Life insurance is the most suitable way of wealth creation & securing a family’s future in the event of the unfortunate demise of the policyholder. Life insurance can be beneficial either through “Term plans” that provide life cover for the family’s safety or through “Investment Plans” that assist in wealth creation with financial safety to achieve individuals’ financial goals.
What is Life Insurance Policy?
A life insurance policy is a contract between an insurance provider and a policyholder, where the life insurer pledges to pay a fixed amount of money in return for a premium, after a set time duration or upon the life assured’s demise.
There are two simple kinds of life insurance policies:
1. Pure Protection plan (like Term Insurance Plan)
2. Savings Plan
Pure Protection plans are especially created to protect the future of your family by offering a lump sum payment, in case of your death. Whereas a savings plan is a financial product that assists in planning long-term objectives such as purchasing a home, fees for children’s higher studies, and more while offering life coverage benefits.
Types of Life Insurance Policy in India
The purest and most affordable life insurance plan provides financial coverage to the policyholder against a fixed amount of premium for a specified period. In case of the policyholder’s untimely death, their nominee receives the Cover Amount, as per the chosen policy.
- Term Return of Premium (TROP)
TROP (Term Return of Premium) is a variant of term insurance that offers an extra feature of Survival benefit. In addition to the life cover, if the policyholder survives the entire Policy Period, then all the premiums are delivered back, after GST.
- Whole Life Insurance
Under Whole Life Insurance, the policyholder is protected till the age of 100 years. If you wish to leave a legacy for your family, and assure that they are forever financially protected, then Whole life Term Insurance is the most suitable option for you.
2. Investment Plans
- Market Linked Systematic Investment Plan (ULIP)
ULIPs (Unit-linked investment plans) are special market-linked life insurance plans that offer dual benefits of wealth creation through investments (in equity, debt, or both) as well as a life insurance cover. High-performing ULIPs have shown 15-20% returns (tax-free), making it a popular choice for medium to long-term investors.
- Guaranteed Return Plan (Endowment Policy)
An endowment plan offers guaranteed high returns with life cover. This is the preferred investment option for a person looking for a fixed lump sum to mature after a certain period of time. With life cover benefits in the event of death and better returns than other fixed investment plans, these plans make them a must-include in the investment portfolio.
- Retirement Plans
These are long-term investment schemes that offer opportunities to earn a steady income after retirement. During the investment period, the premium amount is paid at regular intervals which accumulate and increases. The maturity amount is then paid back post-retirement based on the preference in terms of a lump sum or regular income.
- Child Plan
These plans are designed to enable financial security for children where the returns on the investment help fulfill a child’s future needs like education. Child plans specifically ensure these remain intact even in your absence by providing life cover to the nominee & funding the balance premiums through the insurer thus ensuring the secured future of the child.
Key Features & Benefits of Life Insurance
The preliminary advantage of a life insurance policy is that it offers long time financial stability to the policyholder’s family in case of any heartbreaking event.
In case of an unfortunate event with the policyholder, the insurer provides financial security in the form of a death benefit. Appointed nominees get a cumulative bonus over time in addition to the entire sum assured.
When the policy matures, some life insurance policies provide the policyholder with the full premium amount paid during the policy period.
Life insurance plans guarantee that you get a fixed amount after a certain term. The return you get can help in paying the loan, the child’s higher education, and other expenses.
Life insurance savings plans like ULIPs also offer wealth creation benefits. In such schemes, you can invest your premium amount in different funds depending on your risk appetite. These life insurance policies are good wealth builders in the long run.
Policyholders can avail of tax benefits up to INR 1.5 Lakhs under section 80C of the Income Tax Act, 1961, for the life insurance premium amount paid. Also, the payout obtained from an insurer is exempt from tax under section 10 (10D) of the Income Tax Act, 1961 and the premium amount paid for riders such as critical illness can be claimed under section 80D.
