Life insurance is essentially an arrangement between an insurance policy provider who guarantees compensation to the policyholder in the event of loss of life in return for premium payments.
Typically, in a life insurance policy, the one named as the policy beneficiary receives a fixed sum from the insurer in case of the policyholder’s loss of life. Essentially, such a policy plan aims at helping individuals to secure the financial standing of their family and ensure they lead a financially independent life even in their absence.
As more people are becoming aware of financial planning, they are working toward securing their future. The market is filled with several life insurance plans with varying features that help individuals meet their varying needs.
While the availability of options allows one to choose an insurance plan that suits their requirements, it also confuses them. This is why it is important to become familiar with the policy’s basics first to understand what they need from such a plan.
On that note, let’s learn more about what is life insurance policy in general to give you a headstart about the same.
Benefits of Life Insurance Policy
A good life insurance policy comes with several features and benefits. The most important benefits of the same are discussed below to help you understand why you need an insurance policy.
- Risk coverage
Life insurance offers risk coverage which is paid as monetary compensation against the premium paid by the policyholder.
- Specific plans for specific needs
Leading Insurance companies in India offer individuals different plans that suit their interests and needs. Generally, plans with a higher premium tend to offer more coverage and other benefits.
- Coverage for health expense
Some life insurance policies also cover health expenses, such as critical illness coverage and hospitalization charges. When selecting a plan, make sure to check what is life insurance coverage to understand if the plan would meet your requirements.
- Helps to build a corpus
Life insurance policy helps build a corpus that the policyholder can access at the end of the plan’s maturity period or term period.
- Guaranteed payment
A life insurance policy extends a guaranteed payment or sum assured, which is paid in the event of an unforeseen situation to the beneficiary of the policy plan.
- Loan facility
Leading insurance providers offer policyholders the option to take out a loan against the paid premium. However, such a feature is available only on certain insurance plans.
- Tax Benefits
Under Section 80C of the Income Tax Act, a Life insurance policy premium is eligible for tax deductions. This allows policyholders to protect their funds and helps build a corpus.
Depending on one’s needs and requirements, one can choose a life insurance policy and streamline their financial goals accordingly.
Types of Life Insurance Plans
These are the types of life insurance policy plans one should know about –
- Term Insurance Plan
Term insurance policies come with a fixed term or tenure like 10, 15, or 20 years. Typically, they don’t accompany cash value, so the policies don’t extend any cash benefits. This makes them comparatively cheaper, and the benefit becomes accessible in the event of the insured event. However, comparing term plan coverage is crucial to make an informed choice.
- Endowment Policy
Unlike a term policy, endowment plans come with additional benefits where the policyholder receives a lump sum amount of money if they survive until the policy’s maturity date.
- Unit Linked Insurance Plan
This insurance plan allows policyholders to build wealth and offers life security. The premiums paid are bifurcated toward life insurance and for building wealth. Unit-linked insurance plans allow policyholders to withdraw money partially.
- Money Back Policy
A money-back policy extends several survival benefits, which are extended proportionately to policyholders over the policy term. However, besides that, it is mostly similar to an endowment policy.
- Whole Life Policy
This insurance policy extends coverage for the whole life of the policyholder/insured. It also offers a survival benefit. The policyholder also has the option to withdraw partially from the sum insured, and they can also borrow funds against it.
- Annuity or Pension Plan
In this policy, a sum of money is collected as a premium which is accumulated as assets and layers distributed to the insured as income. The same is disturbed either as an annuity or as a lump sum, depending on the insured’s preference.
Individuals who intend to avail of a life insurance policy should also know about the claim settlement process to streamline the same more accurately.
Claim Settlement Process
In the occurrence of an unwarranted insured event like death or accident, the beneficiary must raise a claim in front of the insurance provider. To intimate the same, they need to fill out a claim form featuring key details such as cause of death and date and place of death.
Once the claim intimation is submitted, the insurance provider may ask for additional information and documentation, which may include a certificate of death, insurance policy copy, legal evidence of title if a beneficiary wasn’t named, and deeds of assignment. Typically, the insurance policy provider verifies the claim to settle it.
Points to weigh in for a Life Insurance
When looking for a good insurance policy in India, weigh in these pointers –
Compare the features, benefits, and terms of a claim of the leading insurance policies in India before opting for the same. A thorough term plan compare in advance will help you for better understanding. This will help you make an informed choice that benefits you and enables you to save a substantial amount of money.
- Read the terms and conditions
It is important to read the terms and conditions of a life insurance plan before selecting it. The finer prints contain key information about a policy that can help understand what to expect when raising a claim and how the same can help the individuals.
- Check the lock-in period
Notably, certain life insurance policies come with a lock-in period. The shorter the lock-in period, the better it is for a policyholder. This is because, often, individuals pick a policy plan in haste and later realize it is not what they expected to get in the first place. A shorter lock-in period enables them to return the policy and avail of another which suits them better. Notably, the lock-in period tends to vary among insurance providers.
- Check premium payment options
Leading life insurance providers extend premium payment options which allow individuals to pay the same on an annual, semi-annual, monthly, or quarterly basis. Besides these, find out if the provider allows Electronic Check System payment so that you can schedule your payments for auto debits and not miss out on the same.
Once you have picked a policy, make sure to remain transparent about your medical and personal history, which may be deemed crucial by the insurance provider. Any kind of misinformation can affect the claim settlement process. Hence make sure to remain transparent about the same throughout.