Life Insurance

Types of Life Insurance

1. Term Insurance

   It is a cost-effective policy that offers a fixed amount of coverage for a specific duration. It requires the policyholder to pay a premium, but they won’t need to make any additional payments during the term. Moreover, most term insurance plans guarantee a minimum sum that will be paid out, even if no claims are made or covered events happen during the coverage period.

2. Whole Life Insurance

   It provides coverage for the lifetime of the policyholder and guarantees a death benefit to be paid upon the policyholder’s death. It offers lifelong protection and has a savings element, making it suitable for long-term financial planning. Unlike term insurance plans that have coverage for a limited number of years and no cash savings component, whole life insurance provides both protection and savings benefits.

3. Endowment Policy

   It is a type of life insurance that combines life coverage with savings. If the policyholder passes away during the policy term, the nominee receives the death benefit. If the policyholder survives, they receive the maturity benefit. Endowment plans offer disciplined savings and provide financial security for the family.

4. Money-Back Policy

   It is a life insurance plan that provides financial cover and investment benefits. It allows policyholders to generate income at regular intervals during the policy tenure. In addition, it ensures financial security for loved ones in case of death or accidents, without any losses when no claims are made.

5. Retirement Plan

   These types of plans are designed to secure financial stability after you stop working. By investing regularly throughout your career, you can create a reliable source of income during retirement. Additionally, these plans often provide death benefits to your beneficiaries if you pass away during the policy. Overall, a retirement plan offers a way to maintain your financial well-being after leaving the workforce.

6. Unit Linked Insurance Plan

   These are versatile types of life insurance that offer both financial protection and investment opportunities. With ULIPs, individuals can tailor their investment portfolios to match their risk tolerance and financial goals, making them an attractive option for those seeking growth and security. It is important to note, however, that ULIPs carry inherent investment risks, as the value of investments can fluctuate. These plans comprise an insurance component and an investment component and the allocation of funds between the two is based on the policy terms and the individual’s preferences.

7. Universal Life Insurance Plan

   It offers greater flexibility compared to a basic life insurance plan, allowing you to adjust the death benefit payout according to your medical condition and preferences. To increase your life coverage, a complete medical test is required to ensure your good health. Furthermore, you can also reduce the coverage by paying lower premiums without surrendering the entire policy, provided you pay a small amount as surrender charges.

8. Group Insurance Plan

   It is a collective insurance plan that offers equal coverage to all members regardless of their individual characteristics. It eliminates the need for separate plans and is often provided by employers to their employees as part of their benefits. It not only covers the group members but also extends coverage to their spouses, children and dependent parents.

9. Child Insurance Plan

   It is a crucial investment plan for parents to secure their child’s future financially. It ensures that even in the absence of the policyholder, the child’s needs such as education, marriage and other financial goals are taken care of. By investing in the best child insurance plans, parents can rest assured that their child’s future requirements will be met effectively

10. Joint Term Life Insurance Policy (Survivorship Life Insurance)

    These types of policies are a popular choice among couples and business partners, providing coverage for both individuals in a single policy. However, they can also be taken by parents who want to financially protect their children in case of their own death. While the cost-effectiveness of a joint life insurance plan may seem appealing, there are important factors to consider before making a decision.

Life Insurance Process

While everyone’s situation varies, the following steps are typically part of the life insurance shopping and purchasing process -

Importance of Life Insurance

There are so many compelling reasons why having a life insurance policy is absolutely essential -

Life Insurance Plan Comparison in India

Life Insurance Companies in India

ICICI Life Insurance

HDFC Life

Aditya Birla Life Insurance

Features and Benefits of Life Insurance

Here are some of the key features of life insurance:

• Life insurance serves as a vital means of financial security for the policyholder’s family if tragedy strikes. By providing a safety net in the event of the policyholder's untimely demise, it offers essential support to help loved ones overcome the loss of income and sustain a comfortable lifestyle.
• The sum assured is a crucial aspect of life insurance, as it determines the amount that will be paid to your nominee in the event of your passing. It is important to carefully consider your financial obligations and future goals when deciding on the sum assured, as it should provide adequate financial support to your loved ones. Ultimately, selecting an appropriate sum assured is a key step in ensuring that your life insurance policy meets the needs of your beneficiaries.
• The policy term is the length of time that an insurance policy provides coverage. It varies depending on the specific policy chosen by the insured individual and can range from a few years to several decades.
• The premium is the fee paid to the insurance company for coverage. It can be paid monthly, quarterly, half-yearly or yearly.
• Life insurance policies can provide investment benefits, like unit-linked insurance plans or ULIPs that enable long-term wealth creation.
• The policyholder can choose a nominee to receive the death benefit if they pass away. Nominee details can be modified or updated as required.

