Benefits of Life Insurance

Again and again, a message is being advertised and advocated- “life insurance is very beneficial”.  Term life insurance provides life cover, traditional life insurance provide guaranteed returns, unit linked insurance plans provide market linked returns, whole life insurance covers for entire life etc. The following are the benefits of life insurance:

Financial Security

Life insurance provides financial security. The insured life is covered which means that if something happens to him, a lump sum amount chosen at inception of policy is paid to the family members of the insured. Life insurance is essential policy to buy to cover your debts and other liabilities so that your family is not financially burdened. Term life insurance plans are the cheapest plans which offer life cover (no returns).

Savings

The expenses keep on increasing and more often one is not able to save as much as one wants. Life insurance premiums make sure that a portion of your income is directed towards savings always and hence promotes savings.

Financial Objective

Life insurance plans also let you accumulate corpus amount over the years. Traditional or endowment plans provides life cover and guaranteed returns. Unit linked insurance plan or ULIP provide life cover and market linked returns. You can invest in life insurance plans to earmark money for the future and realize the future financial objective.

Peace of Mind

After you get sufficient life cover, you get satisfaction in that fact that your family is financially secured and will not face any financial restraints when you are gone. The financial loss will never be felt since you bought life insurance with ample cover.

Life Insurance: Beginner’s Guide

In simplest terms, life insurance is a financial product which provides risk cover to human life. That is, on demise of the individual within the policy term, a lump sum amount is made available to the family members of the individual for their future financial needs.  Over the years, life insurance has evolved into a much broader product with investment options and riders to increase financial security.

Life Insurance is a mutual agreement between two parties- insurer and the insured. Insurer is the financial company which is providing the risk cover and insured is the individual whose life is covered. The insured pays a stipulated premium amount for the life cover provided to the insurer. On payment of premium, insurer issues a life insurance policy. The contract is legally binding though there are some clauses (suicide exclusion etc) which limit insurer’s liability.

In India, life insurance falls into many categories which are listed below:

Protection Plan: Better known as term plans, the objective of these life insurance policies is to provide life cover only. They are of two types- pure term plan and return of premium term plan. The difference being that the latter returns the base premium paid on maturity of the policy if life insured survives the policy term. These plans are cheapest among life insurance plans. Many insurers have launched online term plans which can be bought online directly by the customer and are very cheap because of fewer costs involved. The only limitation is that online term plans are available in few cities only.

Savings and Investment Plan: These life insurance policies include unit linked insurance plan and traditional endowment plan.

Both of these plans provide life cover and investment options.

Unit linked insurance plans (ULIP’s) invest the premium in equity, debt etc. ULIP are flexible, transparent and usually provide good returns over long term but are risky. The investment risk is borne by the policyholder.

Traditional endowment plans provide guaranteed returns on maturity. The downside is that returns are low. Traditional endowment plans come in following broad options:

- Pure endowment: These are traditional plans with limited policy term and provide guaranteed returns on maturity.

- Whole Life Insurance: These are traditional plans which continue for entire life. The individual gets life cover usually till the age of 100.

- Money Back Insurance: These are traditional plans which provide periodic payouts and also lump sum maturity amount.

Traditional endowment life insurance policies are usually “with profits” which implies that bonuses are declared which are added to the policy amount. However there are few “without profits” endowment policies as well.

Pension Plans: Also known as retirement plans, these life insurance policies help you build corpus amount over the years. After the policy term, the amount can be partially withdrawn for immediate needs and the rest is used to buy annuity. The annuity provides regular pension over the years. There are two types of pension plans- with life cover and without life cover. The current regulations dictate that insurer should specify the guaranteed maturity amount on inception of policy to the policyholder. Also, on maturity of pension plan, you can withdraw one-third in lump sum and rest of amount will be used to pay you periodic pension amount.

Health Plans: These life insurance policies provide with medical expenses incurred during hospitalization. Many health plans also pay lump sum amount regardless of actual hospitalization expenses. New health plans provide with a combination of health cover and investment options.

Which life insurance to choose?

The most essential life insurance policy is term plan. Term plans will make sure that your loved ones get a lump sum amount so that the amount covers your liabilities and they do not have to make financial compromises in the future. Term plan provides you peace of mind.

Term plan provides relatively large Sum Assured as compared to premium. A 30 year old person can get a cover of INR 50 lacs for merely 5k bucks through online term plan.

The other life insurance policies are more aligned towards investment and less towards life cover. If looking for high but risky returns, you can go for ULIP’s. Among ULIP’s, you can go for wealth plans, child plans, pension plans etc.

