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Life Insurance

What is Life Insurance Plan?

Life sometimes brings unannounced uncertainties and hardships. Some events may have an irreparable impact on your life and may leave your family in a turmoil both financial and emotional. To reduce the financial hardships that may erupt due to the unpredictable and untimely demise of the earning member of the family, life insurance policy comes to the rescue. Life insurance is a vital form of investment that will act as financial aid or assistance to your family when you are not around. Life insurance plans are of varied kinds out of which few plans are pure protection plans offering a death benefit only, whereas the others are saving or investment plans offering death and maturity benefit (whichever occurs first).

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How does Life Insurance Work?

Life Insurance is a long term contract (known as LIFE INSURANCE POLICY) between the Life Insurance Company (known as INSURER) and the person whose life is being insured (known as LIFE INSURED) for a specified tenure (known as POLICY TERM) giving a financial amount as life cover (known as SUM ASSURED) by paying a cost (known as PREMIUM).

In the event of death of the Life Insured (known as DEATH CLAIM) during the policy term, the insurance company passes on the requisite amount as policy proceeds (known as DEATH CLAIM AMOUNT) to the specified family members (known as BENEFICIARY/NOMINEE) mentioned in the contract and the policy terminates thereafter or in the event of life insured survives through the policy term, the insurance company pays out the promised amount (known as MATURITY CLAIM AMOUNT) to the policyholder and the policy terminates thereafter.

Why should I buy Life Insurance?

Life Insurance primarily covers the risk of "Dying too early" or "Living too long". The listed reasons will highlight the need for life insurance for you and your family:

Financial Protection

To assure that your loved ones are financially indemnified in the event of your untimely demise and to maintain the same lifestyle which they are used to even when you are not around.

Meet Financial Obligation

To ensure that your children’s education, their marriage and other financial obligations like home loans, car loans, etc. are taken care of in your absence.

Retirement

To gather a corpus for your better future in order to attain a regular source of income post retirement and lead an independent life.

Ensure Guaranteed Income

To guarantee that you and your family possess a guaranteed income in case your regular inflow of earnings are disrupted due to severe illness or an accident.

Peace of Mind

The life insurance policy provides assured peace of mind to you. By buying the right life insurance plan, you are aware of that your family’s financial needs are taken care of even when you are not around.

What kinds of Life Insurance Plans can I opt from?

There are bundle of life insurance plans available in the market. It purely depends on which one suits your need and requirement basis the benefits accrued or attached to a plan.

1. Term Insurance Plans

The term plan is a pure protection plan which is taken to cover the risk of “dying too early”. Term plans provide the nominee with the sum assured as a financial indemnification in the unfortunate event of your demise during the policy term and policy terminates thereafter. Term plan safeguards your loved ones in your absence by shielding them with financial backing as planned by you.

2. Whole Life Plans

The whole life plan is an insurance plan which covers your life against the risk of “dying too early” and “living too long” both, as the life cover is provided for the whole life keeping maximum maturity age as 100 in most of the plans. This insurance company pays the policy proceeds to your nominee in the event of your death during a policy term, but if you survive till the maximum maturity age the company will provide the maturity benefit as well.

3. Endowment Plans

Endowment plan comes with the component of saving and insurance making it a twin benefit plan under the policy. Endowment plans offer lump sum payout in the event or death or maturity, whichever happens first. This plan is basically opted for ensuring a robust corpus and regular savings to meet financial objectives in future.

4. Money Back Plans

This policy offers a portion of the sum assured payout on regular intervals during the policy term in terms of money backs or survival benefits, while the insured is alive. Once the insured survives the policy term, the remaining sum assured is paid back as maturity benefit. In case the insured dies during the term of the policy, the lump sum payout is given to the nominee apart from the money backs also known as survival benefits.

5. Child Plans

Child plans are kind of insurance plans which are taken with a specific objective of giving unperturbed financial support to the child in terms of education, higher education, marriage, etc. Child plans also offer death and maturity benefits (whichever happens earlier). Usually, such plans come with a waiver of premium benefit inbuilt to continue the policy for the objective it is taken for.

6. ULIPs

ULIPs (Unit Linked Insurance Plans) provide the twin benefit of insurance and investment opportunities under one umbrella. ULIPs are linked to the market, and the insured’s money is invested in various funds (based on equities, debts, government bonds) as per the risk taking capacity of the insured. The lump sum payout is given to the nominee in the event of death and the entire value of the fund is given to the insured if he survives the policy term.

