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Life Insurance
What is life insurance? Get answer in brif
There is a big ‘if’ in the word ‘Life’ itself. The word ‘if’ represents all the challenges that life throws at you. Life is uncertain and the best way to deal with these uncertainties is to be prepared against them. One such uncertainty is death. While death is inevitable, premature death is uncertain and if it happens, it creates emotional as well as financial loss. While emotional loss cannot be compensated against, financial loss can be. This is where life insurance comes into the picture. Life insurance policies are designed to cover the risk of premature death. If the insured dies during the term of the policy, life insurance plans pay a death benefit. However, life insurance is a broad concept which cannot be summed up in the above two lines. So, let’s understand life insurance definition in details.
What is life insurance?
Life insurance is a policy which covers the risk of premature death. If, during the term of the policy, the life insured dies, the policy promises to pay a death benefit. Life insurance policies are legal contracts where, against the coverage offered by the insurance company, you are supposed to pay a premium for availing the coverage. Moreover, besides premature death, many life insurance plans also cover survival to the end of the policy tenure wherein a maturity benefit is paid.
Top 5 features of life insurance plans
Some of the salient features of life insurance policies are as follows –
Importance of life insurance plans:
Here are the reasons why life insurance plans are important –
As stated earlier, life insurance plans come in different variants. Let’s understand these variants and their respective features-
Term Insurance
Term insurance is the most basic type of life insurance policy. The policy promises death benefit during the term of the plan. On maturity, usually, nothing is paid. Term plans are the cheapest form of life insurance which gives you unmatched financial protection.
Salient features of term insurance
Whole Life Insurance
Whole life plans, as the name suggests, run for your whole life and allow coverage till you reach 99 or 100 years. These plans are like term insurance plans but with indefinite coverage duration.
Salient features of whole life insurance plans
Salient features of endowment assurance plans
Money Back Plan
Money back plans are also called anticipated endowment plans because they are like endowment plans but with anticipated benefits. Under these plans, the sum assured is paid in instalments at specified durations over the policy tenure. This allows liquidity while at the same time providing life insurance notes coverage.
Salient features of money back plans
Unit Linked Insurance Plans
Unit linked insurance plans are unique life insurance plans which provide the double benefit of insurance as well as investment returns. Premiums paid for these plans are invested in market linked funds. This fund then grows as per the performance of the market. If the insured dies during the policy tenure, a death benefit is paid. On maturity, the fund value is paid which is equal to the premiums invested along with the returns that they earned over the term of the policy.
Salient features of unit linked plans
Child Plan
Child insurance plans are life insurance plans which are created to secure your child’s future. Under these plans, there is an inbuilt premium waiver rider. This rider waives the premiums in case of death of the parent who is also the policyholder. Though the premiums are waived, the policy continues and pays a benefit after the end of the term when the child needs it for higher education or marriage. Child insurance plans, therefore, ensure a corpus for the child’s future whether the parent is alive or not.
Salient features of child insurance plans
Health Plan
Life insurance companies also offer health insurance policies. These policies either cover specific illnesses or a list of critical illnesses. If the insured suffers from the illnesses covered by the plan, a lump sum benefit is paid as per the policy’s benefit structure.
Salient features of health plans
Annuity
Annuity plans or pension plans are retirement oriented life insurance plans. Under these plans you can either create a retirement corpus or avail lifelong incomes from an already accumulated corpus. Pension plans help you plan for your financial needs post retirement.
Salient features of pension plans
Life Insurance Riders
Besides the above-mentioned types of life insurance plans, there are riders too which are additional coverage benefits. Riders are available with almost all types of life insurance plans (except health and immediate annuity plans). You can choose any rider as per your coverage needs by paying an additional premium.
Salient features of life insurance riders
Types of life insurance riders
Life insurance riders can be offered in the following types –
Type of rider
Meaning
Accidental death and disablement benefit rider
This rider pays an additional sum assured if the insured dies or becomes permanently disabled due to an accident
Critical illness rider
This rider covers a list of critical illnesses. If the insured suffers from any of the covered illnesses during the term of the policy, the rider pays a lump sum benefit
Premium waiver rider
This rider waives the premiums payable under the policy if the insured becomes disabled
Hospital cash rider
This rider pays a daily cash allowance if the insured is hospitalized for 24 hours or more
Term rider
This rider pays an additional sum assured if the insured dies during the policy tenure
Here’s a brief description of each type of claim –
Type of claim
Who gets the claim?
Maturity claim
This claim is paid when the policy completes the chosen term and the life insured is alive at the end of the term. Maturity claims are initiated by the life insurance company itself as the policy approaches maturity
The claim is paid to the policyholder
Death claim
If the life insured dies during the term of the plan, the claim that is paid is called a death claim. Death claims would be paid when the insurance company is intimated about the death of the insured
Death claims are paid to the nominee appointed by the life insured
Survival benefit claims
These claims are paid under money back policies. Under these claims a part of the sum assured is paid as money back benefit if the life insured is alive at the time of payment of the money back benefit
Rider claims
If the contingency which was covered by a rider happens, a rider claim is paid
The claim can be paid to the policyholder or the nominee depending upon the type of rider
Health claims
If the insured suffers from an illness which was covered under the health insurance plan, a health claim is paid
Life insurance companies in India and their claim settlement ratios
In India, there are 24 life insurance companies operating in the market. Apart from LIC, which is owned by the Government of India, all other insurers are privately owned companies.