Traditional plans provide guaranteed returns but the growth on traditional plans is very low.

Riders: Additional financial security

Riders are add-ons that can be added to base life insurance policy to provide additional financial security for the insured and family members. Major riders are:

Accidental Death and Disability: This rider pays additional lump sum amount if the life insured suffers from death due to accident or sustains permanent and total disability like loss of limbs etc.

Critical Illness: If the life insured is diagnosed with critical illness, lump sum amount is provided to manage the financial difficulties. This amount is paid regardless of actual hospitalization expenses.

Waiver of Premium: In certain situations like disability, waiver of premium implies that there is no need to pay future premiums and the policy will still continue.

Family Income Benefit: This is usually an additional monthly benefit which will be paid to the family members on the death of life insured.

Tax Benefits in Life Insurance

Life insurance plans also provide tax benefits. The premium amount paid towards life insurance is deductible from taxable income subject to maximum of INR 100,000. This tax deduction is as per Section 80C of the Income Tax Act, 1961.

The maturity proceeds or death benefit amount is completely tax free under section 10 (10D) of the Income Tax Act, 1961.

Premium Payment

You can pay life insurance premiums through online by different payment modes like internet banking, credit or debit cards. You can also make the premium payment through cheque or cash. For premium amount above INR 50,000, PAN card is mandatory requirement.

The mode of premium payment in most life insurance policies is- annual, semi-annual, quarterly or monthly. Quarterly or monthly payments are usually done through ECS. Direct salary deduction option is also available with few insurers.

Many life insurance policies have single premium payment also where you pay lump sum amount once and there is no need for further payment.

LIC or Private Insurers

It is clearly the biggest concern among Indian customers. LIC is the oldest and well known established insurance company. LIC is also the market leader in life insurance. There is lack of trust among people for private insurers.

However all insurers are tightly regulated by Insurance Regulatory and Development Authority (IRDA) - the government body regulating insurance industry.

A genuine claim will never be rejected by the insurer.

Life Insurance Policy Comparison

Product innovation and strong competitive marketing has made choosing a life insurance policy very difficult. Instead of being carried away by products features, one should always do a “need analysis”. Choose a life insurance policy based on your requirements. There are many website portals (insurance aggregators) where you can make comparison of life insurance policy. Be sure to check comparison of products as you can end up saving quite a good amount of money.

Buying Life Insurance Online

Many life insurance policies are available online. There are very cheap term plans which can be bought online and less costly than regular term plans. Many insurers have also launched wealth plans online as well. By making life insurance policy online, it benefits both customer and insurer since distribution costs reduce by selling life insurance policy online. As such, insurer forwards the same benefit to the insured.

Life Insurance Terminology

Life Insured: The person whose life is covered by the insurance company

Insurer: Any one of the 24 insurance companies who provide life insurance

Fund Value: The accumulated amount in the life insurance policy

Sum Assured: The lump sum amount for which insured is covered for

Premium: The amount paid by the insured for the life insurance policy

Policy Term: The total number of years for which life insurance policy continues

Insurer: Future Generali Life Insurance

Category: Traditional Plan

Objective: Financial protection of family and periodic returns on investment

Periodic payouts

Single Premium option available

Bonuses

Rebate on base premium

Auto cover

Maximum Entry Age: 60 Years

Maximum Maturity Age: 80 Years

Policy Term: 15-65 Years

Premium Payment Term: Single, 10/15/20/25/30 Years

Minimum Premium: Rs 10,000 per annum

Premium Payment Frequency: Yearly, Half Yearly, Quarterly or Monthly

In case the Life Assured passes away, Sum Assured along with vested bonuses will be paid.

Money Back

5.5 % of Sum Assured along with bonuses will be made every year after the premium payment term.

Maturity Benefit

On maturity, Sum Assured along with terminal bonus(if any) will be paid.

Bonuses

Reversionary bonus will be declared at the end of each year and will be paid at the end of premium payment term. Terminal bonus if any will be added on maturity.

Riders

Accidental death, Saral term benefit and Premium waiver benefit are the riders that can be attached with the plan by paying additional nominal premium.

Rebates

If Sum Assured is equal or more than Rs 1.5 lacs, discount on basic Premium is also given.

Under Section 10(10D) death claim is completely tax free.

Auto Cover: If you discontinue premium payment after 3 years, death benefit will be provided for the next two years.

Surrender Value: In case you want to cancel Future Generali Secure Income plan after 3 years, the minimum guaranteed surrender value will be paid which is equivalent to 30% of all premiums paid barring the first year premium.

