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What is life insurance?

Life Insurance

Life is beautiful and splendid, but it can also be fragile. There were over 4.5 Lakh road accidents in India in 2019 alone. This amounts to over 11% of all global road accidents. Further, there were over 16 lakh fires and 27027 deaths in India due to fire in 2019. There is an Indian involved in one out of five fire-related death globally. These are worrying numbers. One must be prudent about these figures.

The reason we brought up the above distressing facts is that we want to educate the masses about the importance and relevance of life insurance in India. Every Indian should ensure that he has a life insurance policy in place that can act as a cushion to his family in the event of the unthinkable.

Anyone planning to buy or renew a life insurance policy should read this page. This content piece will talk about the various important topics concerning life insurance such as:

  • Meaning of life insurance
  • Importance of life insurance
  • Popular life insurance plans
  • Life insurance types
  • Life insurance vs term insurance
  • Life insurance claims process
  • Life Insurance companies and their comparisons

Meaning of life insurance

A life insurance policy is an agreement between the policyholder and the life insurance company. The general terms of the agreement state that the insurance company will pay the policyholder’s family a predetermined sum upon the death of the policyholder. The insurance company will provide this death benefit to the policyholder in exchange for a premium.
Let us understand the concept of life insurance with an easy-to-understand example.


Example: Let us assume that Mr. Manohar has bought a life insurance policy with Tata AIA. Mr. Manohar’s family will receive an assured sum of Rs 1 crore on his demise. Tata AIA will receive a regular premium payment of Rs 25 thousand P.A in exchange for providing this death benefit.
Let us further assume that a few years pass by, and Mr. Manohar passes away due to a critical illness. The life insurance company is now mandated under law to provide Mr. Manohar’s family (the nominee) with the sum assured of Rs 1 crore.

Importance of life insurance

Peace of mind

You get peace of mind when you buy a life insurance policy. This is because you know that your family will be taken care of after your gone. You have planned for the future and your family will be the benefactors of your thoughtfulness.

Helps in paying off debt

There could be a situation where the patriarch of the family passes away and the family has to pay off his debt. Having a life insurance policy at this time could provide a tremendous financial cushion to a family.

Provides financial stability

A life insurance policy can provide financial stability in the event that the patriarch of the family passes away. The family will still have his life insurance policy to cash in. The family can use these funds to pay for education, health, household expenses, etc.

Inheritance for your family

This kind of policy can help a person to plan his inheritance that he will leave for his family. The sum assured from the life insurance policy can work as a sizeable inheritance to a family.

Maturity benefits

Certain life insurance policies provide the policyholder with maturity benefits. A maturity benefit is a benefit given to the policyholder after the policy term expires. This money can be used after retirement in many cases.

Tax benefits

Buying a life insurance policy provides you with certain tax benefits under Section 80C and 10(D) of the Indian I.T Act, 1961. An individual is eligible for a total tax benefit of Rs 1.5 Lakhs per year.

 

Popular life insurance plans

Plan NameCompanyBrochure
HDFC Life Sampoorn Samridhi PlusHDFC LIFEhttps://brandsite-static.hdfclife.com/media/documents/apps/PP12201710730%20HDFC%20Life%20Sampoorn%20Samridhi%20Plus_Retail_Brochure.pdf
Aegon Life iTerm InsuranceAegon Lifehttps://www.aegonlife.com/websiteab/sites/default/files/inline-files/Aegon%20Life%20iTerm%20V08_Brochure_1%202021%20-%20ADVT_2.pdf
Tata AIA Sampoorna Raksha SupremeTATA AIAhttps://www.tataaia.com/life-insurance-plans/term-insurance/sampoorna-raksha-supreme.html
TATA AIA Maha Raksha SupremeTATA AIAhttps://www.tataaia.com/life-insurance-plans/term-insurance/maha-raksha-supreme.html
Bajaj AllianzBajaj Allianzhttps://www.bajajallianzlife.com/content/dam/balic/pdf/term-insurance/etouch-onlineterm-plan.pdf
eTouch Online Term
ICICI Prudential iProtect Smart Term PlanICICI Prudentialhttps://www.iciciprulife.com/content/dam/icicipru/brochures/ICICI%20Pru%20iProtect%20Smart.pdf

 

Types of life insurance

There are a variety of life insurance types in India. Each of them has its unique features and benefits. Let us briefly discuss each of them below.

Whole Life Insurance

A whole life insurance policy is a life insurance policy that provides coverage to the policyholder for his entire life (up to 100 years of age). The coverage period for this policy is generally higher than a regular term insurance plan.

