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Life Insurance

A life insurance policy is a contract with an insurance company. In exchange for premium payments, the insurance company provides a lump-sum payment, known as a death benefit, to beneficiaries upon the insured's death. Typically, life insurance is chosen based on the needs and goals of the owner. Term life insurance generally provides protection for a set period of time, while permanent insurance, such as whole and universal life, provides lifetime coverage. It's important to note that death benefits from all types of life insurance are generally income tax-free. There are many varieties of life insurance. Some of the more common types are discussed below.

Term insurance 

Term insurance or term plans as they are popularly called are the basic form of life insurance. While they are the cheapest and most affordable, one must keep in mind that they do not have any savings or a profit component. You can also choose an online term insurance plan, that comes with premiums that are considerably lower, as they purely provide a risk cover. This means the if the insurer expires during the term of the policy- a definite sum or a sum assured is paid to the beneficiaries of the insurer. In case the insurer survives, he does not receive a pay out.

Benefits of Term Insurance Plans Most of the policies traditionally sold in India--money back, whole life, endowment, Ulips, and so on--have been insurance-cum-investment products. Rather, they were primarily investment products with usually a thin sliver of insurance on top. Even though a person may be paying a high premium on these policies, he may not be adequately insured. Term insurance policies address the insurance needs of customers very well. With only a small premium, a person can buy an insurance policy having a very large sum insured. Buying a term policy guarantees peace of mind. The breadwinner knows that even if something were to happen to him, his family's financial future will not be jeopardised. There will be enough money to pay off the home loan so that his family is not deprived of this major asset. Provided he has bought adequate insurance, there will also be enough to take care of the family's day-to-day expenses, and to pay for the children's education and marriage. Buying term insurance also makes you eligible for a few tax benefits. One, the premium you pay is eligible for deduction under Section 80C of the IT Act. Two, any sum from the policy that your nominees receive from the policy will be exempt from taxation under Section 10 (10D).

Eligibility Criteria

You must be at least 18 years old to buy term insurance. The maximum age for entry can extend up to 65 years (varies from one company to another).
If the sum assured is high (again the minimum limit varies), you will have to undergo a medical test. Insurance companies undertake a test to ensure that the person is healthy and does not already carry a medical condition that could affect his life span. If the medical tests reveal certain health problems, the insurer could either turn down your application or could charge a higher premium.

Documents Required

Some of the documents required to purchase term insurance are as follows:

  • Proof of age: Driving licence, school or college certificate, PAN card, passport, or birth certificate.
  • Identity proof: Voters ID card, PAN card, driving licence, Aadhaar card, passport, or a letter from a recognised public authority or public servant with photograph verifying the identity.
  • Address proof: Telephone bill, ration card, electricity bill, bank account statement, or a letter from a recognised public authority.
  • Income proof: Income tax return, assessment order, or employer’s certificate. Self-attested copies of all these documents have to be submitted.

Whole Life insurance There is no predefined policy tenure of a whole life policy. When a policyholder opts for a whole life policy, he pays a regular premium amount and enjoys life insurance cover throughout his life. Upon his demise, his beneficiaries receive a lumpsum. There are different variants of whole life policies such as regular pay options and money backs.
Endowment Policy  The one thing that differs and defines endowment policy is the maturity benefit that a policyholder receives. Unlike term plans that pay the sum assured only in case of the death of the insured, an endowment plan pays the policyholder the sum assured along with profits even if the policyholder survives after the lapse of the policy period. Since endowment plans invest in various asset classes such as equity and debt, the policyholder receives a profit along with the sum assured after the policy comes to an end. Naturally, then endowment plans charge a higher fee which is reflected in higher premiums that a policyholder is expected to pay
Money Back Insurance policy A variant of an endowment plan, a money back policy makes periodic payments to the policyholder over the term of the policy. This essentially means that a stipulated portion of the sum assured to the policyholder is paid out to him at regular intervals. If he happens to survive the policy term, he gets the balance of the assured sum and in case of his death during the policy term, his beneficiary gets the full sum assured.
Unit Linked Insurance Plans As the name suggests, the performance of these plans are linked to the fate of the markets. According to his risk appetite, a policyholder can choose the allocation between equity and debt and reap the benefits of investment and insurance. The value of the investment portfolio can be assessed through the NAV or net asset value. While many draw similarities between ULIPs and mutual funds, the basic difference lies in the fact that while mutual fund schemes are a pure investment avenue, ULIPs also come with a life cover.
Claims Insurance companies must settle claims promptly in a hassle free manner. Once the policyholder(or his beneficiary) submits all the relevant documents the insurer must settle the claims within seven days as per the terms of the policy. If the insurer is unable to meet any part of the claim, it must inform the policyholder or his beneficiaries in writing. Here are the steps that need to be followed to settle a claim:
Notification of claim A written notification for the claim should be submitted by the claimant along with the basic information such as name of the policyholder, policy number, date, cause and place of death. Intimidation forms are available online for must insurance companies that can be downloaded from their website. Benefits of Insurance The most obvious benefit of life insurance as we mentioned earlier, is the security net that it provides for your family in case of your untimely demise. But life insurance has other benefits too.
Asset protection and appreciation- While the core benefit of protecting your family remain for a life insurance policy, a life insurance policy comes with the underlying benefit of both appreciation and protection of your assets. From an investor’s point of view thus, buying a life insurance policy with long term financial goals mind, can serve as the building blocks for wealth creation.
Access to cash- Life insurance as it exists today is tailormade to the needs of the policyholders. Thus when a policyholder pays regular premiums for a substantial period of time, his insurance policies can serve as his nest for cash when he needs it to fulfil his financial ambitions at certain milestones in life.
Planning for retirement and estate planning- With the cost of living increasing by the day and more and more people working in the private sector, retirement planning is an absolute necessity from the earliest possible age. There are a plethora of pension oriented plans that can ensure that a policyholder continues to live a stress free and dignified life, even when his professional income begins to ebb. Besides with whole life policies, a policyholder can also leave back a substantial amount of wealth for his next generation. Riders
Accidental death or permanent disability benefit rider- In case of an accidental death, the beneficiaries can avail of an additional benefit over and above what the basic policy covers. In case the policyholder is permanently disabled after an accident, he may receive benefits such as periodic payments and waiver of future premiums.
Critical illness rider- This rider protects the insurer if he is diagnosed with certain specific illnesses during the term of his policy. The illnesses covered (most commonly) under this rider are-

