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Life Insurance Benefits

What is life insurance?

Life insurance is a financial contract between the individual and the insurance company, where the insurer provides an assured policy coverage to the policyholder in exchange for the monthly payments as premiums as accepted by the policyholder. As the name suggests, it ensures lifelong financial safety to the insured by providing the death benefit to the beneficiaries of the policy in case of the demised of the insured person during the tenure of the policy or maturity benefit to the insured person if he/she survives the entire tenure of the policy.

How does life insurance work?

The workability of any policy depends on its crucial components; likewise, life insurance has these components too. It operates between the death benefit, premium, and a maturity benefit.

  • Death Benefit

    The death benefit is the amount of money that the insurance company pays to the beneficiaries mentioned in the policy after the insurer’s death. The death benefit paid to the nominee is equal to the total sum assured amount offered by the policy.

  • Premium

    Premium is the monthly or the yearly payable amount, which a policyholder pays to cover the purchased insurance. It revolves around the life expectancy of an individual and his paying capacity, differing with the covered risk amount.

  • Maturity Benefit

    Maturity benefit or survival benefit is the total sum assured amount offered to the policyholder after the completion of the policy tenure, in case he/she survives the entire tenure of the policy.

Types of Life Insurance Policies

to fulfill the requirements of the insurance seekers, there is an extensive range of life insurance policies available in the market.

let’s take a look at it:

Life Insurance Policy Plan Features
Term Plan
  • Pure protection plan, which provides insurance coverage over a specified period of time.
  • The provided death benefit to the beneficiary of the policy in case of the unfortunate demise of the insured person during the policy term.
  • Additional Riders are offered to enhance the insurance coverage of the policy as per the requirement of the insured.
ULIP
  • Along with the insurance, it offers investment benefits too.
  • The policyholders have the ease of investment, keeping in mind the risk appetite.
  • Offer policyholders the option to select the preferred investment option.
Whole Life Insurance Plan
  • It comes up with coverage for a lifetime.
  • It provides coverage of up to 100 years of age.
  • Once the premium payments are completed, the policyholder has the option of partial withdrawal.
Child Plans
  • Financial support for the parent shouldering responsibility at all stages.
  • Risk-Free future: In the absence of an earning parent, a child plan acts as an insured guide for crucial life phases.
Retirement Plans
  • Post Retirement financial security plan ensuring an independent life.
  • It comes up with a long term saving plan.
  • It helps in setting up a retirement goal.
  • Offers death benefit.
  • The plan offers annuity pay-out.
Money-Back Plans
  • It is an insurance cover with paid installments as survival benefits.
  • Offers regular returns as money back at specific intervals of time
Endowment Plans
  • Offers the combined benefit of insurance cum savings.
  • A long term financial planning instrument offering returns on investment at the time of maturity.

Benefits of Life Insurance

Eventualities can happen to anyone anytime. Thus it is very important to safeguard the financial future of your loved ones, and the best way to do so is to have a life insurance policy. As there are a plethora of benefits offered by the life insurance plan, here we have mentioned some of it:

The following points are some reasons why one should not delay or hesitate to renew their life insurance policies:

  • Life Insurance: Acts as an asset for loan collateral

    NBFCs (Non-Banking Financial Company), within the limitations of applicable terms and conditions, lend loans to a policyholder, based on the type of life insurance and surrender value opted by him. One thing that matters here the most is the loan amount, which plays an essential role in making the life insurance loan collateral.

    The opted loan amount is typically based on the percentage of the surrender value of the life policy, which can, at times, go up to 90%. But, to manage the risk well, there are a few companies that allow a loan up to 50% of the total premium amount to be paid by the policyholders.

  • Provides Protection Against Eventualities

    An opted life insurance policy offers you a smooth transition, which can make it act as a secured financial product. By getting appropriate insurance coverage the policyholder can protect the family against any type of eventualities. The death benefit offered by the life insurance policy is sufficient enough to take care of the liabilities of the policy. Also, it works as wealth creation in the long-term. The insurance buyers can choose to invest in term insurance plans as it provides higher insurance coverage at an affordable premium rate.

