, also known as maturity benefits, at the conclusion of the policy tenure if they live through the entire policy term.
Life insurance is simple to comprehend; in return for recurring monthly payments, insurance firms offer life insurance to a person. To enhance the scope of coverage of the base policy, the policyholder may decide to add a rider to the life insurance policy. In exchange for a higher cost, riders provide more coverage. Moreover, tax exemptions can be obtained through life insurance.
KEY FEATURES OF LIFE INSURANCE POLICY
If the life assured passes away unexpectedly while the policy is in effect, the nominee will get the death benefit, which is an amount assured. Your dependents’ daily financial needs and ambitions can be met in your absence thanks to the death benefit amount. A life insurance policy enables you to provide your loved ones with financial stability even after your passing.
Component of investment
If one decides to invest in ULIPs, Money Back, or Endowment plans, which offer the dual benefits of life insurance and investments, such plans can operate as an investment component that includes life insurance. Depending on how well the life insurance company performs, Money Back and Endowment policies offer additional bonuses.
Even in the absence of the life assured, the benefits under a life insurance policy assist the family in creating a safe and secure future. Also, by purchasing a life insurance policy, one may qualify for income tax benefits under Sections 80C and 10(10D) of the Income Tax Act of 1961. Tax exemptions are available for premium payments made towards a life insurance policy.
If the life assured has survived the whole policy duration, certain life insurance policies offer a maturity bonus at the end of the policy term. A life insurance policy’s maturity benefit enables a person to achieve their financial objectives over time.
By selecting a life insurance rider, which adds additional coverages in exchange for an additional payment, you can choose to extend the base policy’s level of protection. The life insurance policy’s coverage is expanded by these extra protections. Accidental Complete and Permanent Disability, Accidental Death Benefit, Critical Illness Rider, Accelerated Terminal Illness Rider, etc. are some popular life insurance riders chosen with a life insurance policy.
Some life insurance plans provide loans against the policy feature, which can assist a person in meeting immediate financial needs like paying for medical emergencies or assisting a person in meeting unavoidable financial responsibilities.
Modular Premium Payments
Payment options for life insurance policy premiums include monthly, quarterly, half-yearly, and annual payments. The mode and frequency of premium payments are flexible for life assurance.
The advantages of having a life insurance coverage are numerous. A person might use life insurance as a tool to assist them build a financial safety net for their loved ones in the event that something unanticipated occurs to the life assured. It not only enables someone to provide a stable financial future for their loved ones, but it also enables them to set aside money from their salary for a brighter future. One crucial element of one’s financial plan is life insurance. The majority of people purchase life insurance plans to make sure that the beneficiaries, who might face challenges financially in the absence of the life assured, receive the money they need to meet their basic needs and follow their aspirations.
In the event of the policyholder’s untimely death, the death benefit of a life insurance policy is the sum assured. This gives the policyholder’s family financial security. So, a life insurance policy acts as a financial shield and makes sure that the family’s hopes and dreams don’t have to be put on hold.
Life insurance gives people peace of mind because it makes sure that their loved ones will be able to take care of themselves financially after they die. Life insurance also helps pay for medical emergencies, which takes some of the pressure off of the family to find money when things are tough.
Buying a life insurance policy can help a person make sure that their loved ones will be financially stable in the future. A life insurance plan pays a death benefit to the nominee if the life assured dies. This can help the family pay off debts or other obligations and keep up their standard of living.
Under Section 80C of the Income Tax Act, you can get a tax break of up to Rs. 1.5 Lakh if you pay for life insurance. Section 10(10D) says that the insurance proceeds don’t have to be taxed if the premium is less than 10% of the sum assured or if the sum assured is at least 10 times the amount of the premium.
Benefit for a sure income
Some life insurance plans let you choose to get the death or maturity sum assured as a steady stream of monthly, quarterly, half-yearly, or annual payments. This lets the life assured enjoy the plan’s benefits, such as a steady flow of income.
Most life insurance plans give you the option to take out a loan at a low interest rate if you need money quickly. With the help of the life insurance plan, this helps the life assured have a lot of cash on hand.
Reasons To Invest in Life Insurance
No one knows how their life will turn out. Life is very unpredictable, and no one can tell what will happen to them. People should think about buying life insurance to protect their finances from the unknowns of life. If you aren’t sure if life insurance is a good choice for you, here are some reasons why investing in a policy will help you make sure your family is taken care of financially after you die:
Helps you save money on taxes: If you buy a life insurance policy, you can deduct the premiums you pay from your taxes. Under Sections 80C and 10(10D) of the Income Tax Act of 1961, people who pay life insurance premiums can get tax breaks.