7. Pension Plans

Such plans cover the risk of “Living too Long”. Pension plans enable to survive the same lifestyle and allow financial independence after the retirement age. Regular payment of premiums builds a financial corpus, which can be withdrawn partly and the remaining can be utilized to provide pensions to the insured as stated in the policy.

What are the Benefits of Buying a Life Insurance?

Death Benefit

Life Insurance provides financial protection to your family in your absence by providing death claim payout which is a lump sum Sum Assured plus accrued benefits/bonus basis the life insurance plan opted.

Maturity Benefit

Life Insurance provides the insured a lump sum payout as deserved under the policy conditions on the completion of the policy term as Maturity claim payout. This is payable if the insured survives the policy term.

Rider Benefit

With your Life Insurance plan, you may opt for additional coverage or riders like Accidental Death Benefit, Disability rider, Income benefit rider, Critical Illness rider, etc. to give you added protection along with your base policy.

Surrender Benefit

Life insurance provides you the option to surrender your policy partially or fully in the event of urgent fund requirements at your end. However the surrender value is very less as compared to the premiums paid till that time towards the policy.

Loan Benefit

Some of the endowment life insurance policies offer loan against the life insurance policy. However, the insured has to pay the relevant interest and repay the loan amount as per policy conditions.

Tax Benefit

Premium paid towards the insurance policy taken for yourself, spouse or kids avail tax benefits under section 80 C, and the proceeds of the insurance policy are tax free as per section 10 (10) D of the Income Tax Act,1961 as per the conditions laid.

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How is my Premium Calculated?

The Premium for your Life Insurance policy is calculated, basis the following factors:

Current Age

Age plays the most imperative role in deciding your premiums. For younger life premiums are low where as for older people premiums are high. The insurance companies underwrite the case basis the risk involved in the customer’s life as per the age. So, its prudent to buy life insurance at an early stage.

Life Cover

The higher life cover or Sum Assured policies will have a higher cost or premium amount to cover the risk by the insurer. Also, some insurers offer you the discounts on premium for choosing the higher life cover.

Smoking/Drinking Habit

Intake of cigarettes, tobacco, alcohol and other nicotine products will attract more premiums as such products are injurious to health and elevate the risk of an individual’s life. So insurers cover high risk lives by charging more premiums or may decline the proposal as well.

Present Health Status

Your health status also determines the amount of premium to be paid by you towards your life insurance policy. In case you possess diabetes, high blood pressure, non standard BMI, or suffering from some severe disease will attract a higher amount of premium as compared to other healthy life of your age.

Gender

As per statistics, the females tend to live more than males. The life expectancy of females is higher, so the mortality component of the premium amount is higher for men as compared to women applying for a life insurance policy.

Job Profile

Your occupation also plays a key role in determining the premium amount. A risky occupation like people working in the mining industry, oil, and gas, fisheries or any other dangerous profession increases the premium amounts for your policy.

What are some Smart Buyings Tips?

Start Early: Life insurance premium most importantly depends on the age at which you are buying the policy. Starting early can save a lot on the premium amount throughout the policy term. It’s prudent to get a Life Insurance at the earliest to protect the financial interest of your loved ones.

Assess your Life Cover Accurately: It is imperative to assess the life cover or Sum Assured, based on the number of dependants you have, how much money you require to meet your financial goals like building a house, child’s education, child’s marriage and how much debts/liabilities you need to pay.

Check for Claim Settlement Ratio: Many insurers offer a variety of innovative life insurance plans. The entire purpose of taking the policy gets defeated if the insurer does not settle the claim in the event of your unfortunate demise. So check on the claim settlement ratio of the insurer, you are seeking insurance from.

Keep Inflation in Mind: Its imperative to take a cover keeping inflation in mind. A cover of Rs 30 – 40 Lakhs may not be of the same value down the years say 20 years later. So it’s prudent to keep in mind that how inflation will affect your financial needs later in the future.

Compare & Buy Online: The internet has made buying so easy. Online buying of insurance policies is much cheaper as there is no intermediary in between. It is hassle free to buy with a few clicks which allow quick policy issuance. Compare policies online and choose the best fit as per your need and requirement.

Read the Fine Print: You may get excited to buy the cheapest plan offering a bundle of benefits, but don’t forget to read between the lines. Study the terms and conditions of the policy contract carefully before buying to avoid any issues later. Your insurer also provides you with a free look period of 10 to 15 days where in case you are not satisfied with the plan you have opted, you may get it cancelled and get your premium amount back.

Opt for Requisite Riders: Riders offer additional coverage to your policy. It’s prudent to opt for only requisite riders only as opting for too many riders will elevate the premium amount and may be are not required.

