Wish several options to buy from and product type almost being similar, it becomes difficult for a normal non-industry person to understand and evaluate what type of life insurance policy is best for him. to begin with, let me help you understand what exactly do you get when you buy a Life Insurance policy
What is Life Insurance and how does it work?
A legal agreement amongst a policyholder and their life insurance provider constituting a guarantee of providing a certain payable amount assured by the insurance company in exchange of premium deposits made by the individual is called as life insurance.
The plan involves coverage for specific untimely circumstances and provides the benefit when the covered contingency occurs. Along with policyholders, the Life insurance policy also provides monetary shelter to their family members in times of difficulty, assessing Life insurance policy as one of the most secured and guarded financial tool.
Life Insurance is a comprehensible idea in which you invest in a policy which provides you the promised sum assured of the policy as compensation either on maturity of the policy or on demise of the insured.
It rewards with an estimated amount or pay-outs in certain installments as and however is mutually decided. Following a very convenient and uncomplicated procedure, online life insurance plans can also be bought.
Top Factors determining Life Insurance Premium
The premium payable by the policyholder of the company is decided by the insurance provider offering the life insurance policy. Although, the investor of the life insurance policy gets to choose the sum assured in the policy and its policy tenure.
Additionally, there are various factors considered by the insurance company while determining the premium payable for the policy.
Life insurance premium is calculated on the basis of the following factors –
- Age and gender of the insured
- Lifestyle habits of the insured involving smoking and drinking proclivity
- Tenure of the insurance policy plan
- Current health conditions of the insured
- Medical history of the insured
- Chosen sum coverage
- Occupation of the insured
- History of family illness
- Height and weight of the insured
- Premium payment period and its frequency
Life Insurance Types
As previously stated, there are various kinds of life insurance plan available in the market to choose from. Such types are mentioned below –
In most cases, the Term Plans simply offer life insurance coverage with no maturity advantages. If you buy a term plan, the sum coverage is guaranteed to be paid in case if the insured dies between the policy’s period.
Hence, these plans are dedicated security plans which provide low premium rates, therefore permitting you to choose for higher sum assured levels.
For your absence, you can generate a sufficient financial corpus for your family by opting for a higher sum assured level under your life insurance policy.
Features of Term Plan
- Term Plans are provided for a specified or fixed term
- Term plans do not permit any savings element and are inexpensive than other life insurance plans.
- Term Plans come in various versions. There are increasing term plans wherein the sum assured rises every year as well as decreasing term plans wherein the sum assured lower every year. Life insurance plans also offer returns of premium plans which refunds the premium paid for the policy during the period of maturity if the insured successfully survives.
Whole Life Plan
A whole life plan is similar to a term insurance policy but with a difference of unspecified coverage period. Whole life policies do not limit the duration of its financial assurance.
They remain active till the insured reaches 99 or 100 years of age. Although, in case if the insured dies before reaching the specified age, the sum assured is paid.
Features of Whole Life Plan
- Generally, whole life plans are simple protection plans, similar to term plans
- Coverage is provided till the insured attains 99 or 100 years of age, depending on the plan
- If the insured survives till 99 or 100 years of age, a lot of insurance providers offer whole life plans with endowment benefits wherein a maturity reward is paid.
Life insurance policies which are inclined towards savings are called as Endowment Plans. Such plans offer financial coverage throughout the tenure of its policy and provide the amount assured if the insured dies.
Additionally, the sum assured is provided as a maturity benefit if the insured survives till its policy period.
Features of Endowment Plans
- Dual purpose of investing in an insurance and generating savings is served via Endowment plans.
- Guarantee for good returns without it getting hampered by market volatility.
- Endowment plans can be provided as participating or non-participating plans. Participating plans gain bonus while non-participating plans do not.
- During the policy’s tenure, guaranteed additions are also offered under many endowment plans. These additions enhance the sum assured.
Money Back Plan
After the end of a policy period, Money back insurance plans assure to pay money back benefits if the insured successfully survives till the end of its policy tenure.
The sum assured is paid in installments at determined intervals over the policy tenure. These installments are known as survival benefits. On maturity, the remaining sum assured is deposited. Additionally, in case of death, the total sum assured is provided, irrespective of the money back benefits already paid under the plan.
Hence, insurance coverage, savings and liquidity are provided under money back plans.
Features of Money Back Plan
- Money back life insurance plans earn reversionary bonuses from the policy tenure which is paid either on earlier death or on maturity of the policy. Such plans are always provided as participating insurance plans.
- Premiums can be paid throughout the policy’s tenure or for a specified period, as chosen for the money back plans.
- The money back perks are specified during the time of purchasing a policy and are stated as a percentage of the sum assured under it.