Top Life Insurance Plans in India

Reasons to Invest in Life Insurance

Here are some of the reasons why you might consider investing in life insurance:

• Financial Security for Loved Ones: It offers financial security for your loved ones by providing a death benefit that can be used to cover various expenses, such as mortgages, childcare or education costs. This ensures that your beneficiaries will have the financial means to continue with their lives and meet their needs, even in your absence
• Income Replacement: It can provide income replacement for your family if you are the main earner. This ensures that they can continue to live at the same standard as before
• Pay Off Debts: The death benefit from life insurance can provide financial relief by paying off any outstanding debts, such as credit cards or mortgages. This can help prevent your loved ones from shouldering a significant financial burden during a difficult time. Having life insurance in place can offer peace of mind knowing that financial obligations can be taken care of in the event of your passing
• Tax Advantages: Premiums on life insurance policies can often be tax-deductible and the death benefit is usually received tax-free by beneficiaries, providing significant tax advantages. This can help individuals and families save on taxes while ensuring financial protection in the event of death. These tax benefits make life insurance an attractive investment option for many people
• Savings and Investment Features: Whole life insurance policies offer a cash value component that increases over time, providing the opportunity to take out loans or make withdrawals. This feature allows policyholders to access funds if needed, offering a level of flexibility and financial security. With this option, individuals can utilize their life insurance policy as a source of savings and investment, providing a valuable financial tool for the future
• Peace of Mind: Having the knowledge that your loved ones will be financially secure if something were to happen to you can bring a sense of peace and freedom. It allows you to fully immerse yourself in living your life without constant worry about the future
• Planning for Retirement: Certain life insurance policies, such as universal life insurance, can provide an additional source of income during retirement by accruing cash value over time. This cash value can be accessed and used to supplement your retirement income when needed
• Business Protection: Life insurance is essential for co-owners of a business as it provides protection by allowing for the buyout of a deceased partner’s share. This ensures that the business can sustain its operations and continue running smoothly
• Fulfilling Long-Term Goals: The cash value buildup in life insurance policies can help in achieving long-term goals such as funding a child’s education or saving for a house
• Customization: There are various types of life insurance policies available, allowing you to select the one that best suits your unique requirements and financial situation. With these options, you have the flexibility to customize your coverage based on your specific needs and budget
• Affordability: Considering life insurance at a young age can result in lower premiums due to better health. Therefore, it is advisable to think about purchasing life insurance while you are young and healthy
• Living Benefits: Certain life insurance policies have accelerated death benefits riders, which let you receive a portion of the death benefit while you are alive if you have a critical illness or chronic condition. These living benefits provide financial support during difficult times when medical expenses may be high. It is an additional feature that can give policyholders peace of mind and help alleviate the financial burden of a serious health issue
• Charitable Giving: By choosing a charity as the beneficiary of your life insurance policy, you have the opportunity to make a lasting impact and contribute to a cause close to your heart. It allows you to leave a meaningful legacy and provide support to a charitable organization long after you are gone
• Travel Coverage: Accidental death benefit riders are sometimes included in life insurance plans, offering extra coverage in the event of a death caused by an accident during travel
• Mortgage Protection: Mortgage protection life insurance ensures that your mortgage will be cleared will be cleared in the event of your death, a comforting through for your family during a difficult time. By having this coverage, you can provide peace of mind for your loved ones, knowing that they won’t have to worry about mortgage payments after you are gone. This type of insurance can be a valuable financial safeguard for homeowners, offering protection and support when it is needed most
• Final Expense Coverage: Having final expense coverage is essential as it ensures that your family will not have to bear the financial burden of funeral costs and medical bills after your passing. Even a small life insurance policy can greatly assist in covering these expenses, allowing your loved ones to focus on grieving and healing instead of worrying about money. It provides peace of mind and ensures that your final farewell is a dignified one, without placing an additional burden on your family during such a challenging period

Important Life Insurance Terminologies

Listed below are crucial life insurance terms accompanied by their explanations -