Helps You Plan for Retirement: Not all types of life insurance can help you build up a nest egg for retirement. Some life insurance companies offer retirement plans that can help you save for retirement and cover your life at the same time. The sooner you buy a retirement plan, the more money you will have to meet your financial needs after you retire.
Will Help Your Loved Ones Pay Off Your Debts: If the life assured dies too soon during the policy, the nominee or family of the life assured will receive a death benefit amount. If you die too soon, your family may have to deal with your debts. The amount of the death benefit can help your family pay off your debts.
Offers a financial safety net: If you are the only person who brings in money for your family, your untimely death will affect your family members both emotionally and financially. In this case, a life insurance policy can help you give your loved ones a financial safety net even after you’re gone.
Gives you peace of mind: The biggest benefit of buying a life insurance policy is that it gives you peace of mind. When you buy a life insurance policy, you make sure your family is taken care of financially and that you’ve done everything you can to protect their future in case you die.
Can be a way to save money: Having a life insurance policy makes a person more likely to save money regularly. Some life insurance policies allow you to borrow money against the policy, which can help you when you need money right away.
Can be changed: Depending on which life insurance company you go with, you may be able to change your policy by adding “riders.” Riders are extra coverage that come with a higher premium. With riders, you can change your life insurance plan to fit your needs.
Who is most likely to buy Life Insurance?
The most important thing to think about when buying life insurance is whether or not you have people who depend on you financially. Here are some examples of the kinds of people who are most likely to buy life insurance:
Young Adults: As soon as you start making money, it’s always a good idea to get a life insurance policy. As soon as you start making money for yourself and your family, you should think about buying a life insurance policy. Not only can it help you get tax breaks, but it can also help you protect your finances from life’s unknowns. People say that you should buy life insurance when you’re young because the premiums are lower for healthy young people and it can help you save money on taxes.
Parents: When people become parents, they often start to think about getting a life insurance policy because they want to make sure their child has a safe financial future. As a parent, you always want to give your child the best. A life insurance plan can help you make a plan for your child’s financial future. You will need insurance that can help pay for household costs and any costs that might come up from raising a child. A life insurance policy pays out a death benefit if the life assured dies unexpectedly during the coverage period. With the help of a life insurance policy, you can make sure that your child will be taken care of financially if something bad happens.
People who are married and whose spouses depend completely on their income often buy life insurance policies to make sure that their spouses will be able to pay their bills if they die. As the only person who brings in money for a married couple, one should think about getting life insurance. The death benefit from a life insurance policy can help your wife or husband meet their financial needs and keep living in a healthy way even after you’re gone.
Sole Breadwinner of the Family: Usually, the only person who brings in money for the family will buy a life insurance policy to make sure that his or her family won’t have to worry about money if the life assured dies during the policy’s term. If the family’s main source of income dies, a life insurance policy can help the life assured’s family members keep up a decent standard of living and pay their bills until they can get more money or start working themselves. A life insurance policy can help a person set up a financial cushion for his or her family in case something bad happens.
Adults of retirement age: People who want to retire or are already retired and don’t have a lot of savings may also want to buy a life insurance policy. Some life insurance policies cover you for the rest of your life. This can help a person who is retiring make sure that their children, spouse, etc. will be taken care of financially in the future. If the life assured dies unexpectedly, the death benefit amount paid by a life insurance policy can help the life assured’s family pay for immediate costs.
Business Owners: If you own a business, you need to think about what would happen to your family and employees if you died unexpectedly during the policy period. If the life assured dies unexpectedly, those who depend on him or her financially can use the death benefit amount to pay creditors, manage payments, pay off the life assured’s debts, and keep a decent standard of living.
How Much Life Insurance Cover Do I Need?
The main reason to buy a life insurance policy is to make sure that if you die unexpectedly during the policy’s term, your family will have enough money to live a healthy life. But the question “How much life insurance do I need?” is a good one to ask. Many people may not need a specific amount of life insurance coverage. So, when deciding how much coverage you need, you should think about your income, expenses, number of financial dependents, and debts (if you have any at the time you buy the policy).
Although it is recommended that the amount of life insurance should be 10–15 times the person’s income. A sum assured equal to 10-15 times the income of the life assured can help the life assured’s family pay for immediate expenses, meet daily financial needs, and reach their goals if the life assured dies unexpectedly during the policy’s term. It is best to choose a sum assured that will help your family meet their financial needs if the life assured dies. Before choosing your sum assured, you can think about your income, your current financial obligations, your estimated number of working years, your estimated future expenses, etc.
Tax Benefits of Life Insurance
A life insurance policy is an important financial tool for anyone who wants to make sure their loved ones have money in the future. The benefits of a life insurance policy help the life assured’s family plan for a safe and secure future even after the life assured has died. Also, Section 80C and 10(10D) of the Income Tax Act of 1961 say that if you buy a life insurance policy, you can get tax breaks. Under Section 80C, you can get a tax break on the premiums you pay for your life insurance policy up to Rs. 1.5 Lakh. Section 10(10D) gives you a tax break on the income you get when the policy matures if the premium is not more than 10% of the sum assured.