  • Cancer
  • Heart ailments
  • Failure of kidney
  • Paralysis
  • Cardiac surgeryThis kind of rider provides for the payment of a one time lump sum or periodical payments as per the terms and conditions of the contract.

Major surgical assistance benefit- In case of a medical emergency that requires immediate surgery, this rider can come in handy. However, this rider does not include pre existing illnesses or does not cover hospitalization charges.
Waiver of premium rider- This rider is most applicable in the case of child plans where one parent receives the benefit of the waiver of premium in case of the untimely death of another.
Long term care of spouse rider-This rider provides for the insurance coverage as well as periodic payments to the spouse in case of the death of the policyholder.
Level Premium- When the premium remains unchanged over the whole of the policy term, it is called level premium. Most life insurance plans involve level premium as it is advantageous for the policyholder.
Single premium- Those with a high income bracket or those who have idle money lying with them and want to increase their insurance cover can opt for single on a one time premium payment.
Increasing and decreasing premiums-  In some term insurance policies, the mortality risk of the life insured increases each year. As a result, the cost of insurance also increases annually. This translates into increasing premium. Decreasing premium becomes applicable to mortgage redemption policies. In such cases, the premium to be paid decreases with the decrease in the outstanding loan amount of the policy holder.
Discounts on life insurance premiumsBased on the mode of payment on the basis of the sum assured, companies offer a discount on the premium rate payable. These are called “rebates”.
Rebates for periodic payment- Depending upon the cash flow situation of an individual he can choose to pay his premium annually, half yearly, quarterly or monthly. Higher the frequency of the premium payment, the lesser chances the policyholder has for rebates as higher frequency of payments translates into higher cost of servicing for the company. Insurers, therefore, offer a higher premium for premium paid at one go for the whole year. Such rebates are also worked into single premium payment policies.
Rebates on online payment- When a policyholder opts for online payment of his insurance policy, the insurance company saves on both cost of servicing as well as on commissions that need to be paid to agents in case of policies that are sold physically. These benefits are then passed on the policyholders as rebates.
Non-payment or late payment of premium  If the premium on a policy is not paid by the due date it is gets lapsed and the policyholder loses the benefits, he is otherwise entitled to. Most policies, however, have a grace period which gives the policy holder an additional amount of time to pay his premium after the lapse of the due date. For most policies, this grace period goes upto 30 days. In case a policy gets lapsed, it can be revived by payment of the overdue premiums and in some cases with a declaration of health. However. The discretion to revive the policy lies with the insurer.
Documents Required The claimant or beneficiary must provide the follow supportive documents to initiate the claims process.

  • A statement of the claimant expressing his desire to claim the life insurance proceeds.
  • Original policy document.
  • Death certificate.
  • In case of accidental death, post mortem report and police FIR must also be submitted.
  • In case of natural death or death due to illness, hospital records, details of treatment etc must be provided.
  • Based on the sum assured and the nature of the policy, the insurance company is at discretion to request some additional documents that the beneficiaries must be ready to furnish.A life insurer will not be able to process a claim unless all the completed documents are submitted. It is therefore of utmost importance to submit the complete documentation as early as possible.

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