Life Insurance Policy In India | What Is It | How It Works

Life insurance is a contract between an insurer and a policyholder that promises to pay a sum of money to the beneficiary when the insured person dies or after a predetermined period in exchange for payments.

For a predetermined policy period, life insurance companies provide complete life coverage in exchange for payments. Life insurance pays a death payment to your loved ones if something bad happens. Some life insurance policies offer a Maturity Benefit after the term.

Life insurance adoption is hindered by ignorance. The variety of insurance packages also confuses some. However, most life insurance policies work similarly. Learn about life insurance and its operation.

Life Insurance Policy Meaning

Life insurance is a legally binding contract between a policyholder and an insurer that protects the policyholder financially and pays a death benefit to the nominee. To keep a life insurance policy active, the insured must pay ongoing payments or one upfront.

One should choose a price that is easily serviced because all life insurance benefits depend on premium payments. The policyholder must routinely pay premiums for life insurance to work.

Understanding the meaning of life insurance coverage can help you understand how it operates.

How does a Life Insurance Policy Work?

Life insurance requires a little payment to protect a significant value. If you die, the insurance will provide your family the huge sum.

Life insurance usually has a maximum. Thus, if you die within this term, the life insurer must pay an amount promised, or death benefit. Depending on the life insurance, you may receive a maturity bonus if you survive the term. However, whole life insurance contracts usually pay death rather than maturity.

Let’s understand this with an example:

Mr. Shah bought a life insurance policy from Canara HSBC Life Insurance. The 20 year policy has a sum assured of Rs 10 lakhs and an annual premium of Rs 25,000 payable for 20 years, i.e., premium payment term = policy term.

The sum assured of the policy is also payable as maturity benefit if Mr Shah completes the policy term. Here’s how this life insurance policy will work for Mr Shah:

Mr Shah Completes the Policy Term

• He has paid a total of Rs 5 lakhs as premiums for the life cover
• He will receive maturity benefit of Rs 10 lakhs + any bonus (if applicable)
• Policy will terminate after paying the maturity benefit

Mr Shah dies in the 10th policy year

• He has paid a total of Rs 2.5 lakhs in premiums for the life cover
• His nominees will receive a total of Rs 10 lakhs + any bonus (if applicable) in the 10th policy year
• Policy will terminate after paying the death benefit

If Mr Shah opted for Premium Protection in the policy, upon his death in the 10th year the policy will

• Pay the death benefit (10 lakhs only) as usual to his family in the 10th policy year
• Continue to accumulate investment value
• Will pay the promised maturity value of Rs 10 lakhs + any bonus (if applicable) at the end of 20 year policy term

Benefits of Life Insurance Plans

1. Financial Protection

A major benefit of any life insurance plan is that it provides financial security to your family members. Life insurance policies include a death benefit. If you die during the term of the policy, then a pre-defined amount, known as the sum assured is given to your family members.

2. Builds Saving Habit

To keep your life insurance policy active, you are required to pay regular amounts known as premiums. Without the payment of premiums, your policy can get canceled. Thus, by investing regularly, you inculcate a habit of savings which benefits you in the long run.

3. Helps in Tax-Savings

The government has tax-subsidized numerous investment vehicles to encourage savings and investment. Such instruments include life insurance. Under 80C of the Income Tax Act 1961, you can deduct up to Rs 1.5 lakh from your annual premium. Thus, you save taxes and invest.

4. Achieve your Big Financial Goals

Some life insurance policies accumulate cash. Like ULIP, life insurance has an investing component. Premiums earn interest in marketable securities. They grow into a vast corpus that can be utilized for kid education, marriage, etc.

5. Wealth Protection & Distribution

Life insurance is a safe long-term investment. Life insurance will protect your cash from taxes and inflation for a long time. This makes life insurance a great tool for retired investors to produce long-term pension.

How to Buy Life Insurance Policy Online?

Let’s talk about buying life insurance now that you know what it is and how it works. Online channels make buying life insurance easy and hassle-free. Life insurance is easy to get in India. You can call the local insurance branch. You can also acquire life insurance online. Online is how Canara HSBC Life Insurance improved their process. Avoid needless paperwork and obtain life insurance from home. Life insurance firms verify all buyer information before issuing a policy. An application must include medical and family health history. If necessary, the insurer may require a medical exam.

How to Choose the Right Type of Life Insurance Policy?

Life insurance is more than just knowing what it is. You need to know what life insurance coverage you need. You should also consider your plan type and coverage needs. Two key questions will help you choose a life insurance policy:

1. How long you want your life insurance coverage to last?

2. What goal do you wish to prioritize and save for?

Answer these questions and find a life insurance plan that suits your needs.

