Here are some of the life insurance FAQs to help you gain a better understanding:
What is life insurance?
It is a contract between the policyholder and the life insurance company. The insurer promises to pay a designated sum of money called the life coverage amount or sum assured to the nominee in exchange for premiums. This is paid upon the death of the insured person to the nominee or maturity of the policy to the policy holder depending on the policy contract.
Why is life insurance necessary?
Life insurance is a necessity to ensure that your family finds adequate financial support in the event of your death.
You can add riders such as critical illness benefits, disability benefits etc., to enhance your coverage at nominal extra cost.
Some of the plans also offer maturity benefits which can be mapped to key financial milestones such as children's education, retirement etc.
How can I avail life insurance?
You can reach out to the insurer via their website, email, or phone and get one of the insurance advisor to help you with the process. You will have to fill out an application or proposal form, provide personal details, address, ID and Income proof, and undergo medical examination (if required) to avail of a life insurance policy.
Purchasing a life insurance plan can be done online as well by submitting your documents, filling out the proposal form, and making an online payment.
What is term life insurance?
It offers only death benefits to the beneficiary. There is no maturity benefit offered under these plans. If the life assured survives the policy term, there is no payout made under the policy. It is one of the most affordable and convenient form of life insurance.
However, a term plan variant offers maturity benefits called Term Plans with the Return of Premium option, but those are more expensive than the pure term plans.
How much life insurance do I need?
As a thumb rule, it is recommended that you have 10x of your annual income.1 However, you need to evaluate the requirement on a personalised basis based on the income, expense pattern, household requirement, number of dependents, key financial goals, debt obligations etc.
What are the factors that determine the premiums of life insurance policies?
The premium is a function of age, gender, lifestyle, occupation, sum assured, medical history, genealogy, medical condition/fitness etc., The older you are higher the premium. If you have a medical condition or history of lifestyle illnesses running in the family, then the premiums are likely to be high. The premium for an individual with a smoking habit is likely to be higher than that of an individual with a similar profile who is a non-smoker.
What options are available for premium payment?
Premium payments can be made annually, quarterly, semi-annually, or monthly as per your convenience. Some life insurance plans also have a one-time premium payment option as well.
What happens if I default on my premium payment?
A grace period of 30 days (for annual mode) or 15 days (for monthly mode) is allowed from the premium due date, you can make the premium payment within this grace period, and your policy will continue to provide the stipulated benefits. If the payment is not made within the grace period, the policy will be considered lapsed, and all the benefits under the policy will be lost.
If you intend to re-activate the policy, you will have to pay the revival premium and undergo the entire revival underwriting process, which could entail medical examination as well, depending on the tenure of the lapse, the total sum assured of the plan, etc.
What is the tax benefit from life insurance?
A tax benefit is available for the premium paid towards any life insurance plan upto Rs 1.5 lakhs for given financial year, under section 80C of the Income Tax Act 1961, subject to satisfaction of conditions mentioned therein. The death benefit is always tax-free in the hands of the nominee.
In fact, the surrender benefit or maturity benefit of the plan is also completely tax-free in the hands of the policyholder, u/s 10(10D) of the Income Tax Act, 1961, subject to the terms and conditions being fulfilled.
What type of riders is available in life insurance policies?
There are a variety of riders available such as Critical illness riders and accidental death benefit rider, among others, available for help to achieve comprehensive coverage. Critical illness benefit provides a sum assured upon diagnosis of critical illness that is covered under the policy. The premium paid towards this rider qualifies for tax benefit under section 80D of the Income Tax Act, 1961. Deduction of the same is available as under:
| Particulars | Family Amount (Rs) | Parents Amount (Rs) |
|---|
General deduction
| 25,000
| 25,000
|
Additional deduction, if anyone is Senior citizen
| 25,000
| 25,000
|
Maximum deduction available
| 50,000
| 50,000
|
Accident Death Benefit offers coverage against death due to an accident. The additional premium towards this rider qualifies under section 80C of Income tax India, 1961.
Purchasing a life insurance policy becomes much easier when you are clear about the basic queries. Hope this helps to resolve most of your queries so that you can embark on your journey towards opting for optimal coverage for yourself.
Note customer must consult with independent tax advisor before investment and before claiming any benefit in Income Tax Return.
How much does a life insurance policy cost?
The cost of a life insurance plan depends on your age, gender, income, lifestyle, coverage amount, policy term, and any riders you add.
How long does life insurance last?
Your life insurance lasts as long as your chosen term. For eg – whole life insurance is a type of life insurance policy that provides you with coverage for your entire lifetime, as long as the premiums are paid.
What are the types of Life Insurance plans?
There are Term plans, Endowment plans, ULIPs that offer life cover with market linked investment, Whole life plans that provide life insurance coverage for the entire lifetime of the life assured (usually upto 99 or 100 years of age of the life assured , depending on the Insurer and plan) , and Money-back plans with periodic payouts. Each of these has different features and benefits and suits different situations, including pure protection, savings, market linked investment etc. Compare plan features and benefits of life insurance to pick what suits you.
What is the right time to buy term life insurance?
The best time to buy is preferably in your 20s and 30s, when you usually have little to no health risks. Buying early locks in better term insurance coverage rates and keeps you protected for years. Waiting raises term insurance rates increase with age and risk.
What is the Accidental Death benefit rider?
The Accidental Death Benefit (ADB) is a rider that pays rider sum assured, along with the base sum assured, if death of the life assured occurs due to an accident. It adds safety on top of your base life insurance. Make sure to read the rider terms and conditions to avoid confusion at a later stage.
What is the Critical Illnessrider?
A critical illness rider gives a lump sum if you're diagnosed with a critical illness as mentioned in the rider. You can choose this rider when buying your life insurance policy for extra financial protection, if it is available with the plan you have chosen.
Can a minor be appointed as a nominee in life insurance?
You can name a minor as a nominee, but you must appoint an appointee to hold the benefit until they turn 18. Always include both the minor and an appointee in the nomination to avoid dealys during claim settlement .
Who is an appointee in life insurance?
An appointee is the person who holds the claim amount on behalf of a minor nominee until they turn 18. You select the appointee while filling out the policy form and provide their details.
Can a nomination be made when the life assured and the policyholder are different individuals?
Yes, nomination rules stay the same even if the policyholder (who pays) and life assured are different. The nominee is paid only if the life assured passes away during the policy term. If there are multiple nominees, always list nominee(s) and their shares. This avoids confusion during claim settlement..
What should I look for in an insurer before buying a life insurance plan?
Before buying a life insurance policy, it is always good to check the insurer's Claim Settlement Ratio or CSR. A CSR above 95% usually indicates that the insurer efficiently settles claims CSR shows what percentage of claims that were submitted in a year were settled by the Insurer.