Free Look Period: Future Generali Secure Income can be cancelled within 15 days of receiving the policy contract. A written application can be submitted to any branch for the same. The premium will be paid back minus some charges like stamp duty, medical reports.

What’s Policybazaar opinion on Future Generali Secure Income?

Insurer: Reliance Life Insurance

Category: Traditional Plan

Objective: Financial protection of family and returns on investment

Bonuses

Riders available

Loans available

Maximum Entry Age: 60 Years

Age at Maturity: 85 Years

Premium Payment Term:  5-40 Years

Premium Payment Mode: Yearly, Half Yearly, Quarterly or Monthly

What benefits does Reliance Whole Life offer?

Death benefit:

In the unfortunate event of life insured death, Sum Assured along with vested bonuses will be paid.

You can extend insurance coverage till age of 99 if required.

Maturity Benefit:

When the life insured reaches age of 85. Sum Assured along with vested bonuses will be paid.

Riders:

You can opt for accidental death & total and permanent disablement rider, critical illness rider and family income benefit rider with the plan.

High Sum Assured Rebate:

A discount on premium will be made for Sum Assured equal or more than INR 99,999.

Loans:

You can apply for loans against the policy after three policy premiums have been paid for maximum amount up to 90% of the surrender value.

Are there any tax benefits?

Under Section 10(10D) death claim is completely tax free.

Free Look Period: Whole Life plan can be cancelled within 15 days of receiving the policy contract. A written application can be submitted to any branch for the same. The premium will be paid back minus some charges like stamp duty, medical reports.

Insurer: Reliance Life Insurance 

Category: Traditional Plan

Objective: Financial protection of family and returns on investment

Enhance Life Cover

Bonuses

Loan option available

Maximum Entry Age: 45 Years

Maximum Age at Maturity: 62 Years

Policy Term: 15 Years

Premium Payment Mode: Yearly, Half Yearly or Monthly

What benefits does Reliance LifeConnect 2 Life offer?

Death benefit:

In case of unfortunate death of the life insured, basic Sum Assured plus vested bonuses will be paid.

Maturity Benefit:

At the end of policy term, basic Sum Assured plus vested bonuses will be paid.

High Sum Assured Rebate:

For Sum Assured equal or above than INR 1 lacs, a rebate on premium is also made.

Loans:

You can avail loan against the policy after the policy acquires surrender value for maximum amount of 80% of surrender value.

Are there any tax benefits?

Under Section 10(10D) death claim is completely tax free.

Free Look Period: Connect 2 Life plan can be cancelled within 15 days of receiving the policy contract. A written application can be submitted to any branch for the same. The premium will be paid back minus some charges like stamp duty, medical reports.

Insurer: Reliance Life Insurance 

Category: Traditional Plan

Objective: Financial protection of family and returns on investment

Guaranteed Maturity Benefit

Limited premium pay term option available

Riders available

Maximum Entry Age: 65 Years

Maximum Age at Maturity: 75 Years

Policy Term:  10, 15 or 20 Years

Minimum Sum Assured: Rs 50,000 per annum

Premium Payment Mode: Yearly, Half Yearly or Monthly

What benefits does Reliance LifeMoney Multiplier offer? 

Death benefit:

In case of unfortunate death of the life insured, double the basic Sum Assured along with accrued loyalty additions will be paid.

Maturity Benefit:

At the end of policy term, Sum Assured along with guaranteed loyalty additions and guaranteed maturity addition.

Riders:

You can opt for the following riders with the plan- major surgical benefit, critical conditions, term life insurance benefit, accidental death and total and permanent disablement, family income benefit.

High Sum Assured Rebate:

For Sum Assured equal or above than INR 1 lacs, a rebate on premium is also made.

Loans:

You can avail loan against the policy after the policy acquires surrender value for maximum amount of 80% of surrender value.

Under Section 80C you can avail tax benefit, yearly premium (not more than 1lac) will be deducted from taxable income.

Under Section 10(10D) death claim is completely tax free.

Surrender Value: The policy obtains surrender value after three policy years have been paid . The guaranteed surrender value will be equivalent to 30% of all premiums paid less the first years’ premium.

Free Look Period: Money Multiplier plan can be cancelled within 15 days of receiving the policy contract. A written application can be submitted to any branch for the same. The premium will be paid back minus some charges like stamp duty, medical reports.

Insurer: Kotak Life Insurance

Category: Traditional Plan

Objective: Financial protection of family and periodic returns on investment

Limited Pay Option

Automatic Cover Maintenance

Maximum Entry Age: 65 Years

Maximum Age at Maturity: 75 Years

Policy Term: 10-30 Years

Premium Payment Term: 3,5,7,10,15 Years, Policy Term

Minimum Premium: Rs 4,000 per annum

Premium Payment Term: Regular

In case of unfortunate death of life insured, higher of Sum Assured or accumulated amount (including bonuses) will be paid.