For example, if you want a life cover where you can add your spouse too, then look for insurance plans that offer such benefits. iSelect Smart360 Term Plan allows you to add your spouse in the same life insurance policy at discounted rates. Secure their financial future by helping them get a life cover.

How to Claim Life Insurance after Death of the Policyholder?

If the insured dies unexpectedly, the insurance company pays the nominee the money assured. The claims process is simple: notify the insurance company immediately after the insured dies. The nominee must submit a claims form and death certificate. Company confirms claim and releases benefit. Insurance companies may investigate claims. You have to provide more papers and the claim settlement will take longer. Claims can be paid in full or monthly installments. You can choose how nominees get death benefits. As a beneficiary, you can file a claim in three steps if the policyholder dies:

1. Death Certificate

You will be asked to submit a copy of the death certificate of the policyholder when you start the claim process. The life insurance company may need a certified copy, hence, you must keep this document handy, if you do not want to delay the process.

2. Contact the Insurer

Contact the life insurance company and inform them. Although, when a loved one passes away, we have a lot on our plates to deal with. However, the sooner you start the entire process, the better it is.

3. Documentation

The life insurance company may need a lot of other documents such as claim form. Ensure that all the necessary documents are ready with you before you start the claim process.

Do I Need a Life Insurance Plan?

Yes! Life insurance protects your family. If something goes wrong, the finest life insurance can aid your family. Child support, accidental death, and permanent and temporary disability are covered. Life insurance is needed if:

• You are married
• You have children
•  You are unmarried

Whether you’re single, married, or have kids, you need life insurance. Consider obtaining the greatest life insurance if your family relies on you financially. Building an education fund from the start is the only way to safeguard their future as education costs rise. Even if you’re single, unforeseen expenses can surprise you.

How much Life Insurance Cover do I Need?

Monthly income and expenses determine your beneficiary’s life insurance coverage. You must assess your liabilities and financial goals. It involves extensive retirement corpus and life goal self-assessment. Experts recommend buying a life insurance policy at least 10 times your salary. You have enough life insurance for you and your beneficiaries. Unsuitable insurance may land you in trouble. You need not pay premiums above your budget. Assess your finances and compute the premium before making a selection.

Different Types of Life Insurance Plans in India

After learning what a life insurance policy is, let’s explore its types. Plan life insurance at your discretion. You can choose from several life insurance policies. Consider your financial goals when choosing the finest life insurance coverage. The following life insurance plans are available:

1. Term Life Insurance Plan

The most popular life insurance is term. It expires after a term. The nicest part of term plans is their low rates. New hires can buy these plans because the premiums are modest. The best term life insurance plans offer critical or terminal illness coverage, which pays a lump sum to the policyholder upon diagnosis to meet medical expenditures.

2. Whole Life Insurance Plan

It covers you till 99, as the name implies. You can be protected till 99. Whole life insurance provides cash value and a death payout. The policyholder can withdraw the life insurance policy’s cash worth when it grows enough. The policyholder can also withdraw it if they take out a life insurance loan.

3. Unit Linked Insurance Plans

ULIPs combine investing and insurance for the best of both worlds. This policy provides life insurance and investing alternatives. Most ULIPs have a 5-year lock-in period, making them long-term investments. ULIPs work according to market dynamics, so know your risk tolerance before buying one.

4. Endowment and Saving Plans

This life insurance coverage covers you and lets you save. Buying the best saving plan will allow you to save regularly and receive a lump sum at retirement. If you want to pay your child’s education, buy a property, or retire carefree, an endowment or savings plan can help.

5. Money Back Policy

A money-back life insurance policy pays out regularly. A portion of the Sum Assured is repaid throughout the policy. During and beyond the plan term, these life insurance products provide Survival Benefits. If the policyholder dies while the policy is active, the beneficiaries receive the whole Sum Assured, regardless of Survival Benefits.

6. Child Insurance Plan

Child insurance is life insurance for your child’s future. It covers your child’s life and builds an education fund to support their dreams. Investment and insurance programs for children help you build wealth for their future. You can start investing in these programs when your child is born to develop financial security.

7. Retirement Plans

Life insurance helps you develop a retirement fund to enjoy your retirement. You can make your spouse your life insurance beneficiary. In your absence, they can be financially independent. The finest life insurance plan will also help you pay for retirement medical expenditures.

Other life insurance plans in India include:

• Life insurance corporation of India
• SBI Life Insurance
• Reliance Life Insurance
• ICICI Prudential Life Insurance
• HDFC Standard Life Insurance
• Bajaj Allianz Life Insurance
• Max Life Insurance
• Aditya Birla Sun Life Insurance
• Tata AIA Life Insurance
• Kotak Life Insurance

How much Does a Life Insurance Plan Cost in India?

