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Meaning of life Insurance (Understand the concept of life insurance)

So, you want to understand the meaning of life insurance? This article will talk about its concept, benefits, features, types, and more.

  • Meaning of life insurance
  • Features of life insurance
  • Benefits of life insurance
  • Types of life insurance
  • Companies that provide life insurance plans

Meaning of life insurance

In simple words, Life insurance is a contractual agreement between the insurance company and the insured, where the insurance company will be liable to pay a sum assured to the nominees or legal heirs of the insured in the event of policyholder’s demise. The insurance company provides this life coverage in exchange for a premium amount.

Features of life insurance

Now, let us talk about the features of a life insurance policy so that you can understand it better

Insured – The individual who is provided life coverage by the insurer is called an insured. After his/her demise, the insurance company will be liable to pay the sum assured to the nominees or legal heirs of the insured person.

 

Premium – A premium is a fee that the insured pays to the insurance company to obtain the benefit of a life cover. Maturity- Maturity is the period at which the policy term is completed and the life insurance contract concludes.

 

Sum assured – It is a pre-determined amount that the insurance company will have to pay to the insured’s family in the unfortunate event of his death.

 

Nominee– A nominee is an individual who is entitled to receive the sum assured. The nominee’s name and details will be mentioned in the policy contract by the insured individual. Usually, spouses, children, parents are taken as nominees in most cases.

 

Policy term – A policy term is a specified period of time during which the insurance company provides life coverage to the insured. The policy is said to be in force during this period.

 

Claim– In the unfortunate event of the insured’s demise, the nominees file a claim with the insurance company in order to receive the sum assured.

Benefits of life insurance

The purpose of life insurance is to financially protect your loved ones from the monetary loss that they may have to face in your absence. Let us look at some of the most important benefits of a life insurance policy.

Financial security– A life insurance policy will provide your loved ones financial safety from any kind of monetary loss that they may face in the event of your demise. A good life insurance plan can help your family repay any kind of financial liabilities such as personal loans, auto loans, home loans, etc.

 

Wealth creation – Certain life insurance policies such as ULIP policies offer the benefit of both life coverage as well as investment.
A certain portion of your premium will be used to provide you a life cover while the rest will be invested in debt and equity markets, depending on your risk appetite. Such plans not only provide you a life cover but also invests your money systematically and grows your corpus to beat inflation.

The sum assured along with the return from your investments will be paid to the loved ones of the policyholder in the event of his death.

 

Tax benefit – The premium paid towards your life insurance can be claimed for income tax deduction under Section 80C of the Income Tax Act, 1961. The premium paid for your life insurance is eligible to a maximum tax deduction of up to Rs.1.5 lakh. Also, any payouts received from the insurance company are tax-free.

 

Maturity benefit – Certain life insurance policies also provide you savings benefits. If the policyholder survives the policy period and no claims have been made, the total premium paid will be returned to the insured as savings benefit at the end of the policy term.

 

Loan facility – You can also avail of a loan against certain life insurance policies.

Types of life insurance plans

There are various types of life insurance policies. Let us discuss them in detail.

Term insurance plans

A Term insurance plan is a traditional and most basic plan. This plan provides a life cover to the insured for a specified policy term. In case of death of the insured during this policy term, the sum assured will be paid to the nominees of the policy.

Some term insurance plans also come with survival benefits. In such a case, if the policyholder survives during the policy term, he will receive a certain sum as a survival benefit.

Features of term insurance

  • Provides you a high life cover at an affordable premium
  • Provides coverage for a longer duration (up to 30-year policy term)

Whole life insurance

Whole life insurance provides coverage to the insured for the entirety of his life (generally up to 100 years of age).

Features of whole life insurance plans

  • Coverage is provided up to 100 years of age.
  • Premium under a whole life plan is generally paid for a limited period.
  • Whole life insurance plans come with different variants such as endowment assurance plans, money back plans, unit-linked plans, and more.

Unit-linked insurance plans

Unit-linked plans are also known as market-linked plans. It is a hybrid plan that provides you the benefit of life cover as well as investment returns. A part of your premium paid is used to provide you life coverage and the remaining is invested in debt/equity markets. The legal heir/nominee shall receive the assured sum as a death benefit if the policyholder dies during the policy term. On maturity of the policy, you will be paid the fund value which is equal to the premiums invested along with the returns generated by it over the term.