Maturity Benefit:

On maturity, higher of Sum Assured or accumulated amount (including bonuses) will be paid.

Riders:

You can opt for the following riders- accidental death, permanent disability, critical illness, life guardian benefit, accidental disability guardian and term/preferred term benefit with the plan.

Automatic cover Maintenance:

After three policy premiums have been paid, this facility ensures your policy stays in force in case you miss paying premium.

Under Section 10(10D) death claim is completely tax free.

Surrender Value: The policy acquires guaranteed surrender value after 3 policy years. The guaranteed surrender value will be equivalent to 30% of all premiums paid less the first years’ premium.

Free Look Period: Endowment plan can be cancelled within 15 days of receiving the policy contract. A written application can be submitted to any branch for the same. The premium will be paid back minus some charges like stamp duty, medical reports.

Insurer: Tata AIG Life Insurance

Category: Traditional Plan

Objective: Financial protection of family and returns on investment

Guaranteed Additions

Flexible Sum Assured

Riders available

Maximum Entry Age: 65 Years

Maximum Age at Maturity: 75 Years

Policy Term:  10, 15, 20, 25 and 30 Years

Premium Payment Term: 3, 5, 7 or 10 Years

Minimum Premium: Rs 5,000 per annum

Premium Payment Mode: Yearly, Half Yearly, Quarterly or Monthly

What benefits does Tata AIG ShubhLife offer?

Death benefit:

In case of unfortunate death of the life insured, Sum Assured along with bonuses and guaranteed additions will be paid.

Maturity Benefit:

At the end of policy term, Sum Assured along bonuses and guaranteed additions will be paid.

Guaranteed Addition:

This are added every alternate year till half the policy term and are equal to 3% of Sum Assured.

Riders:

You can opt for accidental death benefit, accidental death and dismemberment long scale, accidental death and dismemberment short scale, waiver of premium, critical illness, term rider, and renewable term rider with the plan.

Under Section 10(10D) death claim is completely tax free.

Free Look Period: ShubhLife plan can be cancelled within 15 days of receiving the policy contract. A written application can be submitted to any branch for the same. The premium will be paid back minus some charges like stamp duty, medical reports.

Insurer: MetLife Insurance 

Category: Traditional Plan

Objective: Financial protection of family and returns on investment

Riders available

Limited Pay options available

Maximum Entry Age: 70 Years

Maturity Age: 99 Years

Policy Term: 99- Age at Entry

Premium Payment Term: 15, 20 and 25 Years

Minimum Premium: Rs 1,000 per annum

Premium Payment Mode: Yearly, Half Yearly, Quarterly or Monthly

What benefits does Met 100 offer?

Death benefit:

Being a whole life plan, you get life cover till the age of 99. In case of unfortunate death of the life insured, Sum Assured will be paid.

Maturity Benefit:

When the life insured reaches 99 years, Sum Assured will be paid.

Riders:

You can opt for accidental death, waiver of premium, critical illness and term rider with the plan.

Are there any tax benefits?

Under Section 10(10D) death claim is completely tax free.

Free Look Period: Met 100 plan can be cancelled within 15 days of receiving the policy contract. A written application can be submitted to any branch for the same. The premium will be paid back minus some charges like stamp duty, medical reports.

Insurer: MetLife Insurance 

Category: Traditional Plan

Objective: Financial protection of family and returns on investment

Riders available

Limited Pay and Single Pay available

Maximum Entry Age: 60 Years

Maximum Age at Maturity: 75 Years

Policy Term: 15-30 Years

Premium Payment Term: 5, 10, Regular, Single

Minimum Premium: Rs 2,500 per annum

Premium Payment Mode: Yearly, Half Yearly, Quarterly or Monthly

What benefits does Met Suvidha offer? 

Death benefit:

In the unfortunate event of life insured death, Sum Assured along with vested bonuses will be paid.

Maturity Benefit:

At the end of the policy term, Sum Assured along with vested bonuses will be paid.

Riders:

You can opt for accidental death, waiver of premium, critical illness and term rider with the plan.

Under Section 10(10D) death claim is completely tax free.

Free Look Period: Met Suvidha plan can be cancelled within 15 days of receiving the policy contract. A written application can be submitted to any branch for the same. The premium will be paid back minus some charges like stamp duty, medical reports.

Policybazaar representatives will assist you in buying Met Suvidha.