A kind of health insurance policy which is designed to generate health insurance protection, as well as for the creation of wealth is called as Unit Linked Insurance Plans or ULIP.
Therefore, such type of plans offers double advantage of investment and protection. The payments of premium are made in two parts – one for life coverage of the insured and the other for shifting towards investment in a pool of funds. Hence, to achieve attractive returns, this pool is invested in the market.
Features of Unit-Linked Insurance Plan
- The policyholders are permitted to choose the amount of premium according to their investment requirements and comfort under Unit Linked Insurance Plans. The sum assured is then evaluated on the basic of the premium amount.
- Equity Funds, Debt Funds and Balanced Funds are three main types of Unit Linked Insurance Plans.
- Partial withdrawal is when ULIP plans allow the insured with the advantage to withdraw partially from the invested sum value.
- By using the option of switching, an individual is permitted to change between the investment funds.
- In a circumstance of death of the insured, higher of the sum assured or the fund amount is paid. Although, on maturity of the policy, the available fund amount is paid as maturity benefit.
An individual can avail an opportunity to plan and secure their retirement by taking use of Pension Life insurance plans. There are two kinds of pension plans – deferred annuity plans and immediate annuity plans. Deferred annuity plans assist you in retaining some amount frequently to generate a retirement fund over a particular investment period. On the other hand, immediate annuity plans do not have offer investment period. They pay annuities right after you purchase the policy whose payments are done life-long. Even in old age, such annuity payments ensure you income.
Features of Pension Plan
- According to an individual’s risk involvement capacity, deferred pension plans can be availed as endowment plans or unit linked plans.
- Vesting is a period where the policy gets matured under deferred annuity plans. On vesting, you can take out 1/3rd part of the accumulated corpus in cash. This is known as commutation of pension and it is tax-free. Annuities availment can be done using the remaining corpus.
- Different types of annuities are payable under Immediate annuity plans. An individual can opt to receive annuity payments either for their life only or on for the life of their spouse also.
If you wish to secure the future of your child and generate a financial corpus for their monetary support in your absence, Child life insurance plan is a type of insurance you should invest in. Such plans have a waiver of premium benefit. If the parent dies while the tenure of the policy, the premiums get waived off. Although, this does not turns down the coverage. The plan continues and the insurance company endures the premium. On its maturity, the assured maturity amount is paid which can be availed for the child’s financial requirements.
Features of Child Life Insurance Plans
- Child Life insurance plans are available as traditional plans or unit linked plans. In simple words, under traditional plans the policy amount is guaranteed whereas under ULIPs the policy benefits are based on market linked returns.
- Money back child plans are also available which pay the sum assured in installments at specified intervals to meet the different needs of the child at different stages
- Under many child insurance plans, the life of the parent is insured while the child is its beneficiary. Although, in other cases, the child is insured and the parent is the policyholder.
- Individuals who have a minor child can only invest in child insurance plans.
Comparative analysis of different types of life insurance plans
|Type of plan||Term||Whole life||Endowment||Money back||ULIP||Child plan||Child plan|
|Objective||Income protection||Income protection||Savings and protection||Savings, liquidity and protection||Savings and protection||Savings for child’s future||Creating a retirement fund and lifelong income|
|Benefit payable||Death benefit||Death benefit||Death or maturity benefit||Survival benefit, death benefit, maturity benefit||Death or maturity benefit||Death and maturity benefit||Death benefit and lifelong pension|
|Investment horizon||15 years to 35 years||15 years till the insured attains 99 or 100 years of age||10 years to 30 years||10 years to 25 years||5 years to 30 years||10 years to 25 years||10 years to 30 years for deferred pension plans. Immediate annuity plans pay lifelong pensions|
|Risk of investment||None||None||None||None||Linked to market risks||Depends on the type of plan selected||Depends on the type of plan selected|
|Returns||None||None||Guaranteed returns||Guaranteed returns||Returns depend on the market||Depends on the type of plan selected||Depends on the type of plan selected|
|Tax benefits||Under Section 80 C and 10 (10D)||Under Section 80 C and 10 (10D)||Under Section 80 C and 10 (10D)||Under Section 80 C and 10 (10D)||Under Section 80 C and 10 (10D)||Under Section 80 C and 10 (10D)||Under Section 80CCC and 10 (10A) (only the commuted part of pension)|
Important points to know before you buy a Term Plan Online
- Choose an optimal sum assured
It is significant to choose an adequate sum insured in a life insurance policy to ensure effective fulfillment of the financial needs and requirements of your family. Hence, always choose an optimal sum assured based on your financial criteria.
