Purchasing life insurance is one of the most crucial and beneficial financial decisions you can make. It not only provides benefits to the policyholder but also to the beneficiary of the policy in case of the sudden demise of the policyholder. One of the main features of life insurance is that it provides a death benefit to the family of the policy owner.
Despite the financial benefits offered by a life insurance policy, very few people know all of its important features that eventually leads to a misconception about this investment option. Here, you will get to know about these important features of life insurance policies that you must know before opting for the plan.
According to section 80C of the Income Tax Act, the premium amount paid for life insurance policies is not taxable. This benefit is applicable if the premium paid doesn’t exceed 10% of the sum assured for policies taken before April 1st, 2012, and 20% for policies taken after April 1st, 2012.
Bonus is the additional amount that a policy owner receives when the policy matures. It is given when the insurance company makes a surplus profit. However, only participatory or ‘with profit’ policies are eligible for such bonuses.
A life insurance policy can be used as collateral for a loan. To avail of this loan, the policy is required to have a surrender value. A loan of 85% to 90% of the policy’s surrender value can be granted. Loans against policies also provide the additional benefit of low-interest rates.
A beneficiary is a person who receives the assured benefits of the policy if the policyholder dies. In case of the demise of the policyholder, his/her family can avail of the assured amount of the policy. One has the option to choose a primary and secondary beneficiary. If the primary beneficiary couldn’t benefit from the policy due to some reasons, the secondary beneficiary is given the benefit.
The periodicity of the premium of the life insurance policy varies accordingly. One has the option to pay the premium annually, half-yearly, quarterly, and even monthly. The flexibility in the premium period determines the cost of servicing of the policy like collection, processing, and administration cost. The higher the number of times one pays, the higher will be the cost of service.
Riders are one of the most important features of life insurance policies. These are additional benefits that a policyholder can avail along with the existing policy, thereby expanding its insurance coverage. Some of the most common riders include critical illness, permanent and partial disability, accidental death, income benefit, and waiver of premium.
Life insurance converts the uncertainty of life into financial security for you and your loved ones. The various features of life insurance make it an effective and adequate method of supporting the family even after death. Life insurance provides risk coverage, guaranteed income, and can also serve to cover health expenses. With additional riders, policyholders can make the most out of their life insurance policies.
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