Life Insurance is a contract between an insurance company and an insurance policyholder and, where the insurer assures to pay an amount of money in exchange for a premium received after a set or agreed period or upon the death of the insured person.
In specific types of policies, there is an alternative to get critical illness benefits or to create additional supplementary protection for your family if you incur an accident.
Written below are some of these features and types of life insurance policies:
What is the need for Life Insurance?
- Ill health Protection : Life insurance policies which cover critical illnesses become vitally important as you proceed towards retirement. Some life insurance policies tender you with features that will cover you from severe illness like heart attacks and cancer or other severe diseases. Buying and investing in these types of policies can protect you and your loved ones from some of the globe’s most deadly diseases.
- Family Support : The need to build a safety net becomes important when you have a spouse and kids. You will always want to protect them from financial hardship and be self independent in case of your untimely demise. You can also get valuable returns by investing in some policies of life insurance.
- Savings Growth : In your initial years of working life, some life insurance plans can be of great use to save and invest your money. Unit Linked Life Insurance Policies (ULIPs ) let you to invest in equity and debt markets. Under the current tax laws that are subjected to future amendments, you can also get tax deductions for investment in some life insurance policies and on the maturity amounts of such policies too.
- Cover Debts : Many times we take large loans in our working span life, especially while buying a house. While the loan is still due, an untimely death can grave terrible economic consequences for our families. In such a situation, life insurance money can be used to pay off the loan/ debts. Policies engaged under the Married Women’s Property Act, 1874* are also immune / unaffected from attachment by creditors.
Important life insurance terms you must know
- Who is a policyholder?
- What is assured Sum?
- Who is a nominee?
- What is the basic difference between a policy term and premium payment term?
A policyholder is the person who owns the insurance policy. Basically, they are the one who are insured under the policy. But, sometimes, the policyholder may be a family member/relative of the insured, or a corporation or a partnership. The policyholder is entitled with rights to exercise all privileges that are provided under the life insurance contract.
Assured sum is a fixed predetermined amount that policyholder’s family or nominee receives in situation of policyholder’s death. It is actually the total that sum policyholder is covered for. Sum assured is decided and chosen by the policyholder and is always acknowledged by the insurance company in the policy details.
In life insurance idiom, a nominee is that person who will receive the sum assured and other remaining benefits in case of death of the insured person. The choice of nominee is decided totally by the policyholder and the nominee name is generally mentioned whilst buying the life insurance policy. Mostly, this nominee is someone from the family itself.
A policy term is that time duration for which you are covered. A premium paying term is the time period for which you have to pay the fixed premium of the policy.
For example, the whole policy term can be of 50 years but the premium paying term can be of just 25 years. This implies that you need to pay a premium for 25 years even though you are covered for additional 25 years.
How does Life Insurance work?
Let’s suppose Mr XYZ has a 1 crore ICICI Pru Smart life insurance policy. He is paying insurance premiums for three years. In this instance, if we take the premium as ₹ 490^^ per month it rounds up to ₹ 17,640 total premiums paid in three years. Now if he dies in the third year, his nominee will get an insurance payout of ₹ 1 crore.
Thus, the insurance payout will depend on the policy cover regardless of when the insured expires in the period covered.
Tax Benefits of Life Insurance (Section 80C and Section 10D)
If you buy life insurance, you will be eligible for a tax deduction up to ₹ 1.5 lakhs annually under the section 80C of the Income Tax Act; 1961.The payout got at the time of maturity will be tax free subject to the conditions given in Section 10(10D) of the Income Tax Act, 1961. Tax laws are subject to alterations from time to time.
Types of Life Insurance Policies:
- Term Insurance Policy – This is the most simplest and common type of life insurance policy. It pays your decided family member a sum of money in case of your untimely demise, during the span of your policy term. Insurance company does not pay anything if you survive the entire policy term. Nevertheless the premiums on this type of policy generally tend to be low. For instance you can get you a life insurance cover of close to 1 crore rupees (for a 30 year old non-smoker) for 35 years with a monthly premium of just ₹ 1,000.
- Endowment Policies – Endowment policies are policies excluding term life insurance. These are divided into participating, non-participating and unit-linked.
- Non-Linked Participating Endowment Plan – This policy lets you ‘share’ in the profits of the life insurance company. It pays your nominee the sum assured on your death and it also pays you a mounted up sum, if you survive the policy term.
- Unit Linked Life Insurance Policy (ULIP) – This policy pays the assured sum on your demise and also a maturity amount if you survive through the term. Yet unlike a traditional participating policy, here the maturity amount is more dependent on your investment plans than the profits of the life insurance company. Your policy amount is invested in funds and divided into ‘units’ just like the units of a mutual fund. You usually get a lot of freedom to choose the kind of fund your money be invested in.
- Non-participating Non-linked endowment plan
A non-participating policy before-hand describes exactly how much amount your family will get on your death and how much you will receive on the maturity of the policy. There are no variables or investment linked factors. You know in advance exactly how much you will get, in every scenario.
AdWISE ASSURE provide extensive training to our agents in the following manner:
- Pre exam training: In this training, the new aspirant agents are helped to qualify the IRDA Licence Exam. They can then be authorized to conduct life insurance business for the LIC of India.
- Product Training: In this training, we acquaint agents to the various life insurance products and help them better understand the available products.