What is Life Insurance? Benefits of a Life Insurance Policy?

Life insurance is a contract wherein an individual is offered financial coverage by an insurance company in exchange for a payment over a period. The payment made to the insurer is referred to as the premium. In case the policyholder passes away during the policy tenure, the insurance company will offer a lump sum amount to his/her nominee. This lump sum amount is called the sum assured on death or the death benefit. Upon completion of the policy term, the policyholder receives a sum assured on maturity or the maturity benefit from the insurer along with some bonuses.

A pure protection plan, such as a term insurance policy, offers only the death benefit. However, there are several types of life insurance policies that offer savings in addition to protection. The savings can be in the form of a maturity benefit or bonus. Premiums paid and benefits received under life insurance are liable to tax benefits under Section 80C and Section 10(10D) of the Income Tax Act, 1961.

Benefits of a Life Insurance Policy:

Life Insurance policies offer several different benefits to individuals. Following are the most important:

  • Risk Cover: Since uncertainties are unpredictable and may cause problems to an individual and his / her family at any time, availing a life insurance policy will ensure that your family and dependents continue to enjoy a quality lifestyle in case of your unforeseen and accidental death.
  • Comprehensive Plan for Different Stages of Life: Not only does life insurance offer financial support in case of the policyholder’s unforeseen and accidental death, but also serves as a long-term investment in the sense that it encourages you to lay down your objectives, whether it is the education of your children, their marriage, constructing the home of your dreams, or even planning for a peaceful retired life. The planning will be done based on your risk appetite and life stage. Most conventional life insurance plans, such as traditional endowment plans, provide specific maturity benefits and built-in guarantees via a number of product options like Guaranteed Maturity Values, Guaranteed Cash Values, Money Back, etc.
  • Cover for Increasing Health Expenses: Whether it is through stand-alone insurance policies or through riders, all life insurance providers offer financial cover against hospitalisation expenses and critical illnesses. Since health expenses are increasing constantly, the need for health insurance policies has increased too, as it ensures that the policyholder will have minimal medical costs to deal with.
  • Promotes Savings in the Long Run: Since life insurance policies are long-term agreements wherein the policyholder is required to make a fixed periodical payment, it helps the policyholder inculcate the habit of savings. Saving money regularly over a relatively long period of time helps in building a good corpus which will in turn help in meeting your financial requirements at different stages of life.
  • Profitable and Secure Long-Term Investment: The insurance industry is highly regulated. The Insurance Regulatory and Development Authority of India has implemented several regulations through which the money of the policyholder is ensured to be safe with the stakeholders, which means that all the money you invest in your life insurance policy will be the responsibility of the stakeholders of the company through which you avail your policy. Since life insurance is a long-term savings product, it also ensures that the policyholder focuses on long-term returns rather than focussing on risky investment decisions that could provide short-term profits.
  • Guaranteed Income via Annuities: When it comes to planning for retirement, there are few instruments as effective as life insurance policies. Since you will be saving money over a period of time, life insurance policies will help in providing a steady source of income after you have retired from professional life.
  • Growth via Dividends: Conventional life insurance policies provide customers with an opportunity to take part in the economic growth while taking no investment risk whatsoever. While the policyholder split the investment income through yearly announcements of bonus / dividends, the policyholder will earn maturity benefits in addition to contributing to economic growth
  • Loan Facility: Individuals who avail life insurance policies will have the choice of availing a loan against their insurance policy, which could help them meet their unplanned life stage requirements without hampering the benefits provided by the policy they have purchased.
  • Redemption of Mortgage: Life insurance policies serve as the best possible tool for the coverage of loans and mortgages availed by the policyholder. If there is ever any unforeseen situation due to which the policyholder is not able to repay his / her loan or mortgage, the bereaved family members will not have the burden of repayment, and the policy can be used to repay the loan or mortgage.
  • Tax Benefits: Life insurance policies offer attractive tax benefits and help you save a significant amount of money which would otherwise be spent on taxes.
  • Popular Pick On Life InsuranceNew Plans from Life Insurance Corporation of IndiaLife Insurance Corporation of India or LIC (as is popularly known) is the first-ever state-owned general insurance company in India to have commenced operations. Till date, LIC remains to be one of the most reputed insurance companies providing comprehensive health and life insurance policies to its customers. LIC came into origin in the year 1956 and since then it has managed to carve its own niche in the sector of insurance. LIC offers a wide range of insurance products to its customers from endowment plans, and Unit-Linked Insurance Plans, to moneyback plans and term insurance plans. Whatever insurance needs and requirements you have in life, Life Insurance Corporation of India will fulfill it easily and in a hassle-free manner.Read more

What Are The Different Types of Life Insurance Policies in India?

