Life insurance is a contract between an individual and an insurance company, where the insurer provides financial coverage in exchange for periodic premium payments. Under this policy, the insurer agrees to pay a specified sum to the policyholder's nominee in the event of their death or after a predefined period, offering financial security and peace of mind.
A life insurance policy acts as a financial safety net. By paying a regular premium to your insurance provider, you keep the policy active. In the event of your passing, the insurer ensures a significant payout to your designated beneficiaries or family. Life insurance policies are broadly categorised into two types: Pure Protection Plans and Savings Plans.
Pure Protection Plan: Term insurance is a pure protection plan designed to secure your family's future. It offers a substantial payout to replace income and cover expenses such as debts or daily needs in the event of your untimely demise.
Savings Plan: A savings plan provides dual benefits: life coverage and a disciplined way to save for major financial goals, like funding your children's higher education or purchasing a home.
1. Term Life Insurance: This type of policy comes with a death benefit payable only in the event that the policyholder dies before the term of the plan. The nominee can make a death claim after the policyholder’s death. However, if the policyholder survives the policy term, a death claim cannot be made, and the policy coverage will cease without any maturity value. These policies can be supported with riders for additional coverage, such as accidental death benefits, critical illness benefits, and others.
2. TROP: This is a particular type of term life insurance that comes with the additional advantage of survival benefit where all premiums paid by the insured will be paid back with GST if the insured survives the entire policy term.
3. Whole Life Insurance: This policy covers the policyholder until 100 years of age and ensures financial coverage throughout the policy term.
4. Endowment Policies: This type of insurance plan combines guaranteed returns and life coverage. This type of plan offers a lump sum payout on maturity and enables the nominee to make a death claim in the event of the policyholder’s untimely death. Some endowment plans also come with the benefit of a bonus over the policy coverage.
5. ULIP: Unit- Linked Insurance Plans are wealth builder plans that offer the benefits of both an investment plan and an insurance plan. Customers can invest in various funds, such as equity, hybrid, bonds, and others, according to their risk appetite and receive market-linked returns from investments. These plans include a five-year lock-in period, loyalty addition, and the option of partial withdrawal and fund switching.
6. Money Bank Policies: This type of insurance plan offers a percentage of the assured sum of the policy at regular intervals and returns the remaining portion of the corpus along with a bonus if the policyholder survives the policy term. The entire sum assured will be returned in case of an unfortunate event before the policy term. The policy also offers maturity benefits with lump sum payments.
7. Child Plan: Ensures financial security for the child by fulfilling the child’s future goals using the return on investment. These policies offer life cover to the nominee and fund the balance premium even in the absence of the policyholder.
8. Whole Life Policy: This type of insurance policy offers 99 years of coverage with family protection for an extended duration. This type of plan is best suited for policyholders with dependents and offers lifetime protection to the policyholder and their children.
9. Pension or Retirement or Annuity Plans: This is a wealth-building plan for non-working years of the policyholder and offers financial protection to family members as well. This plan comes with various withdrawal options, such as a lump sum payment, regular income, or both.
Some other types of Life Insurance policies also include:
Life insurance has evolved from a luxury to a necessity, playing a vital role in securing financial stability. Despite the country's low life insurance penetration, more people are enrolling in life insurance plans every day. Choosing the right policy can be challenging with so many options available. Understanding the different types of life insurance plans is crucial to selecting the best coverage for your needs.
The table below will highlight and compares key aspects related to the different types of life insurance policies in India:
Type of Plan | Policy Term | Maturity Benefit |
Term Plan | 5 years to 85 years | Maturity Benefit is only accessible if the Return of Premium option is selected |
Endowment Plan | 5 years to 35 years | Yes, when the policy's term expires |
ULIP | 10 years to 20 years | Yes, when the policy's term expires |
Annuity/Pension Plan | Entire life | Regular earnings until survival |
Whole Life Insurance | Until you attain the age of 100 years | When you attain the age of 100 years |
Term Return of Premium Plan | 5 years to 65 years | Benefits of survival on maturity |
*Note – The term varies from plan to plan, with the numbers mentioned above reflecting an overall average.
The below listed are some of the reasons you should invest in a life insurance policy:
Being insured in today’s times is of utmost importance. Even if your partner has a life insurance policy and a group policy from his/her company, it is important that you purchase a comprehensive life cover for yourself. Covering your life will not reduce the emotional distress that you may be going through, but a life insurance policy will ensure that you have adequate financial backup during times of need. The insurance market is currently flooded with insurers selling a horde of insurance products and services. While selecting a particular life insurance policy, it is imperative to understand its tax implications.