If the amount guaranteed is less than 10 times the premium, you can get a tax break on the premium up to 10% of the amount guaranteed. If the life assured dies too soon, the sum assured paid to the nominee is also exempt from taxes.
Under Section 80C(5), the life assured will not get any benefits from the premiums paid if the policyholder gives up his or her life insurance policy voluntarily or if the policy is cancelled before two years have passed since it was issued.
Under Section 10(10D) of the Income Tax Act, the recipient will not have to pay any taxes on the sum assured amount plus any bonuses (if any) paid if the life assured dies or when the policy matures.
How to Calculate Life Insurance Premium?
When figuring out the cost of a life insurance premium, things like age, gender, lifestyle, job, way of life, BMI (Body Mass Index), amount of coverage, health conditions, medical records, etc. are taken into account. With an online premium calculator tool, it’s easy to figure out how much your life insurance premium will be. Many companies that sell life insurance have online tools that help you figure out how much your premiums will be based on the information you give.
A life insurance premium calculator is easy to use. You just put in your information, like your annual income, date of birth, lifestyle, gender, and amount of coverage. You also choose the type of life insurance, how often the premiums will be paid, and how long the policy will last. After you put in these details, the life insurance premium calculator will figure out how much the policy’s premium is and show it to you. You can look at the life insurance policy’s quoted premium and use it to compare different policies before choosing one that meets your needs.
Documents Required for Purchasing a Life Insurance Policy
Following is the list of documents required at the time of application for a life insurance policy:
- Salary slips of last 6 months
- Bank statements of last 6 months with entries of 3 months of salary credited continuously
- Income Tax Returns (ITR) of last 2 years
- Certificate issued by CA in case the individual is self employed
- Form 16 (Latest)
- Birth Certificate
- Aadhaar Card
- Voter ID Card
- PAN Card
- Driving Licence
- Marriage Certificate
- Ration Card
- Aadhaar Card
- PAN Card
- Voter ID Card
- Address Proof
- Aadhaar Card
- Voter ID Card
- Ration Card
- Driving License
- Passbook with 6 months of latest entries
- Bank statement of savings account
- Latest 3 months of utility bills
- Apart from KYC documents there are few other documents required at the time of application of life insurance policy. Following is the list of other documents required at the time of policy application:
- Application/Proposal Form
- Policy Declaration in case the proposal form had not been filled by the life insured
- Final Declaration stating that the information provided is true and in case anything is found to be incorrect the insurance provider has the right to reject the application
How to Choose the Best Life Insurance Policy?
In India, different life insurance companies offer different plans, and it can be hard to choose a good one when there are so many to choose from. Here are some important things to think about before you buy a life insurance policy:
Figure out what kind of life insurance you need: Different types of life insurance plans are used for different things. Term Insurance, Unit-Linked Insurance Plans, Whole Life, Endowment, Money-Back, Retirement/Pension, and Child Life Insurance plans are all different kinds of life insurance plans. Term insurance is the most basic type of life insurance, since other types of life insurance have an investment part. It’s very important to choose the right kind of life insurance for your needs.
Sum Assured Amount: Before buying a life insurance policy, you should figure out the sum assured, which is the policy’s coverage amount. One should think about a sum assured that is between 10 and 15 times their income. Before choosing a sum assured for your life insurance policy, you should think about your current way of life, expenses, debts, goals, and the number of people who depend on you financially, among other things. The amount of money guaranteed by a life insurance policy should be enough to give your loved ones a good life after you die.
Incurred Claim Settlement Ratio: One important thing to think about before buying life insurance is the claim settlement ratio of the insurance company. You should think about getting life insurance from a company with a high claim settlement ratio. A high claim settlement ratio shows how many claims the insurance company settled out of how many claims they got. So that you can fully trust your insurance company, you should look for one with a high claim settlement rate.
Compare Several Plans: Comparing different plans for life insurance based on your needs and budget. When you compare different life insurance policies from different companies, you can figure out which policy meets your needs best. In this way, you will be able to make a good choice.
How to File a Life Insurance Claim?
In case of an unforeseen demise of the life assured during the policy tenure, the nominee can file for a death claim. As a nominee/beneficiary of the life insurance policy you should be aware of how to file a death claim and about the claim settlement procedure. You can easily file a claim online or choose to visit the branch office of your chosen life insurance company. Below mentioned are some steps you can follow to file a claim for the life insurance policy:
Online – You can visit the official website of your chosen life insurance company and log in using your registered email ID/policy number and password. You register a claim online easily on the website and submit supporting documents along with the claim form. Your claim will be assessed and settled as soon as the underwriters have approved the claim. The online process is very convenient. Some life insurance companies also let the nominee to file a claim by sending an email at the official email address.