  • Assured income through annuities

    The retirement plans offered by life insurance policy not only provide insurance coverage to the family of the insured but also provides an opportunity to create wealth in the long-term so that they can live a secure life after retirement. Life insurance pension plans become the best instrument that offers steady pay-outs in the form of annuities. In simple terms, it acts as a source of pension during retirement.

  • A steady investment option

    It is more than just a plain instrument that offers an assured replacement at the loss of income but also acts as an investment that offers a significant return on the amount of the premium paid, during an active tenure of the policy. As per the choice of the policyholder, several life insurance plans offer considerable returns at the time of maturity. So, it offers dual protection by letting the buyer achieve investment goals and protecting the family from a sudden income loss.

  • Tax Benefits

    Tax Benefit offered by a life insurance policy makes it a lucrative deal for many policyholders.

  • Under Section 80C

    For paying the policy premium, a policyholder can avail tax benefit under Section 80C of the Indian Income Tax Act, 1961. The premium paid up to the maximum limit of Rs.1.5 lakh is eligible for tax exemption.

  • Under Section 10D

    The maturity proceeds are eligible for tax exemption under section 10(10D) of the IT Act.

  • Discount while paying online

    A payment mode chosen by an individual in many ways affects the premium of a life insurance policy. Moreover, the mechanism behind the discount is just that, the insurance company's administrative cost considerably cuts down, once the premium is paid online. Since paperwork is excluded, the entailing cost also gets excluded. At the same time, it eliminates the middlemen or an agent hefty commission from the insured, which he charges for offline buying and renewal. Since the discount varies from company to company, there is no fixed amount.

  • Payment periodicity related discount

    For premium payments, insurance companies offer various payment periodicities as per the feasibility of the policyholder, like opting for annually, half-yearly, quarterly, and monthly mode.

    Therefore, if a policyholder chooses to pay the premium in an annual model, the company uses it for investment purposes, which means more profit and benefit for the company. Once the mode opts, the discount is often already included in the charged premium rates.

  • The Business option

    It should be the businessman’s option as some life insurance company lends a helping hand to their policyholders who own a business. So, in case of the demise of the insured, his business partners can purchase the policyholder’s shares without much trouble. It is an agreement based option, where the stakeholders sign a bond, which let them own the policy, but binds them legally to pay the share price to the dependants of the demised.

    Every right policy can fix all wrongs. A mindful purchase of a life insurance policy plan can bring umpteen benefits at the disposal of the policyholder.

How to apply for a life insurance plan?

The underwriting for the life insurance plan is not that difficult a task. However, certain aspects should be considered before purchasing the policy. Comparing Quotes: To be able to get the best rates, one must compare the quotes online. by comparing the quotes, one can choose the right plan as per their requirement and suitability.

  • The Application: The application part entails all primary details, which will include primary information, health questions, and detailed information related to beneficiaries.
  • The Medical Exam: Once the primary application part is over, as per your convenience, a medical examination is scheduled. A nurse visits the individual and takes note of blood pressure, weight, and asks for blood and urine samples. Also, a set of basic questions are asked which the company feels important to know about.
  • The Underwriting: This is the lengthiest part of an application process in which the company ensures to look into each detail. Here, the application is reviewed, medical and personal history is being accessed. The insurance company analyses the risk factor. This process usually takes 3-6 weeks.
  • Final Decision: After the completion of the underwriting, the company comes up with the final decision.

Comparison at a glance

A detailed overview of different life insurance policy-plans with features is listed above. But, when it comes to comparison, an individual is advised to look through them from the prism of ideal offerings. These ideal offerings can be the term involved, death benefits, maturity benefits, premium costs, and the additional take away, which the insurance companies add to make it more lucrative.

Things to consider while buying the plan

  • The decision in terms of how long the coverage is needed.
  • Calculation of the needed life insurance through the DIME formula that is debt, income replacement, mortality, and education.
  • The objective should be such that one can use life insurance in his financial portfolio.
  • Choose the nominee of the policy carefully
  • Seek the help of a trusted advisor if needed.

FAQs

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