Life insurance is not exempted from GST (Goods and Services Tax). The introduction of GST will have an impact on the life insurance industry. The insurance premiums will most likely increase from 15% to 18% in the insurance sector. If you are paying premiums for health, car, and life insurance, you will be affected heavily.
When life insurance companies calculate the premium for each individual, certain factors are taken into consideration. Because life insurance is a form of investment, even low premiums can yield relatively high returns over a period of time. However, availing a life insurance policy with a low premium may not always be possible as you will have to meet certain requirements as laid down by the insurer. However, some individuals tend to avail similar life insurance policies as others at significantly lower costs. The reason for this is that these individuals have made the right life choices that have enabled them to avail lower premiums.
Following are the documents you will require to purchase a life insurance policy:
Life insurance operates on a simple principle. Here's an easy breakdown of how it works:
Choose a Plan: Select a life insurance plan that suits your financial needs and goals after comparing various options.
Pay Premiums: Decide on the coverage amount, choose a premium that fits your budget, and make regular payments to keep the policy active.
Ensure Peace of Mind: Enjoy the assurance that your loved ones are financially protected through the life coverage provided by the policy.
Claim Benefits: In the event of the policyholder's death or upon maturity, the insurer provides the promised benefits to the nominee or policyholder, as per the plan's terms.
It is essential to determine the appropriate life insurance for your family members. When determining the necessary amount of life insurance coverage, you should take the following factors into account:
Your Family's Requirements: Before selecting the appropriate life insurance, you should evaluate the financial needs of your family, including total income and total monthly costs.
Existing Debts and Loans: The life insurance policy you choose should cover any outstanding debts or loans you may have.
HLV Calculation: You can obtain a precise estimate of the necessary life insurance by using the human life value calculator.
Medical Emergencies: You should select a life insurance policy that is enough to cover any unforeseen medical or financial emergencies.
Income Replacement: In order to replace your income in the event of your absence, you should select an amount assured that is payable in monthly instalments.
Changes in Your Life Stage: You should select a life insurance policy that is sufficient to cover your various life stages because your life stage could shift during the policy term.
The following are the documents required for initiating claiming procedures:
Several factors influence the cost of life insurance premiums in India. Here’s a breakdown of the key determinants:
Factor | Impact on Premium |
Age and Gender | Younger individuals typically pay lower premiums as they are considered lower risk. Women may pay less due to higher life expectancy. |
Sum Assured | A higher sum assured (the payout amount) results in a higher premium. |
Policy Term | Longer coverage periods generally lead to higher premiums. |
Type of Policy | Different policy types (e.g., term, endowment, or ULIP) affect the premium structure. |
Medical History & Health | Pre-existing medical conditions or poor health can increase the premium amount. |
Lifestyle Habits | Risky behaviours like smoking or excessive alcohol consumption led to higher premiums. |
Occupation | Hazardous professions, such as construction or mining, may attract higher premiums. |
Family Medical History | A history of hereditary diseases in the family may result in higher premiums. |
Rider Add-ons | Adding riders, like critical illness or accidental death cover, increases the overall premium. |
Premium Payment Mode | Payment frequency (monthly, quarterly, annually, or lump sum) can influence the premium cost. |
Geographical Location | The policyholder's residence can affect premiums due to regional risk factors. |
Understanding these factors can help individuals choose the most suitable policy and manage costs effectively.
Life insurance serves dual purposes, to protect your family's future and to act as a financial investment. Various policies in India provide tailored benefits to help policyholders maximise returns. Mentioned below are the key factors affecting premium calculation:
Accurately assessing your insurance needs and calculating premiums ensures sufficient coverage while avoiding financial strain.
Here are the details regarding grace period in life insurance:
The following are some of the details of cash value of life insurance plans:
Here are some details regarding late charges on life insurance premiums:
The following are some of the significant points that you should remember to avoid paying late fees in life insurance:
The exclusions under life insurance plans may differ from one policy to another. However, there are certain exclusions that almost all policies agree with. Mentioned below are some important ones:
Action | Description |
Assess Needs | Understand your financial goals and coverage requirements before purchasing a policy. |
Compare Plans | Research and evaluate different policies to find the one that best suits your needs. |
Know Policy Details | Read the policy document carefully and clarify doubts with your insurer. |
Choose the Right Type | Select a policy that aligns with your financial goals, such as term, endowment, or ULIP. |
Provide Honest Information | Disclose accurate details about your health, habits, and lifestyle to avoid claim issues. |
Pay Premiums on Time | Ensure timely payments to keep the policy active and avoid lapses. |
Nominate a Beneficiary | Specify a nominee to ensure smooth and timely claim settlements. |
Add Riders | Enhance your coverage with relevant riders like critical illness or accidental death benefits. |
Review Regularly | Periodically update your policy to reflect life changes such as marriage or childbirth. |
Action | Description |
Provide False Information | Avoid giving inaccurate details about your health or habits, it can lead to claim rejection. |
Be Hasty | Understand the claim process, premium payment schedule, and benefits before finalising. |
Focus Only on Tax Benefits | Look beyond tax savings; prioritise sufficient coverage for financial security. |
Underinsure | Ensure adequate coverage to avoid financial hardship during unforeseen events. |
Cancel Without Thought | Understand the implications before terminating your policy. |
Ignore Updating Nominees | Reflect significant life changes in your nominee details to avoid complications. |
Delay Renewals | Renew policies promptly to maintain coverage and benefits. |
Trust Hoax Messages | Ignore unauthorised calls or messages about life insurance to prevent fraud. |
Rely Solely on Employer’s Cover | Supplement group policies with personal life insurance for comprehensive protection. |
Keep these tips in mind to make informed decisions and maximise the benefits of your life insurance policy.
