Gaurav, a 30-year-old graphic designer, had just received a big promotion and was chuffed about the bigger pay check he had received this month. In his four years of employment, he had never had enough money to start a prudent investment plan. However, things were about to change now as Gaurav was now determined to invest a small portion of his increased salary into one of the best life insurance policies every month. Though he had decided to invest in a life insurance plan, he was still unclear about many jargons and features of a life insurance policy.
Well, many of us have been in the same boat towards the beginning of our careers when we are not financially literate and are often too embarrassed to ask too many questions.
In this post, we gloss over the top 10 most common life insurance policy queries that will come in handy if you are also planning to start investing and want to know what are the features of a life insurance policy.
- What are the basic features of a life insurance plan?
For starters, let’s reiterate what is meant by a life insurance plan. Simply put, life insurance is a financial contract which assures to provide the nominee of the policy taker a certain amount of money that has been determined in that individual policy, referred to as the sum assured. Now, you need to pay a small amount of money to continue the policy, which is known as the premium. Premiums for an insurance plan depend on the age of an individual primarily. However, it is important to note here that even individuals of the same age might be charged a different premium because it is calculated on various parameters. Some of these parameters include your family and medical history, coverage and term, lifestyle habits etc. Apart from giving life cover to the insured, one of the primary features of a life insurance contract is that it also provides you maturity benefits.
- What are the different types of life insurance?
There are five main types of life insurance that you must know about before deciding to invest in a policy.
- Term Life Insurance: This policy offers a large sum of money assured to your loved one after your death at the cost of a nominal premium amount. However, this does not have any maturity value.
- Endowment Plans: This plan offers a lump sum amount of money at the end of the tenure of your plan. Moreover, it gives you a life cover until maturity.
- Money Back Plans: These plans provide you with an opportunity to enjoy payouts at regular intervals (usually 5 to 10 years). These payouts are a certain percentage of the sum assured under your plan.
- Unit Linked Investment Plans: This a hybrid product that can be understood as a mutual fund wrapped in a life insurance policy. While offering market-linked incentives, you get the comfort of a life cover.
- Annuity/Pension Plans: This is popular among those investors who want to reap its benefits post-retirement when there is no regular source of income while the expenditure often witnesses an increase. These plans are of two types – deferred and immediate. In a deferred annuity plan, you start receiving regular income after a few years. On the other hand, immediate annuity plans offer you a regular income immediately after the purchase of the plan.
- What’s the difference between life insurance and term insurance?
The primary difference between a term insurance and traditional life insurance plan is that a term insurance plan only provides death benefit in case of demise of the insured within the term period, whereas a life insurance policy offers both death and maturity benefit to the insured.
- What are the primary benefits of a life insurance plan?
- This policy provides a death benefit in case of your death during the term
- You get the flexibility to choose the term
- Your premiums are duly returned to you if you outlive the policy tenure
- It acts like an automated savings plan which encourages you to add to your savings every month
- You can avail loan against your plan in case of a financial emergency
- What is meant by ‘riders’ in a life insurance plan?
Riders are additional top-up features in a life insurance plan that widen the scope and benefits of a life insurance policy. For example, in addition to life coverage, you can choose riders like accidental death benefit rider and accidental permanent disability benefit rider.
- Can I enjoy tax benefits through my life insurance?
Of course, you can. A salient feature of life insurance plans is the tax benefits they provide. All premiums paid for life insurance plans are eligible for tax exemption under section 80C of the Income Tax Act. It allows a policyholder to avail a maximum benefit of up to Rs 1.5 lakh, making this one of the key benefits of life insurance. Moreover, the death benefits paid to the nominee are exempt from tax under Section 10 D of the Income Tax Act.
- What are underwriters in a life insurance policy?
Underwriters evaluate the risk involved in insurance. The process of risk evaluation starts before the issuance of insurance policy, and ends with settlement of the claim Only after the approval of underwriters can the policy be issued to the policyholder. Moreover, the company pays the claim benefit to the nominee only after clearance from the underwriter.
- Can the premium change during the tenure?
No it doesn’t. The premium is determined taking into consideration numerous factors discussed above and once set, the premiums do not change over the entire tenure of the plan.
- What happens if I can’t pay the premiums?
If the premiums are due beyond the due date, a grace period is given for paying the premiums. If the premium is still not paid during the grace period, the policy stands lapsed. A lapsed policy has reduced benefits which is known as the paid-up value.
- How can I buy a secure life insurance policy?
You can sign up for a life insurance plan both online and offline through numerous financial service providers that offer a variety of life insurance plans. For instance, you can invest in Future Generali Life Insurance Care Plus Plan , which provides guaranteed sum assured in the case of the policyholder’s death. It comes with two options: the classic option, which provides sum assured of less than Rs 25 lakh, and the Premier option, which provides an insurance cover of Rs 25 lakh and above.
Keep on reading to know 15 terms that you should know about life insurance.