Life insurance is a contract that pledges payment of an amount to the person assured (or his nominee) on the happening of the event insured against.
The contract is valid for payment of the insured amount during:
- The date of maturity, or
- Specified dates at periodic intervals, or
- Unfortunate death, if it occurs earlier.
Among other things, the contract also provides for the payment of premium periodically to the Corporation by the policyholder. Life insurance is universally acknowledged to be an institution, which eliminates ‘risk’, substituting certainty for uncertainty and comes to the timely aid of the family in the unfortunate event of death of the breadwinner.
By and large, life insurance is civilisation’s partial solution to the problems caused by death. Life insurance, in short, is concerned with two hazards that stand across the life-path of every person:
- That of dying prematurely leaving a dependent family to fend for itself.
- That of living till old age without visible means of support.
A contract of insurance is a contract of utmost good faith technically known as uberrima fides. The doctrine of disclosing all material facts is embodied in this important principle, which applies to all forms of insurance.
At the time of taking a policy, policyholder should ensure that all questions in the proposal form are correctly answered. Any misrepresentation, non-disclosure or fraud in any document leading to the acceptance of the risk would render the insurance contract null and void.
Savings through life insurance guarantee full protection against risk of death of the saver. Also, in case of demise, life insurance assures payment of the entire amount assured (with bonuses wherever applicable) whereas in other savings schemes, only the amount saved (with interest) is payable.
Aid To Thrift:
Life insurance encourages ‘thrift’. It allows long-term savings since payments can be made effortlessly because of the ‘easy instalment’ facility built into the scheme. (Premium payment for insurance is either monthly, quarterly, half yearly or yearly).
For example: The Salary Saving Scheme popularly known as SSS, provides a convenient method of paying premium each month by deduction from one’s salary.
In this case the employer directly pays the deducted premium to Insurance Company. The Salary Saving Scheme is ideal for any institution or establishment subject to specified terms and conditions.
In case of insurance, it is easy to acquire loans on the sole security of any policy that has acquired loan value. Besides, a life insurance policy is also generally accepted as security, even for a commercial loan.
Money When You Need It:
A policy that has a suitable insurance plan or a combination of different plans can be effectively used to meet certain monetary needs that may arise from time-to-time.
Children’s education, start-in-life or marriage provision or even periodical needs for cash over a stretch of time can be less stressful with the help of these policies.
Alternatively, policy money can be made available at the time of one’s retirement from service and used for any specific purpose, such as, purchase of a house or for other investments. Also, loans are granted to policyholders for house building or for purchase of flats (subject to certain conditions).
Any person who has attained majority and is eligible to enter into a valid contract can insure himself/herself and those in whom he/she has insurable interest.
Policies can also be taken, subject to certain conditions, on the life of one’s spouse or children. While underwriting proposals, certain factors such as the policyholder’s state of health, the proponent’s income and other relevant factors are considered by the Corporation.
Life insurance is normally offered after a medical examination of the life to be assured. However, to facilitate greater spread of insurance and also to avoid inconvenience, LIC has been extending insurance cover without any medical examination, subject to certain conditions.
An insurance policy can be ‘with’ or ‘without’ profit. In the former, bonuses disclosed, if any, after periodical valuations are allotted to the policy and are payable along with the contracted amount.
In ‘without’ profit plan the contracted amount is paid without any addition. The premium rate charged for a ‘with’ profit policy is therefore higher than for a ‘without’ profit policy.
Keyman insurance is taken by a business firm on the life of key employee(s) to protect the firm against financial losses, which may occur due to the premature demise of the Keyman.
Tax Benefits in Life Insurance
Premiums paid for Life Insurance holds benefits of tax deduction under section-80C of Income Tax Act 1961 subjecting to an upper limit of Rs. 1, 00, 000 in each financial year. Amount deductible from your taxable is equal to 100% of investment or Rs. 100,000 whichever is lower.
Tax Benefits in Pension Plans : Under Section-80CCC Premiums paid for Pension Plans enjoy a tax benefit of Rs. 1, 000, 00, this limit falls under the same limit of Section-80C.
Taxability of Maturity Proceeds : Any sum received from Life insurance policy as maturity proceeds, death benefits is tax-free. In the Pension Plans one-third of the value at vesting date would be tax-free & annuity can be purchased with the rest two-third amount, cash received from this will be considered as part of your income & taxed accordingly.
Riders in Life Insurance
Riders are one of the important ingredients’ of life insurance acting as ADD-ON Covers to your Insurance Policy which are otherwise payable if taken as a separate plan, however these riders increase the overall premium of the policy. They can be customized according to the policy you buy matching your present & future needs & giving you an extended cover/protection against certain risks of life.
Following are the common riders offered by Life Insurance Players:
Critical Illness or Dread Disease Rider : This is a very common rider wherein the insured is paid the sum assured in case he suffers from the critical/dreaded diseases like Cancer, Stroke, attack etc and survives the illness for a period of 30 days from the date of diagnosis. The diseases covered under this rider differ across Insurance Providers; you must check the exclusivity clause & the number of diseases covered before buying an insurance plan. Also the premium paid for the rider is eligible for tax deduction under section 80D of the Income Tax Act.