The amount of life insurance coverage required depends on factors like income, expenses, and liabilities. Evaluating these factors helps determine the appropriate coverage amount.
The average monthly cost of life insurance depends on factors such as the type of policy, your age, health, and the sum assured. Term plans are generally more affordable than traditional or unit-linked plans.
Term life insurance offers high coverage at lower premium rates, making it suitable for those seeking cost-effective protection for a specific period. Whole life insurance combines death benefits and savings but comes at a higher cost.
Term insurance premiums are primarily allocated to create a life cover, while other plans use part of the premium for different purposes, making term insurance more affordable and focused on pure protection.
Your life insurance coverage starts on the Risk Commencement date, which is the date when the insurer approves your insurance application.
Non-participating policies don't allow policyholders to share in the company's profits, while participating policies enable policyholders to participate in the company's profits, though the dividends may vary based on investment returns.
During the free-look period, you can cancel your policy without cost. After this period, canceling the policy may involve a small fee.
As per Section 10(10D) of the Income Tax Act, sums assured, and bonuses received under the policy are usually tax-free. However, there are exceptions in certain cases.
Single cover policies cover individuals separately, while joint policies cover both individuals under one policy. Joint policies result in a single payout, whereas two single policies provide two separate payouts.
Ideally, purchase life insurance in your late 20s or early 30s. The timing may vary based on the number of dependents and family health history.
Premiums for whole life policies remain fixed, while term insurance premiums may increase if you renew the policy after the initial term, as age is considered a risk factor.
Graded life insurance features initially lower premiums that increase yearly for a set period before becoming fixed for the rest of the policy term.
The surrender value is the amount refunded if the policy is canceled and is based on premiums paid and policy duration. Certain insurance companies offer loans against policies, utilizing the surrender value as collateral.
The free-look period allows policyholders to cancel within the first 15 days of purchase and get a refund. Cancellation during the free-look period is free, but a small fee may apply after the period
Riders are additional policy benefits, such as critical illness coverage, available for an extra premiums.
You can ensure their certification by checking the agent's IRDA authorization card.
Yes, you can purchase life insurance policies for your parents, depending on their age and health. There are policies designed specifically for older individuals or senior citizens.
A Money Back Plan combines insurance and investment, offering periodic returns during the policy term and a lump sum at the end of the policy term.
The premium collection for new businesses in August 2024 rose by 22% and stood at Rs.32,644 crore. For the first five months of FY25, the new business premium collection rose by 21% from Rs.1,27,661 crore to Rs.1,54,194 crore. The year-to-date collections grew to Rs.1,54,194 crore this year from Rs.1,27,661 crore and new business premiums expanded to Rs.32,644 crore in August 2024 from Rs.26,788.55 crore in August 2023.
Over 7 lakh eligible policyholders will be given a bonus of Rs.1,007 crore as per an announcement made by Kotak Mahindra Life Insurance. The bonus will be for the financial year 2023-24. This will 23 years in a row that a bonus has been provided by Kotak Life on participating bonus. The policy’s maturity or death benefit will increase because of the declared bonuses.
Bajaj Allianz Life Insurance introduces the Life Assured Wealth Goal Platinum Smart Income plan, offering guaranteed early income payouts from the second policy year. The plan allows subscribers to tailor their financial strategy for various life goals, providing flexibility and assurance. It is a non-linked, non-participating individual life insurance and savings plan, offering options to use early income for immediate goals, accumulate for a lump sum, or offset renewal premiums. Key features include continued income, enhanced Return of Premium, and a choice of riders for comprehensive protection. The plan operates in two steps: users decide on the premium details and income start year, aligning payouts with specific financial needs. Additionally, the plan offers tax benefits in accordance with prevailing tax laws.
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