Life Insurance Policy in India1

Types of Life Insurance Policies:

  1. Term Life Insurance Plans
  2. Endowment Policies
  3. Unit Linked Insurance Plans(ULIP)
  4. Money Back Policies
  5. Whole Life Policy
  6. Annuity/Pension Plans

Comparison of Different Types of Life Insurance Plans:

Life insurance has evolved from a luxury to a necessity, with it becoming an integral component for the smooth functioning of our lives. While life insurance penetration in the country is yet to do justice to our numbers, each day sees hundreds of new entrants into different life insurance schemes. One of the biggest challenges pertaining to Life Insurance is related to choosing the right type of insurance, and with companies offering multiple options it wouldn’t be hard for people who are not familiar with them to get confused.

The table below will highlights and compares key aspects related to the different types of life insurance policies in India.

ParameterEndowment PoliciesUnit Linked Insurance PoliciesMoney Back PoliciesWhole Life PoliciesPension/Annuity PoliciesTerm Insurance Policies
OverviewThese are protection plus investment policiesThese are investment plus insurance policies which are unit-linked and participatory in natureThese are protection plus saving policies which are participatory in natureThese are protection plus saving policies which are participatory in natureThese are traditional policies which are non-participatory in natureThese are the simplest life insurance policies
Term*Term typically ranges between 10 -35 yearsTerm ranges between 10 – 20 yearsTypically ranges between 5 to 25 yearsCovers the whole life of a policyholder. Term can be if 40 yearsTypically there are no fixed terms, with annuity kicking in post-retirementTypically ranges from 5 years to 30 years
Death benefitsPayable to nominee on death of policyholder. Typically includes bonuses accumulated alsoPayable to nominee if policyholder dies while policy is in placePayable to nominee if policyholder dies while policy is in place. Death benefit is exclusive of other pay-outsPayable to nominee if policyholder dies while policy is in placeSome plans offer a provision to return the invested amount in the case of death of policyholderSum assured is payable to the nominee if policyholder dies while the policy is in place
Maturity benefitsMaturity benefit will be paid to policyholder on survival at end of termMaturity benefit will be paid to policyholder on survival at end of termSurvival benefit will be paid on maturity of policyMaturity benefits are typically paid when the policyholder reaches a certain age (could range between 80 years to 100 years)No maturity benefits per se. Policyholders are entitled to regular pension for the term specified.No maturity benefit will be paid on survival
Premium costsHigh premium costsPremiums are on the higher side, owing to investment costsAffordable premiumsGenerally have higher premiums associated with themPremiums are moderately priced, with most policies requiring one-time paymentAffordable premiums, lowest among all policy classes
Additional benefitsInvestments accumulate profits, which are paid as bonusInvestments accumulate profits, paid as bonus. Tax exemptions can also be claimedRegular monetary benefits are given to policyholder while the policy is in force, with these amounts not impacting the death benefitBenefits paid on maturity or death include a bonus component along with the sum assuredRegular income source post retirementThese plans provide maximum cover at low premiums. One can opt for variants of pure term plans which provide maturity benefits
Ideal forPeople with income to pay high premium and those who are looking to protect themselves and multiply their investmentPeople who are looking at a medium term investment goal to diversify their portfolios. Also suited to those with high income and keen investment senseIndividuals who are looking to secure their life but wish to earn some money at regular intervals. It is ideal for people looking at an investment plus protection plansPeople who want to protect the interest of their family and those looking to secure the financial future of their loved ones irrespective of what happensPeople who are worried about their retirement life, and those who wish to have a regular income source post retirement. Not suited for those looking at higher returns on their investmentPeople who are looking to secure the financial interest of their family members without having to pay exorbitant premiums. Individuals looking for short term protection can opt for these plans

*Note – The term varies from plan to plan, with the numbers mentioned above reflecting an overall average.

Life Insurance Provider Statistics:

Insurance ProviderClaims Paid(2017-18)Claim Settlement Ratio (in %)Percentage of Grievances Solved
SBI Life1827496.76%100%
ICICI Prudential1121697.88%99.97%
HDFC Standard1228997.80%99.85%
Bajaj Allianz1317692.04%99.48%
Max Life1015298.26%100%
Birla Sun Life529296.38%99.75%
Kotak Mahindra288193.72%99.29%
Reliance Nippon855395.17%99.94%
India First162689.83%98.86%
PNB MetLife372691.12%98.32%
Canara HSBC79795.22%99.70%
Tata AIA279398.00%100%
DHFL Pramerica57296.62%99.75%
Shri Ram252480.23%99.75%
Star Union Daichi114592.26%100%
Exide Life325096.81%100%
IDBI Federal106891.99%100%
Bharti Axa86096.85%100%
Future Generali120293.11%100%
Edelweiss Tokio18095.24%100%
Aegon Life53095.67%100%

Life Insurance Providers statistics for 2017-18 By IRDA

Top 10 Life Insurance Companies in India:

“Based on IRDA Annual Report 2017-18 on Total Business Premium”

When it comes to life insurance, the standard idea of the product is that if you pass away, an insurance company will pay your family a large sum of money. But that is not the only benefit that a life insurance product has to offer. A life insurance policy can also be used to plan for upcoming and unforeseen expenses through schemes like ULIPs (Unit Linked Insurance Plans) that provide returns through investment in the markets.

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