Riders like critical illness, premium waivers, etc. are add-ons to your existing base plan, which help customize the policy as per your specific needs.
Flexible premium payment option
Policyholders can decide the frequency of premium payments as per their needs. For example, you can prefer to pay premiums as a lump sum amount for your life insurance plan, or could pay them at regular time periods such as monthly, quarterly, half-yearly, or yearly.
Annuity-based life insurance plans provide a monthly pension to the policyholder on maturity and assist in planning a secured retirement.
Certain life insurance plans provide the option of a loan and allow one to borrow some percentage of plan value or the sum assured depending on the policy T&Cs.
How Does Life Insurance Work?
Let’s understand how life insurance policies work with the help of an illustration:
First, you should select a life insurance plan that is suitable for you the best. If you are married and have children, a plan that promises high-life coverage will be beneficial for your children’s higher education and their future. Depending on the terms and conditions of the plan, you can pay either annually or monthly.
In case of an unexpected demise, the nominated person should notify the life insurer and file a claim. The nominee has to submit some supporting documents like a death certificate, ID proof, etc. The insurance provider, after the verification, will pay the life cover amount to the nominee.
Thus, the future of your family is safe with life insurance and they can meet their objectives even after your absence.
Best Term Life Insurance Schemes in 2022
|Insurance Plan||Entry Age(Min/Max)||Policy Term(Min/Max)||Sum Assured(Min/Max)||Claim Settlement Ratio|
|ICICI iProtect Smart||18/65 years||10-67/81 years||₹ 50 lakh/20 Cr||97.9%|
|HDFC Click 2 Protect Life||18/60 years||10/67 years||₹ 50 Lakh/ 5 Cr||98.01%|
|Max Life Smart Secure Plan||18/60 years||10/67 years||₹ 25 Lakh/ 10 Cr||99.35%|
|TATA AIA Sampoorn Raksha Supreme||18/65 years||10-67/81 years||₹ 60 Lakh/ 20 Cr||98.02%|
|Bajaj Smart Protect Goal||18/65 years||5-67/81 years||₹ 50 Lakh/20 Cr||98.48%|
|PNB Met Life Mera Term Plan Plus||18/50 years||10/(80 minus your Current Age) years||₹ 50 Lakh/2 Cr||98.17%|
|Canara iSelect Star||18/60 years||5/(80 minus your Current Age) years||₹ 25 Lakh/2 Cr||98.57%|
|Kotak Life e-Term Plan||18/65 years||5-40/ (75 minus your Current Age) years||₹ 25 Lakh/no upper limit||98.5%|
|Edelweiss Tokio life Total Protect Plus||18/55 years||5/(100 minus your Current Age) years||₹ 50 Lakh/1.99 Cr||97%|
|IndiaFirst e-term Plus Plan||18/55 years||5-40 years||₹ 25 Lakh/20 Cr||96.81%|
|Birla DigiShield Plan||18/65 years||5-55 years||₹ 50 Lakh/5 Cr||98.02%|
|Exide Smart Term Edge Comprehensive||18/65 years||5-40 years||₹ 20 Lakh/20 Cr||98.54%|
Best Life Insurance Investment Plans in India 2022
|Insurance Plan||Entry Age(Min/Max)||Policy Term(Min/Max)||ReturnsPast 7 years||Maturity ValueAt end of the Policy|
|Birla Sun Life Insurance Company Ltd (Capital Guarantee Solution Scheme)||18/60 Years||10/35 Years||17.06%||₹74.8 Lac|
|Tata AIA Life Insurance Company Ltd (Capital Guarantee Solution Scheme)||18/50 Years||15/21 Years||19.03%||₹94.7 Lac|
|HDFC Life Insurance Company Ltd (Capital Guarantee Solution Scheme)||18/65 Years||10/20 Years||14.56%||₹54.7 Lac|
|Max Life insurance Co. Ltd (Capital Guarantee Solution Scheme)||18/50 Years||10/20 Years||13.74%||₹60.5 Lac|
|ICICI Prudential Life Insurance Company Ltd (Capital Guarantee Solution Scheme)||18/60 Years||10/20 Years||11.75%||₹37.2 Lac|
|Bajaj Allianz Life Insurance Company Ltd (Capital Guarantee Solution Scheme)||18/52 Years||10/20 Years||15.93%||₹67.2 Lac|
|PNB MetLife India Insurance Company Limited (Capital Guarantee Solution Scheme)||18/60 Years||12/20 Years||13.36%||₹61.9 Lac|
|Edelweiss Tokio Life Insurance Company Ltd (Capital Guarantee Solution Scheme)||18/55 Years||10/25 Years||13.97%||₹60.3 Lac|