1. Policyholder: The policyholder is the person who purchases a life insurance policy and pays its premiums. They may or may not be the person whose life is insured by the policy. The policyholder is responsible for keeping the policy in force by paying the required premiums
2. Life Assured: The life assured refers to the individual who is insured and protected. In the event of their unfortunate death, the insurance coverage amount will be given to the nominee. Differentiating between the policyholder and the life assured is essential. For example, if a husband purchases an insurance policy for his wife, he is the policyholder while his wife is the life-assured
3. Premium: The premium is the amount you need to pay to keep your life insurance policy active. If you are unable to pay the premium before its due date or within the grace period, your policy may lapse, leading to a loss of coverage. It is important to prioritize paying your premiums to maintain the benefits of your life insurance policy
4. Sum Assured: The Sum Assured is an amount chosen by the policyholder at the time of purchasing the policy. It serves as a guaranteed amount that will be received by the nominee in the unfortunate event of the life assured's death during the policy tenure.
5. Policy Tenure: The policy tenure refers to the length of time that the life insurance policy offers coverage, as well as the duration for which the policy is purchased. This period typically varies depending on the specific terms and conditions of the policy. It's important to consider the policy tenure when selecting a life insurance plan to ensure it aligns with your long-term needs and goals.
6. Nominee: The nominee, also referred to as the beneficiary, is an individual chosen by the policyholder to receive the life insurance benefits in the event of an unexpected circumstance. It is important to designate the nominee at the time of purchasing the policy or add them at any point before the policy matures if not previously declared.
7. Lapsed Policy: A policy can be terminated if the premium amount is not paid on time. This is called a lapsed policy, which occurs when the necessary premium remains unpaid even after the grace period. However, life insurance companies provide an opportunity to revive the lapsed policy within a designated revival period, allowing the policyholder to make outstanding premium payments.
8. Grace Period: The grace period is an important feature in insurance policies, as it provides a bit of flexibility in payments. It's reassuring to know that even if you miss the due date, you still have a little extra time to make the payment and keep your coverage. This can be especially helpful during times when finances might be tight or when unexpected expenses come up. It's always a good idea to take advantage of the grace period if you need it - it can help prevent a lapse in coverage and provide peace of mind.
9. Death Benefit: The death benefit refers to the payment made to the nominee if the insured person passes away during the policy term. It is important to understand that the death benefit is not the same as the sum assured. In fact, the death benefit can be equal to or even greater than the sum assured, as it may include additional benefits from riders.
10. Maturity Benefit: The maturity benefit is the payment given to the policyholder once the policy duration is successfully completed.
11. Exclusions: Exclusions in a life insurance policy refer to specific circumstances or events that are not covered. If a claim is made based on these exclusions, the insurance company is not obligated to provide any benefits. Therefore, it's important for policyholders to carefully review and understand the exclusions outlined in their life insurance policy.
12. Revival Period: If you fail to pay the premium within the grace period, your policy will lapse. But, you can still choose to revive your lapsed policy if you want to continue it. To do so, you need to complete the re-activation process within a specific period of time, known as the revival period after the grace period ends.
13. Claim process: When the policyholder passes away, the nominee needs to initiate the claim process to receive the death benefit. This involves submitting the required documents and forms to the insurance company. Once the claim is approved, the nominee will receive the sum assured as per the policy terms.
14. Rider: Riders provide additional coverage and benefits to your plan. These optional additions can enhance your financial protection and provide security against accidental disability or death. They can be added as extra protection for you and your family.

Claim Process of Life Insurance Policies

There are 2 types of claim processes for life insurance policies - Death Claim and Maturity Claim. Let us find out about them.

1. What is the Claim Process After a Life Insurance Policy Mature?

   Life insurance companies typically notify policyholders in advance when their life insurance policy is nearing maturity. This notification is usually sent at least 2 to 3 months before the maturity date. The communication includes important information such as the maturity amount payable to the policyholder. Additionally, an accompanying discharge voucher may be provided for ease of processing.

   To receive payment from the insurance company, the policyholder needs to sign and send back the discharge voucher along with the original policy bond, after getting the signature witnessed. If the policy is assigned to someone else, such as a housing loan company, only the assignee will receive the claim amount upon providing the discharge.

2. What is the Claim Process After a Policyholder’s Death?

   When a person covered by a life insurance policy passes away, it is important to notify the insurance company promptly. The claim can be initiated by the assignee, nominee, close relative or the policy’s handling agent. Early submission of the claim intimation is crucial in such cases.