Visit the branch office – You can also visit the branch office to directly intimate and file a claim at the office of the life insurance company. You can submit the claim form along with supporting documents at the branch office.
SMS/Call – Some life insurance companies provide an option to intimate the claim to your life insurance providers through SMS/Call facility. You can send a SMS to the provided number by the life insurance provider and call the helpline number or customer care number provided by the life insurance provider to intimate the insurance provider about the claim.
Things You Must Know About Life Insurance
A life insurance policy is a well-known financial tool that helps people protect their loved ones financially in case something unexpected happens, like the life assured dying unexpectedly during the policy’s term. Before you buy a life insurance policy, there are a few things you should know about them:
People often think that a life insurance policy gives a person a monetary value, but this is not true. A life insurance policy covers a person’s life in exchange for the person being covered paying a premium. If the life assured dies unexpectedly, the nominee gets a sum of money called the death benefit. When a person buys life insurance, the applicant/life assured chooses the amount of coverage based on their budget and coverage needs.
There are many different kinds of life insurance plans: India has many different kinds of life insurance policies, such as Term Life, ULIPs, Endowment, Retirement, Money Back, Child, and Whole Life. People can choose from different types of life insurance policies based on how much coverage they need and how much money they can spend. The features and benefits of different life insurance plans are different and serve different purposes. Some life insurance plans have investment parts, while others just cover basic risks.
Life insurance premiums depend on a number of things, like how old you are, what you do for a living, your health, the type of policy you have, the amount of money you are insured for, how long the policy is in effect, and whether or not you drink or smoke. Age is a big factor in figuring out the cost of a life insurance policy. Older people are more likely to get diseases that threaten their lives, so the cost of their policy goes up as they need more coverage. So, it is best to buy a life insurance policy when you are young.
Life insurance can also be used as a way to invest. Some policies have an investment part where part of the premiums are used for investments and the rest are used for the life insurance. With these life insurance plans, the person who pays the premiums can invest some of the money in different market-linked funds. The returns are entirely based on how well the market-linked funds do.
Premiums paid for life insurance are exempt from taxes. Under Section 80C and 10(10D) of the Income Tax Act, premiums paid for a life insurance policy are exempt from taxes. This can help a person save money on taxes. For the premiums paid on a life insurance policy, one can save up to Rs. 1.5 Lakhs.
With riders, you can change the way your life insurance works: With the help of life insurance riders, life insurance can be made to fit your needs. Riders are extra insurance coverage that can be added to a life insurance policy for an extra premium. With the help of these riders, the base life insurance policy can cover more.
Importance of Life Insurance In India
Life insurance is a good financial tool that can help you make sure your loved ones are taken care of financially and cover your own costs if you die. A life insurance policy helps the person who bought it and their family financially if they get into trouble. Taking into account the current situation, people who have people who depend on them financially need to have a life insurance policy. If something were to happen to someone during the COVID-19 outbreak, a life insurance policy could come in very handy. Here are some of the reasons why it’s important to have life insurance:
To pay off debts: Most people take out loans during their working lives to meet certain financial needs, such as buying a house or car. Some people also get loans to pay for their child’s schooling, wedding costs, etc. In the event that you die too soon, your family will have to pay off your debts. You should think about getting a life insurance policy so that your death won’t directly affect your family’s finances. If you die too soon, your family will get a death benefit that can help them pay off your debts. A life insurance policy can help your family take care of financial obligations without having to cut back on their own needs.
To make sure your loved ones have enough money: One of the main reasons to buy a life insurance policy is to make sure that your loved ones will be taken care of financially if something bad happens, like your death during the policy’s term. If you die unexpectedly during the life insurance policy’s term, your parents, child, or spouse who depended on your income will continue to depend on someone else or their savings. A life insurance policy can help take care of your family’s basic needs. If you die unexpectedly during the policy period, a death sum assured will be given to the nominee or family members of the life assured. This will help them live a decent life and pursue their dreams without the life assured.
To save money on taxes: Aside from protecting your family financially, the main reason most people buy life insurance is to save money on taxes. Section 80C of the Income Tax Act of 1961 says that you can get a tax break of up to Rs. 1.5 Lakh for the premiums you pay on a life insurance policy. Section 10(10D) of the Income Tax Act of 1961 says that tax exemptions can also be given for death and maturity benefits.
There are many good reasons to buy a life insurance policy, especially if you are the only one who brings in money for your family. If you’re worried about the future of your family, you shouldn’t wait to get life insurance.