Life insurance companies are often judged by their claim settlement ratios. The ratio denotes the number of claims paid by the life insurance company against the total claims made upon it in a financial year. It is calculated as a percentage and published by the Insurance Regulatory and Development Authority of India (IRDAI) every year. The higher the ratio, the better the company is perceived to be since it can be trusted to settle its claims. You can, therefore, choose a life insurance company based on its claim settlement ratio among other things.
Here is a complete list of life insurance companies currently operating in India along with their published Claim Settlement Ratios for the financial year 2017-18 –
Name of the life insurer
Claim Settlement Ratio
Life Insurance Corporation of India
98.04%
HDFC Life Insurance Company Limited
97.80%
Max Life Insurance Company Limited
98.26%
ICICI Prudential Life Insurance Company Limited
97.88%
Kotak Mahindra Life Insurance Company Limited
93.72%
Aditya Birla SunLife Insurance Company Limited
96.38%
TATA AIA Life Insurance Company Limited
98%
SBI Life Insurance Company Limited
96.76%
Exide Life Insurance Company Limited
96.81%
Bajaj Allianz Life Insurance Company Limited
92.04%
PNB MetLife India Insurance Company Limited
91.12%
Reliance Nippon Life Insurance Company Limited
95.17%
Aviva Life Insurance Company Limited
94.45%
Sahara India Life Insurance Company Limited
82.74%
Shriram Life Insurance Company Limited
80.23%
Bharti AXA Life Insurance Company Limited
96.85%
Future Generali India Life Insurance Company Limited
93.11%
IDBI Federal Life Insurance Company Limited
91.99%
Canara HSBC OBC Life Insurance Company Limited
95.22%
Aegon Life Insurance Company Limited
95.67%
DHFL Pramerica Life Insurance Company Limited
96.62%
Star Union Dai-ichi Life Insurance Company Limited
92.26%
IndiaFirst Life Insurance Company Limited
89.83%
Edelweiss Tokio Life Insurance Company Limited
95.25%
Tax implication of life insurance policies
When talking about the benefits of life insurance policies, their tax efficiency was highlighted. Let’s understand how life insurance plans can help you save tax –
Tax benefits on premiums paid
The premiums that you pay for your life insurance plans (except annuity plans and health insurance plans) are allowed as a deduction from your taxable income under Section 80C. As per the provisions of this Section, you can claim a deduction of up to INR 1.5 lakhs by paying premiums of your life insurance policies. The premiums paid for annuity plans also qualify as a deduction but under a different Section. Pension plan premiums are allowed as a deduction under Section 80CCC of the Income Tax Act. The limit under this Section is also up to INR 1.5 lakhs but it also includes the deductions under Section 80C. Thus, you can claim a maximum deduction of up to INR 1.5 lakhs aggregately from life insurance premiums as well as pension plan premiums under Section 80C and Section 80CCC respectively. For health insurance policies, the deduction is allowed under Section 80D. You can claim a maximum deduction of up to INR 25,000 by investing in health insurance plans. If you are a senior citizen, you can enjoy a higher deduction as the limit increases to INR 50,000. Moreover, if you buy a health insurance plan for your dependent parents, you can claim an additional deduction. This deduction would be up to INR 25,000 if your parents are below 60 years of age and INR 50,000 if they are senior citizens. Thus, Section 80D offers you a maximum deduction of up to INR 1 lakh.
Tax benefits on claims
The claims received under life insurance policies are completely tax-free under Section 10(10D) of the Income Tax Act. Whatever be the type of claim that you receive, the entire amount would be allowed as a tax-free income without a maximum limit.
Tax benefit on commuted pension
In case of deferred annuity plans, 1/3rd of the corpus which you withdraw as cash is called the commuted pension. This commuted pension is completely tax-free in your hands under Section 10(10A) of the Income Tax Act.
Tax implication of annuities
The annuity payments that you receive from life insurance pension plans are considered to be an income in your hands. This income is taxable and would be subject to tax at your prevailing income tax slab rates.
How to buy life insurance plans?
Having understood life insurance meaning and its importance, it is imperative that you buy a life insurance policy for your financial needs. To buy the policy, you have two options which are as follows –
Buy offline
Buy online Buying offline means buying the policy from a life insurance agent or by visiting the insurance company’s branches. It is time consuming and involves unnecessary hassles. The easier way to buy life insurance plans is online. The online platform allows you to buy life insurance policies easily and quickly. Turtlemint is one such online platform wherein you can buy the best life insurance policy for your requirements.
The benefits of buying online from Turtlemint are as follows –
You get to compare the insurance plans offered by leading life insurance companies. You can, therefore, choose the best policy in respect of coverage and premium rates
Turtlemint gives you personalized assistance in case you have any queries about any life insurance policy before you buy. You can, therefore, clear your doubts and know exactly what the policy promises
Even in the case of claims you can contact Turtlemint’s team and they help you in getting your claims settled quickly and easily
Given these benefits, buying from Turtlemint is a wise choice.
To buy a life insurance policy, you need to fill up a proposal form and submit your relevant documents. The documents needed to buy a life insurance policy include the following –
When these documents are submitted, the life insurance company verifies the information you mentioned in the proposal form. If everything is found to be correct, the life insurance policy is issued.
A life insurance policy proves to be a financial weapon in the face of contingencies. While you cannot avoid the challenges life throws your way, you can definitely insure the risks that you face. Life insurance plans promise coverage of your life risk and help you create a safe financial net for your loved ones. So, invest in a life insurance policy and secure your family’s happiness.
Source : Turtlemint Insurance Broking Services Pvt Ltd (f/k