Accidental Death & Disability Rider : Insurers cover the Insured in the case of accidental death or if they become disabled either partially or permanently owing to the accident. There are certain exclusions to the riders such as suicide etc. which must be checked before buying.
Waiver of Premium Rider : This rider has a unique feature wherein you can ceased to pay your premium in case of any unforeseen event like acute illness of the policy holder or accident, however the policy continues to stay alive.
Term Rider : This rider adds to your risk cover/life coverage providing for payment of the coverage face amount in event of death of the life insured with lower cost. Insurers have a limit to the maximum sum assured in this rider.
Life Insurance Plans for women In today’s modern world where the women have now surpassed men in every field, they are not just home-makers but are independent, working & earning their livelihood. Insurers have now brought in insurance plans specially designed for women considering their requirements.
LIC has got a Special Money Back Plan for women called Jeevan Bharati offering life cover throughout the term of the plan. After at least two full years’ premiums have been paid; you can enjoy the benefit of full insurance cover even when premiums are not paid for up to three years. It also offers Female Critical Illness Benefit & Congenital Disability Benefit along with Survival/Maturity benefits & bonuses etc.
Bajaj-Allianz also offers specific plans for women offering the following Benefits:
1. Critical Illness
2. Reconstructive Surgery for Breasts due to Breast Cancer
3. Congenital Disability
4. Complications of Pregnancy
Life Insurance Coverage
Before you buy Life Insurance you must know the correct Life Insurance Cover/sum-assured you should have so that your entire family is covered adequately with the financial shield in case of any contingency. You should take into account the expenses incurred by your family members, total income, current assets available & most importantly the inflation percentage.
Why do you need Life Insurance?
Life is full of uncertainties & you can’t really presume that your future is devoid of risks, so to be safe one has to get himself insured so that his dependents are offered with financial help in any unforeseen event.
Life Insurance caters to your following requirements :
• Financial Security to your family
• Investment & saving options
• Protection of your home mortgage
• Saving options for Retirement through Pension plans
• Saving options for Children through Children Insurance Plans
Life Insurance Policies at a glance
Whole Life Insurance
Term Insurance : The Term Insurance policy is a Plain Vanilla Insurance Plan which offers financial help to the family in case of Insured’s demise only during a limited term/tenure of the plan. As & when the policy expires, you don’t receive any benefits at the maturity. One of the most striking features of this plan is its Premium rates which are very low along with the maximum sum assured. Now Insurance Companies have brought in Premium Back Term Plans wherein you get benefits at the maturity of the term even if you don’t make any claims, however this feature tends to increase the overall Premium amount.
Following are the Term Insurance Plans by various Life Insurance Companies
Endowment plans: The Endowment Plans are basically saving plans which offer Insurance against the Insured’s death during the term of the plan, simultaneously acting as a saving tool. Unlike Term Plans which don’t offer maturity benefits Endowment Plans provide benefits when the policy expires. In the case of the Insured’s death his family receives the sum assured/stipulated coverage along with the accumulated profits/bonus. When the Insured survives the term period he receives the life coverage plus the profits & bonuses.
Following are the Endowment Insurance Plans
Whole Life Insurance : The Whole Life Insurance Plans are Permanent Insurance Plans which run as long as the Policy Holder is alive. The Insured pays the premium amount throughout his life time. The beneficiary of the policy receives the coverage amount plus the interest & accumulated bonus only at the time of Insured’s death.
Following are the Whole-Life Insurance Plans
Retirement Plans : These are basically called savings or annuity plans wherein the Policy holder saves for his retirement by accumulating a corpus which is received at the time of the retirement. The policy holder either pays in lump sums or at regular intervals over a certain period of time.
There are two types of annuity Plans in the market – the Immediate Annuity & the Deferred Annuity, the former is normally for those whose retirement is imminent wherein one invests a lump sum amount & start receiving the annuity immediately. On the other hand in the Deferred Annuity, you can start saving for retirement at the young age & accumulating your corpus with regular premium payments over a period of time called deferment period, post that you can start your annuities as per the policy.
Following are the Retirement Plans
Children Insurance Plans : These plans act as an important saving vehicle for your child’s future helping your child at important milestones of his/her life such as Graduation, higher studies, MBA & at your daughter’s wedding. The Child Plans by Insurance Companies play a monetary shield in such time when you want your child’s dream come into a reality & help them prove their talents & excel in their career. In a nutshell these plans offer financial security to children in the form of savings combined with life insurance by paying at regular intervals so that the money available to your child at pre-determined stages.
Following are the Child Insurance Plans
Unit Linked Insurance Plans (ULIPs) : ULIP is an investment vehicle combined with the feature of life insurance coverage & tax benefits. Thus offering twin benefit of risk cover & investing in the market-linked instruments, however the policyholder has to borne the risk related with stock markets. You have the option of spending in numerous funds varying from 100% Debt Funds to 100% Equity Funds. The ULIPs should be bought with lot of care as they have upfront charges varying from company to company which range from 10-40%.
Following are the ULIPs