The actual cost of buying a life insurance policy depends on the following few factors:

1. Life cover amount

2. Your current age

3. Lifestyle and habits

4. Current and history of physical health

5. Family health history

6. Policy tenure you are intending to choose

Is Buying a Life Insurance Policy Worth it?

A life insurance coverage protects your family. Simply put, the nominee(s)’ death benefit substitutes your financial support for your dependents. People are hurrying to acquire the finest life insurance after the outbreak. Life insurance is worth it for financial security. This clever financial instrument should be part of financial planning. In your absence, your family will be financially aware. If you safeguard your loved ones with life insurance, you can fulfill all your promises even if you die. Canara HSBC Life Insurance would always retain “Aapke Vaade Sar Aankhon Par”. You should investigate these top life insurance plans:

1. Guaranteed Income4Life Plan

This life insurance plan, Guaranteed Income4Life, offers income and life coverage. It gives premium payment and life cover flexibility and is extremely configurable. The plan offers three options to meet your financial goals. Guaranteed Income4Life protects you and your spouse, pays for your child’s education, prepares you for early retirement, and provides extra money to keep every promise.

2. Guaranteed Savings Plan

A guaranteed income plan guarantees a maturity benefit. Premiums are costly, but the coverage is excellent. You pay premiums for a certain time, but the GSP covers your entire life. Match your savings horizon to your financial goals to reach your milestones. This savings plan may help you save for your child’s education, marriage, retirement, or happiness.

3. iSelect Smart360 Term Plan

The iSelect Smart360 Term Plan offers restricted premium payments for life insurance. Its affordability suits the Indian market. The spouse might be added at a discount. It also allows premium returns. If the policyholder outlives the term and pays all premiums, they will be refunded at maturity. Win-win! For added security, the plan offers several riders.

FAQs

1. What is life cover?

Life Cover is the lump-sum amount that the insurance company pays to the designated nominee in case of an unfortunate event. The lump sum of money which is paid after the completion of the policy term is referred to as the Maturity Benefit.

2. What is Life Insurance Premium?

The life insurance premium is your policy cost. Life insurance is obtained by paying premiums to the insurer.

Pay life insurance premiums in one payment or regularly. You can pay your insurance premium monthly, quarterly, or annually. Regular premiums must be paid within a certain timeframe following the due date. Failure to pay the premium after the grace period would lapse your coverage.

3. What is a Life Insurance Nominee?

The nominee is a persons who will receive or is entitled to receive the sum assured after your death. At the time of purchase of a life insurance policy, you are required to assign a nominee who will receive the death benefit.

You can appoint more than one person as your nominee. Generally, nominees are your family members but they can be an entity as well.

4. Is there any tax benefit with Life Insurance Plans?

Yes, one of the benefits that a life insurance plan provides is that it can help you save taxes. You can avail of tax deductions of up to Rs 1.5 lakhs on the premium paid towards your life insurance policy u/s 80C of the Income Tax Act. Also, the maturity benefit that you receive or the death benefit that your family will receive after your death, both are tax-exempted.

5. How much do I have to pay per month for my life insurance?

There is no standard cost of buying life insurance. It varies from individual to individual. The premium that you need to pay towards your life insurance policy is based on many factors. These factors include your age, gender, income, the plan that you have chosen, etc.

If you buy the policy at a young age and you are fit then you can get very affordable rates.

6. What Happens if you Fail to Pay the Premium?

In typical life insurance cases, once you miss your premium installment, you are given a grace period to pay the premium amount. In case you fail to do so even after the grace period, your policy will lapse and the benefits will no longer be paid out. However, depending on the type of policy, you might also be offered a revival period, to revive the policy; paid up can also happen depending upon type of policy and the number of premiums paid.

7. How many beneficiaries can be on a life insurance policy?

A beneficiary is a person who has a legal right to claim the sum assured after your death. You need to name a beneficiary at the time of buying the life insurance.

There can be more than one beneficiary, that is you can assign more than one beneficiary as well. The sum assured then will be shared. Also, you can appoint a contingent beneficiary too. He/she will receive the benefit if the primary beneficiary dies.

8. How long does it take to get a life insurance amount after a death?

The life insurance amount that your family will receive after your death is known as the death benefit. After your death, your appointed beneficiary will apply for the claim and will need to submit the necessary documents to the insurer. After verification, the beneficiary will receive the amount within 30 days if the claim does not require investigation.

Source and for further information: Canara HSBC and Forbes Advisor