A life insurance policy can be described as a contract between an individual and an insurance provider. The individual pays premiums, and in return, the insurance provider pays their beneficiaries or nominees a death benefit. However, the death benefit is paid only if the insured dies during the active policy term. Note that some policies also pay the insured a maturity or survival benefit at the end of the term, if they are still alive.
Leading life insurance plans offer a variety of policies to help them meet their needs. Individuals can choose a term policy that extends coverage for a prefixed period, or a whole-life policy that provides coverage for their entire life. Regardless, of which type of policy one picks life insurance helps the insured to protect their loved ones by building a financial safety net for them. However, to ensure the same is achieved one must research life insurance policies and pick a type that is most suited to their requirement.
Types of life insurance
Essentially there are two types of life insurance plans in India –
- Pure protection life insurance
A pure protection plan is essentially a type of life insurance policy that provides the insured with a financial safety net for their loved ones in the event of their unforeseen death. These plans pay a lump sum amount to the beneficiary of the policy.
- Protection and savings life insurance
A life insurance savings policy plan is basically a financial product that enables the insured to achieve their long-term financial goals, such as buying a house or funding their children’s higher education, while also availing of life insurance coverage. This helps them to save up for their future and also secures the future of their loved ones which provides them a safety net in the absence of the insured.
Factors that Influence a Life Insurance Premium
These are among the major factors that influence the amount of premium one has to pay to avail an insurance coverage –
- Age: One of the major factors that affect the insurance premium for a life insurance policy is the applicant’s age. Usually, the life insurance premium is set lower for younger individuals as they are considered to be riskier than older adults, which gradually increases with age.
- Gender: Some studies found that women live longer than men and indulge in less risky behavior. As a result, insurers often set different premiums for men and women, and the same is often lower for women as compared to men.
- Health conditions: The applicant’s present and past health records can help determine the premium for their life insurance plan. Those who have any pre-existing or chronic illnesses or have suffered from an illness in their past that may resurface or hamper their present health are likely to be charged a significantly higher premium.
- Family health history: If an individual has a family history of certain disorders, they may be more likely to develop them themselves. This presents them as a risky individual, which leads to a higher life insurance premium.
- Smoking and drinking alcohol: Smoking and drinking alcohol can hamper one’s health and increase their risk of developing many chronic health conditions. As a result, life insurance companies often charge higher premiums to those who smoke or drink alcohol as these habits make them appear to be higher-risk policyholders.
- Type of coverage: The type of insurance coverage one opts for and the length of term the individual picks can also affect their premium. For example, term plan is known to be the most affordable type of life insurance, while whole life insurance is known to be the most expensive. In addition, Riders, which are essentially additional benefits that can be included in existing policy, can also increase their policy premium.
- Amount of coverage: Typically, when an individual opts for a higher sum assured they are required to pay a higher premium amount to secure it.
- Occupation: Individuals with high occupations pay more for life insurance plans. For example, construction workers and those exposed to hazardous chemicals may be required to higher premiums than those who work regular jobs with low exposure to risks or hazardous settings.
Key Benefits of Having Comprehensive Life Insurance
A comprehensive life insurance plan can offer multiple benefits to an individual and their loved ones. Some of the top benefits include the following –
Helps Ensure Financial Security
When an individual purchases a life insurance policy, they pay a prefixed premium to the insurance provider in exchange for a lump sum amount or sum assured to their beneficiaries if the insured meets an unsudden death or accident that leaves them permanently disabled. This sum assured can be used by the insured’s beneficiaries to replace their income and cover their daily living expenses.
Supports Wealth Creation
Some life insurance policies are designed to help individuals invest and grow their money over time, which can aid them in reaching their financial goals and objectives in the future. These insurance policies can also provide individuals with good returns and income to support their future and their loved ones.
Life insurance policies offer multiple tax benefits to Indian taxpayers. For instance, under Section 80C of the Income Tax Act, 1961, individuals can deduct a maximum of Rs.1.5 lakh annually in premiums paid towards a life insurance plan. Also, the maturity benefits or survival benefits of a life insurance plan are tax-free, as per certain conditions under Section 10(10D) of the Indian Income Tax Act.
When looking for a life insurance policy, individuals should compare these features and check the exclusions of the policy to gain a better idea of the scope of the coverage and its limitations. In addition, they should also check the market reputation of the policy provider and the record of settling claims to understand the earnestness of the customer service they offer and the promptness with which they settle claims. Based on this information, individuals can plan their insurance purchase and make the most of the protection or savings plan.