What is Life Insurance?
Life Insurance is one of the most common types of insurance available for citizens in India. This insurance is used to provide cover for the life of the insured person. Such insurance can be taken for a fixed tenure or the lifetime of the insured person. Life insurance can act as a safety blanket and provide financial security to the insured person and their family members in the time of any emergency, especially the death of the family’s sole breadwinner.
Many types of life insurance policies are available in the market today against the plain vanilla life cover. These policies provide the benefit of life insurance as well as investment options that can earn good returns (for example, ULIPs, endowment plans, etc.).
Some of the common types of life insurance policies that can be opted by a person for themselves or their family are tabled below.
|Type of plan||Basic description||Tenure||Target customers|
|Term plan||Basic life insurance plan with no maturity benefits. Death benefits provided to the nominee or the legal heir of the insured person||Fixed tenure of 5 years to 50 years||Ideal for customers looking to provide financial security to their family in their absence at nominal costs|
|Term plan with premium return||Basic term plans with return of premium option if no claim is made till the end of tenure.||Fixed tenure between 10 years to 30 years||Ideal for customers looking for a premium return option with basic life insurance.|
|Whole life insurance plans||Life insurance plan providing coverage for the lifetime of the insured person. These plans may or may not offer investment options.||The whole life of the insured person. Some insurers provide maturity benefits to the insured person when they reach 80 years to 100 years of age.||Ideal plan for customers looking to secure the future of the family and building a corpus fund.|
|Child plans||Life insurance plans focusing to secure the future of the children right from their birth||Flexible policy tenure depending on the needs of the child (0 to 18 years)||Ideal plan to build a fund for children to use it for their future needs like higher education, wedding, etc.|
|Group life insurance||A life insurance policy taken by the employer for their entire staff.||From the time of employment till they are part of the organization.||Ideal plan to get basic coverage from day 1 without any waiting period.|
|Endowment plans||Life insurance plan with a benefit of insurance along with investment. Investors get assurance of a portion of returns as guaranteed returns.||Fixed tenure from 10 years to 30 years||Ideal plan for insurance and investment benefit.|
|ULIPs||Unit Linked Insurance Plans providing market-linked returns along with the benefit of insurance. No guarantee of returns, unlike endowment plans. The minimum lock-in period of 5 years||Tenure between 10 years and 20 years||Ideal for aggressive investors looking for insurance and mutual fund benefits|
|Moneyback plans||Life insurance plans providing income at regular intervals and balance of sum assured (if any) is received at maturity.||Tenure up to 25 years||Suitable for investors who prefer to get regular returns along with insurance benefits.|
|Retirement plans||Life insurance with retirement benefits to insured persons in the form of pension or lump sum payment as per the discretion of the policyholder||No fixed tenure for such plans (maximum maturity age is 75 years)||Ideal plan for investors aiming to secure their retirement and earn regular income in their old age.|
The highlights of any life insurance policy are mentioned below.
Life insurance policies are considered to be low-risk products that provide the benefits of guaranteed returns in the form of sum assured. The insured person may also get additional benefits in the form of benefits from riders or accrued bonuses depending on the type of plan.
The returns of a life insurance policy are given at maturity or as death benefits which may also include the additional benefits mentioned above as well as accrued returns on designated investments made as part of the plan (for example, mutual fund investment under ULIPs)
Tax benefits for life insurance include deductions from the gross total income up to Rs. 1,50,000 under section 80C and exemption at the time of receiving the lump sum policy amount under section 10(10D).
- Lock-in Limitations
Full benefits under a life insurance policy are received at the time of its maturity or as death benefits. If the policy is surrendered before maturity, the benefits are reduced on account of a penalty to be paid for early withdrawal. Apart from this, some plans also have a minimum lock-in period before which the policy cannot be redeemed (for example, ULIPs having a lock-in period of 5 years).
As per the new guidelines of IRDAI, a policyholder is permitted to withdraw up to 5 times from the policy provided 5 policy years are completed before such withdrawal. The minimum amount that can be withdrawn is Rs. 1,000 for 2,000 depending on the type of policy. The maximum amount that can be withdrawn is 25% of the fund value at the time of withdrawal.
- Capital Protection
A life insurance policy is a low-risk investment and the returns are guaranteed as long as the premiums are paid on time without any default.
