What is Life Insurance
Life insurance is an agreement or contract made between the insurance company and the policyholder. The insurer will pay a lump-sum amount upon the demise of the insured or after a particular time period in return for premium payments. You can select life insurance based on your personal requirements. The premiums paid against life insurance are eligible for tax rebates and the benefits are usually free from tax implications.
Types of Life Insurance Policies in India
Term Insurance Plans:
Term Insurance plans are those where coverage is offered for a specific time or duration like 10-20 years. The term of coverage is limited here and if the insured happens to die during the policy tenure, the company will pay a lump sum amount to his / her family as per the policy contract. The premium amount under a term insurance is fixed throughout the entire tenor. Term insurance plans are usually the cheapest form of insurance providing high cover at a lower premium, but there are no returns in a tem policy if the policyholder survives the policy tenure.
Whole Life Policy:
Whole life insurance is a variation of term life insurance, designed to provide lifelong coverage. Whole life insurance usually has higher premium payments than term life insurance, but fixed, like term insurance. Most whole life policies come with a cash value, which functions as a savings component. This type of policy enables the insured to build up wealth while getting protection for his entire life.
Endowment policies not only cover the insured person’s life but also help him/her build up savings over a period of time. This helps the policyholder get substantial returns for the premium paid. Under endowment policy, the insured / his family will get the maturity amount / sum assured irrespective of the survival or death of the policyholder. In case of death of the policy holder, the sum assured will be paid to his / her family immediately.
Money Back Policy:
A money back policy comes under the aegis of an endowment plan. This is often called anticipated endowment plan, as the money will flow back to the insured person at regular intervals. In other words, the company will pay a bonus, at regular intervals during the policy tenure, and a lump sum amount at the time of maturity of the policy. This is known as the Survival Benefit. However, in case the person dies during the policy tenor, the death benefits will be paid out to the nominee and the policy will conclude.
Unit Linked Insurance Plans(ULIP):
Unit Linked Insurance Plans (ULIP) are market linked life insurance cum investment schemes which offers coverage for the policyholder by investing the premiums across bonds, mutual funds or stocks. ULIPs come with high returns in the long term, however there are some risks involved in it as with any other market linked investment instruments. The protection and investment parts here can be tailored as per individual goals and preferences. This suits young investors who wish to park their money for long term, track their investments and deploy funds flexibly.
Pension plans are meant for generating a steady income for a retired person when he is not working or active in his profession. They are excellent tools for enjoying financial stability in the old age, besides coverage. In case of the demise of the policyholder during the policy or payment term, the family members will get the sum assured. Most pension plans are for limited term, but there are lifelong pension plans also.
There are two types of annuity insurance plans available in market. These are:
- Immediate annuity, here the payment starts immediately by the insurance company and the premium is mostly paid as lump sum in one installment.
- Deferred annuity scheme is like a recurring deposit where the policyholders keep on paying the premium to the insurance company till it reaches it vesting age. The premium accumulated with interest is considered as the main fund.
Child plans are meant for giving financial protection for children for their future. These policies are taken in order to preplan some of the important financial requirement of the child like education expenses, marriage, etc. The child will get lump sum pay outs at regular intervals for important events in his / her life. In case of some unfortunate happenings to the parents, the insurance company will continue paying the premiums for providing the promised benefits, or release the sum assured in favour of the child / nominee.
Best Life Insurance Plans in India
|Life Insurance Plans
||Claim settlement ratio (2015-16)
|Max life online term plan plus
|Aegon I Term
||5- 80 years
|Aviva I Life
|SBI Life E shield
|HDFC 3D plus
||Waiver of premium, Terminal illness
|ICICI I protect smart
||Critical illness cover, Accidental death
|PNB MetlifeMera term plan
|BhartiAxa Flexi Iterm
|Edelweiss my life plus
|Birla Sunlife Protect@ease
|Future Generali Flexi online term
|Canara HSBC I Select
||Terminal illness cover
|Bajaj Allianz E touch online term
||Accidental death, Accidental disability, Waiver of Premium
|IDBI Federal isurance Flexi term
||cover for Cancer, Heart attack and Stroke
|LIC e-term plan
|Aegon Life iTerm Forever
||Whole of Life
|HDFC Click to protect plus
||Waiver of premium, Terminal illness
Importance of Life Insurance
Life insurance is an important financial instrument that protects your loved ones financially for their vital needs in case if any misfortune happens to you. The insurer will pay a pre-agreed amount to the policy beneficiaries upon death of the insured. Here are some of the key reasons why life insurance is important for you:
- Life insurance helps in meeting financial requirements of the family upon the death of the policy holder
- It takes care of any loss of potential earnings during one’s professional life due to death, or permanent total disability.