Features of ULIP

  • You can choose the type of investment fund to invest in according to your risk appetite.
  • You can withdraw your funds after the completion of 5 years of policy in certain plans.
  • You can switch from one investment fund to another.
  • Higher of the sum assured or fund value shall be paid to the nominee on the death of the policyholder. However, on maturity, the fund value will be paid.

Endowment assurance plans

Endowment assurance plans provide the benefit of a life cover along with guaranteed savings benefits. The policyholder will receive a lump sum amount if he/she survives until the maturity period of the policy, or the nominees shall receive the sum assured on the demise of the policyholder, whichever occurs first.

Features of endowment assurance plans

  • The life cover provided is relatively lower than other plans.
  • Coverage can be provided ranging from 10 years to 30 years

There are 2 types of Endowment Plans- Participating plans and Non-participating plans. The former earns a bonus will the latter plan does not.

Money Back Plan

Under this plan, the policyholder will receive a certain percentage of his sum assured at fixed intervals. This will provide the policyholder with stable financial resources along with the benefit of a life cover. In case of the death of the policyholder, the entire assured sum shall be paid to the nominee of the policyholder irrespective of the survival benefits paid earlier.

Features of money back plan

  • The tenure of a money-back plan ranges from 12- 15 years or 20-25 years.
  • The Money-back benefits can also be termed as survival benefits.
  • They are participating plans where the bonus is added.

Child insurance plan

Child insurance plans are designed to protect and safeguard your child’s future. Under this policy, life cover is provided until the end of the policy tenure. These plans also offer coverage to your child along with flexible payouts at important milestones during your child’s lifetime such as their 18th birthday or graduation, etc.

Not only that, if the insured parent dies during the policy term a death benefit is immediately paid to the child and the policy remains in force.

Features of child insurance plans

  • In case of the death of the insured parent, all premiums are waived off and the policy remains in force until its maturity date.
  • The insured can be a parent or a minor child, however, the primary policyholder will be the parent.
  • The child will become the policyholder when he turns 18 years of age and the policy will turn in his name.
  • Only parents of minor children are eligible for the plan.

Annuity plans/ pension plans

These plans are suitable for persons reaching the age of retirement and want to build a corpus for their life ahead. Under this plan, you can create a corpus for your retirement or avail lifelong income benefits from the accumulated sum. They are ideal plans for people looking to cater to their financial needs post-retirement.

Features of annuity/ pension plans

These plans come in 2 variants – a) Deferred annuity plans b) Immediate annuity plans

Under deferred annuity plans you choose a policy tenure and pay the premiums to generate your retirement corpus
Under immediate annuity plans, annuity payouts begin as soon as you buy the plan.

Life insurance riders

These are additional ride-on covers that you can buy along with the above-said policies to avail of better coverage benefits as per your needs. You will have to pay a little extra premium to avail the riders.

Features of life insurance riders

  • You can choose multiple riders on your base policy.
  • Riders have their own sum assured, lower or equal to the base life insurance policy.
  • They do not come with maturity benefit and come to for force when the specified event takes place.

Types of rider cover available

  • Critical illness rider
  • Hospital cash rider
  • Premium waiver rider
  • Accidental death and disability rider
  • Term rider

Name of insurance companies in India that provide life insurance

  • Life Insurance Corporation of India
  • Max Life Insurance Company Limited
  • HDFC Life Insurance Company Limited
  • ICICI Prudential Life Insurance Company Limited
  • Kotak Mahindra Life Insurance Company Limited
  • Aditya Birla Sun Life Insurance Company Limited
  • Exide Life Insurance Company Limited
  • Bajaj Allianz Life Insurance Company Limited
  • PNB MetLife India Insurance Company Limited
  • Reliance Nippon Life Insurance Company Limited
  • TATA AIA Life Insurance Company Limited
  • SBI Life Insurance Company Limited
  • Aviva Life Insurance Company Limited
  • Bharti AXA Life Insurance Company Limited
  • Future Generali India Life Insurance Company Limited
  • IDBI Federal Life Insurance Company Limited
  • Canara HSBC OBC Life Insurance Company Limited
  • Aegon Life Insurance Company Limited
  • Pramerica Life Insurance Company Limited
  • Star Union Dai-ichi Life Insurance Company Limited
  • IndiaFirst Life Insurance Company Limited
  • Edelweiss Tokio Life Insurance Company Limited

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