- Type of life insurance plan
You should opt for a policy after reviewing and identifying your financial requirements as there are multiple types of Life insurance policies available in the market like term insurance, child insurance, pension plans, ULIPs, etc. A term plan is crucial for providing optimal financial security to your family. If you have a child, a child plan would turn out to be ideal. For wealth maximization, ULIPs are ideal whereas if you desire to have a plan for retirement, choose pension plans. Hence, let your financial needs determine the type of life insurance policy that you would require.
Additional coverage benefits offered under Life insurance policies are called as riders. Such benefits expand the scope of coverage of a policy. Although, riders require added premium. Thus, while planning to buy a plan, you should check the obtainable riders and select them based on your coverage needs.
- Premium payment
Life insurance premiums can either be deposited regularly or over the plan tenure, for a specific period or in one single instalment. You should opt to pay your premiums after evaluating about which premium payment method would be the most efficient as per your financial ease and comfort.
Life insurance plans do not cover suicides committed within 12 months of the commencement or revival of its policy. A part of the premium is refunded or provided a surrender value in such situations. Therefore, it is important to know the exclusions mentioned in your policy to determine whether your claim would be accepted or not.
Steps to buy Life Insurance Cover Online
Most of the Insurance companies offer its buyers an option to buy the life insurance policyonline. The steps to do so are as follows –
- You can visit the website of your desired Insurance provider to buy the Life Insurance Policyonline or you can purchase it via the website of an insurance aggregator.
- After locating the site, you will be required to fill up an application form with accurate details and then evaluate the amount of premium to be paid on your insurance plan.
- Submit the demanded relevancy documents along with your online application form
- You will also need to pay the premium online via using any digital payment method.
- Henceforth, the insurance company will underwrite the proposal and if it is willing to carry your risk, the policies will get issued to you. You would be notified with the information regarding the same. The hard copy of the policy would thereby get posted to your residential address which you will mention on the application form.
Major Inclusions in Life Insurance Plan
Usually, a copy of the life insurance policy has all its inclusions stated in it. Before buying, it is recommended to go through the fine print of the policy to comprehend the major Inclusions given in the policy. Stated below are the major Inclusions under a Life Insurance Plan.
- All types of deaths of the policyholder, involving death due to natural causes, accident or illness are covered under a life insurance policy.
- Unlike term plans, the maturity of Insurance policies are included under all plans where a policyholder is promised to be rewarded a sum assured at the successful completion of the policy’s period.
- Accidental death would be provided coverage in case if an accidental rider is purchased. This would hence lead towards the payment with an expanded death benefit.
- Specified critical illnesses would be provided coverage under the plan only if a critical illness rider is owned by its policyholder.
- Total permanent and some of the partial disabilities would be included for coverage under the policy if the disability rider has been purchased by the insured.
Major Exclusions in Life Insurance Plan
There are some situations which are not included under a life insurance plan. Such exclusions are stated clearly in a life insurance policy. The life insurance provider would investigate in a situation of the policyholder’s unnatural death. The following reasons state which all causes of death of the insured will not be provided coverage under a life insurance policy:
- Exclusion from benefit in case if the insured executes themselves within 12 months of purchasing the policy. In the given case, 80% of the premium paid would be returned.
- Similarly, exclusion is made if the insured commits suicide within 12 months of renewing an expired plan. In this situation, either 80% of the premium is refunded or the surrendered amount of the plan is paid, whichever would be of more value.
- In consideration of a critical illness rider, if the insured dies between the survival period of 30 days to 60 or 90 days after the diagnosis of a critical illness, no rider amount is provided.
- The company can terminate your claims if death of the insured occurs because of an unrevealed significant fact hidden by the policyholder from the insurance company at the time of acquiring the policy. In such a situation, the policy would get cancelled and no claim would be provided. Significant facts are facts about you which escalate your level of risk. For example, if you are a chain smoker and you do not state about your smoking habits at the period of purchasing the policy, you clearly stand to be concealing an important fact. In a situation of death caused by lung cancer, the company would eventually find out that you hid your smoking habit. In such cases, no claim would be provided and the policy would become void.
Best Life Insurance Policy FAQs
⭐ Does life insurance get more expensive as you get older?
Yes, as your get older, the premium payment to purchase a new policy would rise higher as the premium of a life insurance policy is directly proportional to your age. Although, the premium does not rises with your age if you have purchased a policy at a specific age. In such a situation, the premium amount remains the same throughout the policy’s coverage period.
⭐ What is the benefit of term plan?
A term insurance plan solely renders financial security towards the risk of premature death of its policyholder. The plan provides high coverage levels under inexpensive premium payments so that you can financially shelter your family with ease in case of any contingency. Henceforth, the plan delivers immense financial protection and meets the income replacement requirement of an individual.
⭐ How do I calculate my Insurance needs?