|HDFC Life Insurance Company Ltd-200% Capital Assurance Income Solution||7/60 Years||10/20 Years||14.56%||₹54.5 Lac|
|Tata AIA Life Insurance Company Limited (Capital Guarantee Income Solution Scheme)||18/50 Years||15/21 Years||19.03%||₹74.9 Lac|
Points to be Considered Before Determining Life Insurance Cover
Before you buy life insurance coverage, note down your goals. Every individual has various objectives in life. While you may be looking for a life insurance plan that will protect your family, someone else may be looking for an investment plan for their retirement. So, evaluate your goals and then choose a plan that offers the most benefits according to your goals.
Your age and health play a critical role when you plan to purchase a life insurance policy. The cover and premium largely depend on these two factors. The younger you are, the easier it is to buy life insurance because you will be relatively healthy. You can get a lower premium even at a young age. Hence, it may be recommended to purchase a life insurance policy as soon as possible.
Your loved ones may be responsible for paying off your debts and other obligations when you are not around. If you have loan repayments or credit card arrears, you must consider them while deciding the amount of life cover. It is important to choose an adequate sum assured so that your family can pay your dues without any hassle and continue to lead a dignified life.
Regular source of income
A life insurance policy can provide a regular source of income to your nominee. This money can serve as a substitute for your earnings and enable them to cover day-to-day expenditures as well as any unforeseen emergencies. Life insurance plans can provide a regular stream of income to families of both self-employed and salaried individuals.
Remaining working years
It is important to estimate your remaining working years. This will provide you with an idea of how much money to invest. This can also help in determining an adequate sum insured for your family’s needs. Additionally, if you are investing in life insurance retirement plans, you can make the right investment decisions based on your preferred retirement age.
Choosing an appropriate life insurance policy for the family
While choosing the right life insurance plan for your family, make sure to pay attention to the following aspects:
- Claim Settlement Ratio: This is the number of claims an insurance company receives in a year against which it settles in the same year. The higher the claim settlement ratio, the more reliable the insurer is, thus the less likely your claim will be denied.
- Solvency Ratio: The solvency ratio shows the ability of an insurance company to meet its debt obligations. It provides you with an understanding of the insurer’s cash flow and financial soundness. Choose an insurer with a high solvency ratio to ensure financial security.
- Premium: An affordable premium can help you save money. Find a life insurance plan that offers cost-effective insurance premiums.
- Claim Settlement Process: Choose an insurance company with an easy claim settlement process. This will ensure that you and your family members do not face any difficulty at the time of claim settlement.
- Customer feedback: Positive customer feedback can help you gauge an insurance company’s performance and willingness to help its customers. While buying a life insurance policy you can check customer reviews online or refer friends and colleagues for recommendations.
Factors Deciding your Life Insurance Premiums
Your date of birth is the greatest factor that affects your life insurance premium. Age factors in life insurance and there are many reasons why younger policyholders pay lower premiums. As you age, the likelihood that the insurance company will have to pay out on your policy increases; Hence the premium increases.
Females live longer than males. The average life expectancy for females is 81.1 and 76.1 for males. The disparity means that females normally pay less for life insurance than males.