Is there any Add on Cover/Rider with Life Insurance Policy?

Riders are additional benefits attached to your base policy which will offer you boosted benefits apart from your base policy. Various insurer’s offer multiple riders which can be taken with the main policy as per the policy conditions. Additional benefits come with the additional costs.

Accidental Death Benefit Rider

Accidental death benefit rider gives extra financial benefits to your nominees in case you die an accidental death. There is an accidental death sum assured, which is paid to your nominee apart from the base Sum Assured of the policy.

Term Rider

An additional death benefit is paid to your nominee apart from the base policy payout. The nominated beneficiary/ nominee can receive term rider sum assured if you have taken this rider to your base policy.

Critical Illness Rider

There are severe illnesses which disable an individual temporarily or permanently resulting in loss of earnings. The treatment cost of such illnesses is massive due to medical cost inflation. To take care of the medical cost involved in such illnesses like Heart attack, Cancer, Paralysis, Coronary artery bypass surgery, Major organ transplant and many more, a critical illness rider can be opted.

Waiver of Premium Rider

As the name suggests, the future premiums are waived off in the events like death or disability of the insured or policyholder as per the policy contract. The policy continues to survive till the end with the waiver of future premiums.

Income Benefit Rider

Life Insurance benefits are usually given to the nominees as a one-time lump sum, income benefit rider allows you the choice of distributing policy benefits in installments as a family income to the nominees. This rider allows you to regulate the dispersal plan of policy proceeds that suits best for your family in your absence.

Disability Rider

Disability rider replaces your income for the specified tenure in the event of permanent or temporary total or partial disability due to an accident. The payout varies with the kind of disability occurred and also basis the insurers rider conditions. Usually the total disability, the payout is full sum assured where as in the case of partial disability, the payout is the partial sum assured.

(Note: The rider benefit, conditions, and eligibility criteria may vary from insurer to insurer)

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What is NOT included in the Life Insurance Plan?

Your life insurance plan excludes the following:

Aviation Clause

This clause states that the policy benefits are paid out only in the event where the life insured is killed in a commercial plane crash while travelling. But if the life insured dies as a passenger in a private plane insurance company will not entertain the claim.

Dangerous Adventure Sports

This exclusion says that in the event the death of the life insured happens due to the involvement in certain dangerous adventure activities like auto racing, rock climbing, hang-gliding, etc., the payment of the policy proceeds will not be paid. Some insurer’s cover death arising out of such activities at a very high premium rates.

Act of war exclusion

This exclusion provides that the insurer will not pay, if the cause of death is a result of the war.

Do’s and Dont’s in a Life Insurance Plan

Read the do’s and dont’s related to your Life Insurance Plan.

Do’s Dont’s
Assess your needs and requirements in order to buy the right sum assured and right plan type Ask your agent to fill the proposal form
Compare,choose and buy the plans online and save on cost Leave any column blank in the proposal form
Fill the proposal form yourself.Mention the complete and corr ct details in the form Conceal and misrepresent the facts, as it could lead to disputes during the time of claim settlement
Retain a copy of your duly filled proposal form for your own records Make payment in the name of your agent advisor rather it has to be done in the insurer’s name
Read the fine print thoroughly before making payment Buy a life insurance policy without comparing online

Life Insurance Glossary

Bonus: An extra amount provided by the life insurance company over and above the base sum assured either on maturity of the policy or death of the policyholder.

Claim: The insured event where the insurance company will pay the policy proceeds under the contract.

Insurer: The Insurance Company is known as the insurer.

Insured: The individual whose life is being insured under the life insurance contract.

Insurability: It means all conditions that are related to the health and life expectancy of an insured.

Insurable Interest: This means that there should be some financial loss to the policyholder who is taking an insurance policy on the insured. Without insurable interest an insurance contract holds invalid.

Misrepresentation: Statements of any kind that does not hold true or are manipulated, which affects the insurance policy contract.

Moral Hazard: Wrong intentions or representation by a person to seek the life insurance benefits.

Nominee: The beneficiary or a family person entitled to be the recipient to get the policy proceeds declared by the insured.

Premium: The policyholder agrees to pay a cost for seeking life cover from the insurance company as consideration for buying the insurance policy.

Policy Term: The specified number of years for which the policyholder is insured with the insurance company.

Sum Assured: The life cover which the person has taken under his life policy which is payable in the insured event.

Riders: The additional benefits linked with the base policy taken by paying extra premium by the policyholder.