- Life insurance helps your family in repaying mortgages, taking care of educational expenses of children, their marriage, etc in your absence
- Policy holders can take loans against their life insurance policy amounts
- Life insurance policies work as investment tools, covering several goals including retirement
- Life insurance policies offer protection against financial issues faced during any accident or serious disease for the insured
- Life insurance policies help in saving income tax
Broad categories of Life Insurance Plans
||Unit Linked Insurance Policies
||Money Back Policies
||Whole Life Policies
||Term Insurance Policies
||Life insurance and doubles up as savings plan
||Risk coverage combined with multiple investment options
||Money back comes periodically
||Covers insurance and investments
||Regular income payouts garnered from insurance
||Insurance coverage for a particular time period
||105% of all the premiums paid as on date of death
||Upto Sum assured or Fund Value (whichever is higher)
||125% of basic sum assured
||Sum Assured + all Bonuses
||105% of cumulative premiums paid
||Upto Sum assured
||No Upper Limits
||10 times of annual premium/No Upper Limits
||40% of basic sum assured + Survival Benefits previously at intervals
||No Specific maturity date since it is whole life policy
||101-110% of cumulative premiums paid
||No Maturity Benefits unless the policy is Total Return of premium (TROP) or Income replacement term plan.
||Simple Reversionary Bonuses/additional bonuses in case of profits earned by the insurer
||Free switches, fund reallocation and partial withdrawals
||Final additional bonuses may be payable
||Survival Benefit in the form of added bonuses
||Free switches, fund reallocation
||Lowest premium plan with multiple death benefit options
||Investors who want to build corpus along with getting adequate insurance cover
||Those who have higher risk appetite and desire flexible switching between investment avenues
||Those with specific financial goals after a certain period
||People requiring comprehensive coverage and fund build-up for life
||Retirement Planning and a steady income thereafter
||People looking for conventional and inexpensive insurance
Top 10 Life Insurance Companies in India*
|Insurer (Top 10 on basis of claim settlement ratio)
||Life Insurance Premium Paid (in crores)
||Gross Premium 2015-16
||Claim Settlement Ratio (2015-16)
|Life Insurance Corporation of India
|ICICI Prudential Life
|HDFC STD Life
|Canara HSBC OBC Life Insurance
|Bajaj Allianz Life
- As per claim settlement ratio of 2015-16 Information available on IRDA website
Steps to file a Life insurance claim
- Download the relevant claim form ( maturity claim or death claim) from the company’s website or request for one from the nearest branch
- Fill up the form completely with all details honestly
- Policy holder’s name, nominee, place & date of death, cause of demise, policy no etc to be mentioned
- The information in the claim form has to be submitted online/offline
- Documents like the death certificate issued by the municipal corporation, postmortem report copy and policy papers have to attached along with
- All documents to be submitted along with the copy of the life insurance policy
- The insurance company checks the submitted claim form and can ask for various documents as per the individual case.
- If the claims are found to be genuine and valid, the amount is paid to the nominee through cheque.
- If the company finds some doubts about claim, they will send a repudiation letter to the claimant listing the reasons behind rejection of the claim.
Unit Linked Life Insurance (ULIPs) VS Endowment Insurance plans
||Unit Linked Life Insurance
||Endowment Insurance Plans
||Future returns dependent on economic factors, plan type.
||Some benefits guaranteed.
||Premium amount after deduction of charges is invested in market linked instruments and policy value varies at any given time.
||Funds of policyholders are mostly invested in government securities and funds and guarantees returns.
||ULIPs have Aggressive/Balanced/Conservative types based on percentage of equity investments.
||Endowment plans come in low cost/utilized with profit/unit-linked and other avatars.
||Higher flexibility. The instruments to be invested in can be switched and chosen by customer.
||Specific amounts can be withdrawn between the maturity periods.
||Amounts can only be withdrawn after the maturity period.
Term Life insurance VS Whole life Insurance plans
||Term Life Insurance
||Whole life Insurance Plans
||Lower premium amount
||Higher premium amount
||Fixed tenure where policy benefits apply.
||Live until the insured person reaches 100 years of age.
||This feature is not available in case of term life insurance plans.
||Premiums paid are invested in a protection fund and other investment channels. If profits made on these investments, bonuses are given to customers.
||Generally Premiums are never refunded unless return of premium plan is opted
||Premium payouts offered in case the policy tenure is survived by the insured.
||This feature is not available in case of term life insurance plans.
||Loan facility available. The base loan amount will be subtracted from the sum assured.
||Pure life insurance plan with only death benefits
||Functions both as protection and savings plan rolled into one.
Documents required to buyLife Insurance (all plans)
- Age proof - (Any One)
Driving License, Passport, Voter ID Card, Birth Certificate, etc
- Identity proof – (Any One)
Driving License, Passport, Voter ID card, PAN Card, Aadhar Card, or any document which proves citizenship
- Address proof – (Any One)
Driving License, Passport and Utility Bill should clearly mention the permanent address
- Income proof – (Any One)
Salary Slip, Form 16, ITR
- Recent passport size photograph
General Inclusions and exclusions in Life Insurance
|Coverage for life of the insured and a lump sum benefit to the beneficiary in case of the death of the insured during the period of the plan.
||Life insurance companies do not pay out any benefits or sum assured if the policyholder commits suicide within the first year of the policy term.
|Protects the family of the insured financially in case of a permanent or partial total disability, or if the insured is suffering from critical illness.
||Death due to consumption of drugs or alcohol, war, taking part in hazardous acts like racing or criminal activities are also possible exclusions in accidental death benefit riders.
|Provision to add riders to the policy, guaranteeing extra coverage
||If a policyholder hides information and the death occurs due to a lifestyle disease like smoking or diabetes, claim can be denied on account to concealing information with the insurer.
|For all Protection cum savings plans like endowment plans, ULIPs, pension plans and child plans, the insurer pays out a certain lump sum on completion of the policy or at regular intervals term as per the policy
||Death caused due to pregnancy, childbirth or any complications arising from the same.
|Some polices offer partial return of premium paid for suicidal deaths
||Death is due to a sexually transmitted illnesses like HIV, AIDS
|Child plans takes care of future premiums if the insured happens to die during policy tenure
||If death during a war or a terrorist attack, or while performing extreme sports or other risky activities, then the policy may not cover