3. Health History
Insurance companies may require a medical exam and access to your health records before issuing a policy. A history of medical needs, especially serious diseases like heart disease or cancer, will raise your premium. Insurers will also look at your weight, cholesterol levels, blood pressure, and other metrics that may indicate future medical conditions.
4. Family Health History
Even if you don’t have a current medical condition, a family history of illness, especially inherited diseases, can factor into your life insurance premium and increase the cost of your coverage.
The health risks associated with smoking, including potentially fatal diseases like cancer, mean higher premiums. If you’ve quit smoking since buying life insurance (congratulations, by the way!), call your provider to see if your nonsmoker status will lower your rate.
Do you go skydiving on weekends? Have a passion for racing cars? High-risk hobbies can lead to higher premiums, but what activities fall into this category varies by the insurance company. If you enjoy a high-risk hobby it may pay to shop around for quotes.
Loggers, pilots, and roofers are several professions that are considered more dangerous than others. When you apply for life insurance, insurance companies will ask about your work history. If your occupation exposes you to toxic chemicals or requires you to perform hazardous duties, your premium may be higher.
8. The Policy
The specifics of the policy you prefer are another element that impacts your life insurance premium. Policies issued for larger benefit amounts over the long term usually cost more than policies with lower benefit amounts over the shorter term. Also, there is a difference between whole and term life insurance policies.
Understanding the factors that affect life insurance premiums — and making changes to lower your blood pressure and cholesterol, such as losing weight, quitting smoking, or adopting a healthier lifestyle — can assist you to have the right policy at the right amount.
Life Insurance Frequently Asked Questions
1. How do I decide how much life insurance coverage I require?
Ans: The life insurance coverage amount should be sufficient to financially support your loved ones after your unexpected demise, while its premium amount fits well into your regular expenses. Therefore, it is recommended to have a life cover amount of at least 10X the annual income. And you should also check which plan suits your portfolio best.
2. What documents are required to buy a life insurance policy?
Ans: A life insurance company will ask for the following documents while buying a policy:
a. Income certificates like the last 3 to 6 months’ salary slip, last 2 to 3 years’ ITR, Form-16, and last 6 months’ bank statements.
b. Address proof such as utility bills, voter ID, Aadhaar card, passport, driving license, savings accounts bank statement, and bank passbook.
c. Proof of identity like Passport, Aadhaar Card, PAN Card, and Voter ID.
d. Proof of age like Birth Certificate, School Leaving Certificate, PAN Card, Voter ID Card, and Aadhaar Card.
3. What happens to the policy if the policyholder survives the entire policy term?
Ans: If the policyholder survives the entire term of the policy, the premium paid for the policy is paid back to the insured in the form of a maturity benefit. The total sum assured also includes additional benefits if any.
4. Is there a limit to the number of life insurance plans a person can buy?
Ans: There is no limit to the number of life insurance plans one can purchase, as long as one can pay the premium. The insurance company will assess the policyholder’s ability to pay the premium and their health condition, before proceeding with their request for multiple plans.
5. Is there any age limitation for life insurance plans?
Ans: As the maximum age for this insurance plan is set by the insurer, there is no universal age limit. The general maximum age limit set by life insurance companies falls somewhere between 75 years to 80 years.
6. Does the life insurance benefit the policyholder if he commits suicide?
Ans: If the policyholder commits suicide within 12 months of purchasing the policy, the nominee will not get the insurance benefits. However, the insurance company will pay the premium amount received by the insured up to the date of death after deducting service and administration charges and related processing fees.
7. What if my life insurance nominee dies before me?
Ans: If your policy nominee predeceases you, you can add a new nominee. If you do not nominate, your heirs or estate will become the nominee by default.
8. Are life insurance benefits paid in a lump sum?
Ans: It depends on the payout option chosen by the policyholder while purchasing the policy. Additionally, for some schemes, nominees have the flexibility to choose how they want to receive the death benefit.