Term Insurance

A term insurance policy provides the policyholder with coverage up to a specified term. For instance, an insurance company will provide coverage to the policyholder for a fixed term of 30 years. That is, if the person bought the policy at age 50, his policy will mature at age 80. Thus his coverage will also end at age 80.

Term Insurance with Premium Return

This is a type of insurance policy that returns the premium paid by the policyholder on policy maturity. If you feel you will outlive the policy tenure, you can opt for this kind of policy.

Endowment Plan

This is a policy that pays the policyholder a certain lump sum amount on certain milestone periods. The policyholder can use this payment as he deems fit.

Unit Linked Insurance Policy (ULIP)

A ULIP is a hybrid between insurance and investment. The insurance company will invest the premium paid into either equity or debt instruments. The policyholder will receive his premium back along with any appreciation on policy maturity or death.

Moneyback Plan

A moneyback plan will return fixed sums of money to the policyholder at predetermined intervals. The person can now use this amount as he sees fit.

Retirement Policies

A person purchasing a retirement plan will receive a monthly, quarterly, or yearly pension after a predetermined date. This is perfect for people who want to augment their income after their retirement and do not want to depend on anyone post-retirement.

 

Life Insurance vs term insurance

 

Life Insurance

Term Insurance

Coverage

Whole life (up to 100 years).

Up to specified term mentioned in policy bond.

Maturity benefits

Yes

No

Premium cost

Generally higher than term plans

Generally lower than term plans

Can Policy be Surrendered?

Yes

No

Can you avail loan?

Yes

No

 

Life insurance claims process

There are two primary types of claims process in life insurance, they are death benefit claims process and maturity benefit claims process. We will discuss both types below.

Death benefit claims process

This process is to be followed when the policyholder passes away and the nominee makes the claim.

Step 1: Intimate the insurance company

The intimation about the policyholder’s demise should be made immediately to the insurance company or your agent. Please ensure that there is no delay in this intimation.

Step 2: Fill up the claim intimation form

The nominee will now need to fill up the claim intimation form with the correct information. The following information is usually requested in the form:

  • Date of death
  • Cause of death
  • Age of policyholder
  • Place of death

Step 3: Attach all required documents with the form

The following documents are usually requested by the insurance company:

  • Death certificate
  • Policy bond
  • Admission and discharge summary
  • FIR (if police case)
  • Post mortem report (if necessary)
  • Nominee ID and address proof
  • Canceled check of nominee’s bank account

The insurance company can also demand additional documents that one must present at the earliest.

Maturity benefit claims process

This is where the policyholder has survived the policy term and wants to claim the maturity benefit himself.

Step 1: Intimate the insurance company

First, the policyholder will need to intimate the insurance company about the policy maturity. He can also intimate his insurance agent.

Step 2: Fill-up and sign discharge voucher

The policyholder will need to duly fill and sign the discharge voucher. This voucher acts as a receipt. After filling this voucher, he will need to send it to the insurance company.

Step 3: Attach relevant documents with the discharge voucher

The following documents generally need to be sent to the insurance company along with the discharge voucher:

  • Policyholder ID and address proof
  • Original policy bond
  • A canceled check or copy of the first page of the passbook

Popular Life Insurance Companies and their comparisons

NameClaim Settlement RatioClaims PassedClaims rejected
Max Life Insurance99.22%15342120
HDFC Life99.07%1250954
Exide Life98.15%340426
Tata AIA99.06%295428
Canara HSBC OBC98.12%125222
Bajaj Allianz98.02%11887237
ICICI Prudential97.84%11212153
Reliance Nippon98.12%7866149
Aegon Life98.01%3447

Source: IRDA Annual report of 2019-20.

Frequently asked questions about life insurance

  • What is a life insurance policy?

    A life insurance policy is a contract of indemnity between a life insurance company and the insured. The life insurance company provides protection to the insured in exchange for regular payments called premiums.

  • What factors affect life insurance premium?

    The following facts affect the premium cost of a life insurance policy:

    • Age
    • Location
    • Health
    • Pre-existing condition (if any)
  • What are the types of life insurance?

    Life insurance is generally classified into the following:

    • Whole life insurance
    • Term insurance
    • Money back life insurance
    • ULIP
    • Premium return plans
    • Retirement policies
    • Child life insurance

     

     

  • Do I need to take accidental cover?

    There are certain life insurance policies that provide you accidental coverage in built. That being said, you should confirm this with the company before purchasing the plan. If not, you can buy an additional accidental ad-on cover.

  • Are you looking to buy a life insurance policy for yourself? Look no further, reach out to us.

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