   The claim intimation should include key details such as the date, place and cause of death and it is the insurance agent’s responsibility to assist the family or assignee of the life assured with the necessary procedures for making a claim with the insurance company.

Documents Required During Death Claim Process

The insurance company will acknowledge the death claim notification and request specific documents including -

• Completed Claim Form: Ensure that the form given by the insurance company is fully filled out.
• Death Certificate: Submit the official death certificate as proof of the policyholder's passing.
• Original Policy Agreement: Include the original insurance policy document.
• Assignment Documents: If there have been any assignments or re-assignments of the policy, provide the related deeds.
• Title Evidence: If the policy is neither assigned nor nominated, you'll need to submit evidence of the title.
• Discharge Form: The discharge form must be properly executed and witnessed.

Factors Affecting Life Insurance Premiums

• The correlation between age and life expectancy impacts life insurance quotas. Having a longer expected lifespan allows for more years to pay premiums, resulting in lower quotes.
• The role of gender in life insurance is significant. Women generally pay lower premiums than men. This is due to statistical data that suggests women have a longer life expectancy and tend to have lower mortality rates compared to men. These factors contribute to the difference in pricing between genders in the life insurance market.
• Your overall health, including past and present conditions like blood pressure, weight, cholesterol levels, sleep apnea and diseases, plays a crucial role.
• Smoking and the use of nicotine products can lead to increased health risks, which results in higher insurance premiums for smokers and nicotine users. These individuals are more likely to experience health complications and therefore incur greater costs for the insurance companies, leading to higher premiums.
• Your family’s medical history can have an impact on your life insurance rates. If your parents or siblings have certain medical consitions, it may affect how much you pay for coverage.
• Your occupation and hobbies can significantly impact your insurance rates, especially if your job includes high risks or if you participate in activities that are considered high-risk, such as scuba diving or piloting planes.
• Reckless driving, DUI convictions and having a suspended or revoked license can cause your driving record to be closely examined, potentially resulting in higher insurance rates.
• Having a criminal record, especially for serous offenses, may lead to increased premiums or even rejection of your life insurance request.
• Recent bankruptcies and other financial problems can impact the approval and rates of life insurance policies. Insurers may consider these financial issues when evaluating an individual’s risk and determining the cost of coverage. It is important to be aware of how these financial challenges can affect your life insurance options and to explore the available alternatives.
• The length and coverage amount of the policy are important factors. The premiums will usually be higher or longer policies and higher coverage amounts.

Documents Required to Buy Life Insurance

The documents required to purchase/buy a life insurance policy typically include -

• Duly filled Proposal Form
• Photograph of the Proposer/Life Assured (Adhaar Card, Voter ID Card, Passport etc.)
• Age Proof of the Proposer/Life Assured
• Photo Identity Proof of the Proposer/Life Assured
• Address Proof of the Proposer/LIfe Assured
• Medical Examination Report of the Proposer/Life Assured
• Income Proof of the Proposer/Life Assured
• PAN Card of the Proposer/Life Assured

Claim Settlement Ratio (CSR) Chart of Life Insurance Companies

Death Claims

Why Do You Need a Life Insurance Policy?

• It is important to consider purchasing life insurance to provide financial support for your immediate family in the event of your death. Life insurance can help cover expenses such as mortgage payments, education costs and daily living expenses, offering peace of mind during a difficult time. By carefully examining your family’s needs and selecting the right life insurance policy, you can help ensure their financial security.
• To ensure that your children’s education and other essential needs are covered, it is important to secure financial resources. Planning early and setting aside funds specifically for education can help alleviate the financial burden in the future. Additionally, exploring other financial options such as scholarships, grants or educational loans can further support your children’s educational endeavors.
• Having a savings plan for the future is essential to ensure consistent source of income after retirement. It provides financial security and peace of mind for the future. By setting aside a portion of your income regularly, you can build a strong financial foundation for your retirement years. Starting early and being consistent with your savings can help you achieve your financial goals for the future.
• Having an additional income is crucial in the event of a major illness or accident that may result in a decrease in earnings.
• One important reason for ensuring financial stability is to be prepared for unexpected expenses or emergencies. Additionally, having enough savings can also provide flexibility for pursuing a desired lifestyle or making major life decisions. By prioritizing financial security, individuals can feel more confident and prepared for whatever the future may hold.