In an insurance policy, an individual gets to choose the amount of assurance they want to acquire. To achieve so, there are multiple ways by which you can accumulate the sum needed by you as per your financial goals so that you can opt for the same while investing in a life insurance policy. First method is the human life value method wherein the financial worth of your life is calculated. For example, if you age is 30 years and you earn INR 10 lakhs every year with your working period as 65 years, your human life value would be INR 3.5 crores (10 lakhs * 35 years of active working life). Another easy method is to select a sum assured equivalent to 10 or 12 times your annual income. There are some other procedures requiring complex calculations. Therefore, you can simply select coverage as at least 12 times your yearly income.
⭐ Who is an appointee in life Insurance?
A person who is appointed to make decisions on interest of a minor nominee in a life insurance policy is called as an appointee. In a situation if the insured dies and the minor is not allowed to collect the death benefit if he/she is below 18 years of age, the appointee can act on behalf of the nominee to collect the assured sum.
⭐ What is policy tenure in Life Insurance?
The period of the policy up till which the insured can avail coverage is called its policy tenure. An individual can select the duration of plan at the time of buying a life insurance policy. If the premium payments are deposited before the due date, the coverage is rightly offered up to the chosen tenure.
⭐ Can someone else pay my life insurance premiums?
An individual can acquire life insurance policies for insuring the life of another individual. In this situation, the premiums payments are made by a different individual and the coverage is offered to another individual. Examples of such instance involve husband purchasing a policy for wife and vice-versa, parents buying a policy for their children, a partnership firm buying a policy for its partners, an employer buying a policy for its employees, etc. Hence, it is permitted for someone else other than the insured to pay their life insurance premiums.
⭐ How much life insurance premium will be raised in case there are issues with my medical conditions?
The increase in premium payments is totally dependent on the underwriter of the insurance company in case if there are any issues diagnosed in your medical condition. The hike will be based upon the pricing policies of your insurance provider along with the severity of your condition.
⭐ Can proposer and insured be different in life insurance?
Yes, it is allowed under life insurance policies for the proposer and insured to be different individuals. In the given situation, the insured becomes the person whose life is insured whereas the proposer takes the position of the policyholder. A husband being a proposer for wife’s coverage, parents being proposers for children’s insurance, etc. are some of the examples of such a case.
⭐ What is rider benefit in life insurance?
Supplementary to the base life insurance policy, the riders generate various add-on coverage options. At the time of buying a new policy, you can choose to add any of the available riders and the scope of coverage under the policy would increase. The policy would cover the contingencies covered by the rider. Riders have their independent coverage benefit. A coverage amount is paid which is called as a rider benefit in a situation if the sheltered contingency under an obtained rider takes place.
⭐ What is accidental death benefit rider in term insurance?
If an accidental death of the insured occurs during the tenure of the plan, a coverage benefit is provided in such a case under the accidental benefit rider. In such a case, the accidental benefit rider pays the rider benefit along with the death benefit payable under the term insurance policy. Thus, in a situation of an accidental demise of the insured, the accidental benefit rider expands the scope benefits payable under a term insurance plan.
⭐ What does Terminal Illness Rider mean in life insurance?
The type of illnesses or disease which would sometime result in the death of the insured are called as terminal illness and such illnesses can be provided coverage under the terminal illness rider. If the insured opts for the terminal illness rider and is diagnosed with a terminal illness during the policy tenure, the rider allows payment of a part of the sum assured on diagnosis of the illness so that the insured can meet the medical expenses easily. Leadingly, the unsettled amount is paid in case of death of the insured.
⭐ Is there a Tax Benefit in Life Insurance
Yes, dual tax benefits can be availed using a life insurance policy. The premiums which are paid towards a life insurance policy are allowed as a tax-free deduction under Section 80C of the Income Tax Act, 1961 up to a maximum of INR 1.5 lakhs if the premium paid is limited to 10% of the sum assured. Under Section 10 (10D), if the total amount assured is at least 10 times of its premium amount, the maturity benefit or the death benefit acquired from a life insurance policy can also be availed as a tax-free income.
⭐ What is 80c and 10 10d?
The deductions which can be claimed from the taxable income on various investment and expenses are listed under Section 80C. Section 80C allows a deduction of up to INR 1.5 lakhs on life insurance premiums, ELSS investments, 5-year fixed deposits, PPF investments, EPF investments, principle repayment of a home loan, tuition fee paid for children, etc. Section 10(10D), on the other hand, provides tax exemption on the proceeds that you receive from a life insurance policy. These proceeds can be maturity proceeds or death proceeds and include any bonus or returns earned. However, the amount assured under a life insurance policy need to be minimum ten times the amount of the annual premium to avail tax exemption.