Life insurance
There are a number of life insurance plan types available in India today. You can look for them online or consult a professional who could guide you offline. While all these plans may be different from each other, at the core, all life insurance plans share some key features. These features can help you understand the idea of life insurance better and shape your expectations from these plans. They may also help you choose the right type of life cover, based on your needs.
Key Features of Life Insurance
Whether you already own a policy or are looking to buy one in the future here are some of the common features of life insurance plans you need to know.
A key fact to understand about life insurance is that it is a contract between the insurer and the policyholder. As part of upholding their end of the contract, a policyholder is required to pay the premium to the insurer. The amount is based on various factors and can be determined using an online premium calculator.
The payment term is the duration for which you are choosing to pay the premium. It is different from premium payment frequency. For example, you may choose a limited premium payment term at a quarterly frequency. With this, your policy duration would be longer than your premium payment term.
The policy duration refers to the period for which a life insurance policy remains active. It can vary depending on the type of insurance and the specific plan chosen. If the insured person passes away within this period, the beneficiary receives the sum assured. Choosing an appropriate duration is crucial as it should align with the policyholder's financial responsibilities and life goals.
The sum assured is the amount the insurance company agrees to pay to the nominee or beneficiary upon the death of the insured. It represents the financial coverage provided by the life insurance policy. A higher sum assured ensures better financial security for dependents, but it also results in higher premium payments. Therefore, a balance between adequate coverage and affordability must be considered while selecting the sum assured.
Life insurance policies in India offer various tax benefits under the Income Tax Act, 1961. Premiums paid for life insurance are deductible under Section 80C, up to a limit of â¹1.5 lakh annually. Additionally, the payout or death benefit received by the nominee is tax-exempt under Section 10(10D), provided certain conditions are met. It's crucial to verify the current tax laws, as they may change over time, impacting the tax benefits of life insurance.
They are the payouts received by the policyholder if they survive the policy duration. Maturity benefits are generally offered under endowment or money-back life insurance plans, unlike pure term insurance with no maturity benefits. The maturity amount typically includes the sum assured along with any bonuses or profits earned during the policy tenure. These benefits make certain life insurance plans not only a protection tool but also a savings or investment instrument.
The life assured refers to the individual whose life is covered under a life insurance policy. This person may or may not be the policyholder. In the event of the life assured's death, the nominee or beneficiary can claim the death benefit from the policy. The life assured plays a central role in determining the premium amount since factors like age, health, occupation, and lifestyle directly impact the cost of the policy.
The policyholder is the person who owns the life insurance policy and is responsible for paying the premiums. In many cases, the policyholder and the life assured are the same person, but they can also be different individuals. For example, a parent might be the policyholder, paying for a life insurance policy that covers their child.
A nominee is the person chosen by the policyholder to receive the death benefit in case the life assured passes away during the policy term. Nominees are typically close family members, such as a spouse or child, but can be any individual selected by the policyholder. The nominee can be changed during the policy term, if necessary.
The claim settlement ratio (CSR) is a key metric that indicates the percentage of claims an insurance company has settled against the total number of claims received in a given year. For example, a CSR of 98% means that 98 out of every 100 claims have been successfully settled by the insurer. A higher claim settlement ratio reflects the insurer's reliability and commitment to honouring claims.
Whether it be term insurance or a ULIP, buying the right life cover can help you lay the foundation for future security. Understanding how these plans can help and which ones to choose is crucial to ensure that your needs and expectations are met.
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