- Inflation Protection
Life Insurance does not account for inflation at the time of maturity or as death benefits. Hence, investors have to ensure that the coverage amount is taken after considering the inflation.
|Eligibility||Any resident Indian or an NRI (provided they meet the guidelines set by the insurer).|
|Entry age||For adults – Above 18 years up to 65 years (70 years in case of some insurers)For children – Newborns up to 18 years|
|Fee Structure (Account Opening Fee & Maintenance Charges)||The premiums are based on factors like,Applicant’s ageMedical conditionPolicy typeCoverage amount and tenureNumber of persons included in the policyGender and marital statusLocationEmployment and Income status|
|Exit option / Liquidation of policy||Varies depending on the type of policy and the number of years it is held for.|
|Nomination Facility||This facility is available and can be changed multiple times. However, the latest claim of the nominee will supersede the previous nominees.|
Account Setup Information
A life insurance policy can be bought either online or offline. Offline mode refers to visiting the nearest branch office of the insurer and the online mode is by visiting the website of the insurer.
How to buy Life insurance policy?
Life insurance can be bought through individual insurance agents, banks, insurance brokers, or websites of insurers after identifying a suitable policy and filing an application for the same. The applicant has to submit the following set of documents along with the application form.
- Proof of age (Birth Certificate, Ration Card, Aadhar Card, Passport, etc.)
- Proof of identity (Driving License, Voter Id, PAN Card, Aadhar Card, Passport, etc.)
- Proof of address (Aadhar Card, Rent agreement, Latest utility bills, Passport, etc.)
- Employment proof (Salary slips, Employment contract, Promotion letter, etc.)
- Income proof (Latest ITR, salary slips, Form 16, etc.)
- Passport size photographs
Applicants will also have to undergo the required medical tests depending on the cover or age of the individual.
Life insurance policies can be bought online from the website of insurers. Payment for the same can be made through online payment modes like NEFT/RTGS, credit/debit cards, or UPI payment.
Buying a policy online can also reduce premium payments through discounts offered by various insurers or from online portals that provide the available life insurance options under each category from various insurers.
- Life insurance is not an investment and therefore one must focus on the purpose of the instrument
- The free-look period allows an individual to return his policy if he does not find it appealing
- There are a variety of different policies under life insurance including term plan, endowment plan, child plan, etc.
1. How to buy a life insurance policy online?
A. The process to buy a life insurance policy online is mentioned below.
- The first step is to visit the website of the insurer.
- The customer can get information on all the available plans from various categories available with the insurer.
- Following this, the customer can select a plan based on their specific needs
- After selecting the plan, the customer will be required to provide the basic details as per the guidelines of the insurer like name, address, the number of dependents, nominee, etc along with supporting documents.
- Customers will then be required to provide the coverage amount needed along with the premium payment mode and frequency of payment.
- After making the initial payment through the available online payment modes, the online application process will be completed and the policy details will be sent to the customer at their registered email id and mobile number.
2. What is the premium on any life insurance policy?
A. Premium is the cost to be paid for buying life insurance coverage. Premium on life insurance has to be paid at fixed and regular intervals without any default in order to keep the cover active.
3. What is the tax benefit under section 10(10D) o the Income Tax Act, 1961?
A. Section 10(10D) of the Income Tax Act, 1961 provides an exemption towards the sum received by the policyholder or the nominee or the legal heir at the time of maturity of the life insurance policy or under death benefits (subject to certain conditions).
4. What are the various benefits of a Life Insurance plan?
A. The various benefits of a Life Insurance plan are,
- Coverage for a fixed tenure or for the lifetime for self and family
- Tax deduction under section 80C up to Rs. 1,50,000 and exemption under section 10(10D) at the time of receiving maturity or death benefits.
- Facility to get a loan between 70% to 90% of the policy amount
- The benefit of earning market returns on mutual fund returns under ULIPs
- Facility to get additional riders on the existing plans at lower costs.
5. What are the documents required to apply for a life insurance claim?
A. The documents needed in applying for a life insurance claim are,
- Duly filled claim form
- Name of the policyholder
- Policy number
- Original policy doucment
- Death certificate of the policyholder when the claim is for death benefit
- Name of the claimant
- Relationship with the policyholder
- Hospital and doctor’s certificates
- Post mortem reports
- Investigation report in case of police inquiries