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What is Life Insurance?

Life Insurance is a much uncomplicated concept – you basically buy a policy that offers your beneficiary or beneficiaries a compensation when you are no more. However, certain decisions like the kind of life insurance policy to buy, the amount of death benefit and the premium you pay for your policy might be complex. So, life insurance policies offer a financial sense of peace to your family in your absence. It provides them an amount in a lump sum or in installments to take care of their finances or to pay for your unpaid bank loans or debts.

Key Features of Life Insurance Policies

Long Term Saving
Life insurance helps you for saving and building your wealth. It is a systematic way to safeguard you financially and take care of your future plans like a child’s education or marriage etc. Therefore, you get the dual benefits of Savings as well as Protection.
Life Stage Specific Planning
Life insurance offers plans customized for different stages of life. Every family has certain goals for which a lot of planning is required. These goals may include planning for your kid’s education, buying a house, planning funds for your retirement, etc.
Life Cover
The primary and the most important advantage of a life insurance policy is providing a life cover. The insurance company is liable to pay the life cover to your nominee in case of any unfortunate event. This life cover ensures to keep you and your family secured always in an unfortunate event.
Tax Saving
The premiums that you pay for your life insurance plan gets you - A tax exemption U/S 80C, 80CC, 80CCE up to Rs. 1.5 lakh and U/S 10 (10D) for amounts received under life - Under Section 80D, tax exemption for Self, Spouse and dependent children Up to Rs. 25,000; for parents up to Rs. 25,000 and Senior Citizen Parents up to Rs. 30,000

Types of Life Insurance Plans

There are various types of life insurance policies. They are mentioned below:

Term Life Insurance

Term insurance is the simplest and affordable type of life insurance cover. They basically provide financial aid for a specified period only. It offers your beneficiaries an amount in lump sum or monthly or a combination of both once you are gone. But, term insurance doesn’t offer any paybacks, if you survive the term.

For example, The Sharma siblings Ajay and Vijay bought term plans in December 1985 with life covers of Rs. 1 crore each with a policy term of 30 years. They paid the premiums on time for the entire term. In 2010, Ajay passed away, leaving behind loads and loads of bank loan’s. But his wife (nominee) provided the necessary documents for the claim settlement and received the entire life cover worth 1 crore.

On the other hand, Vijay outlived the policy term. He was upset that he did not get any benefit from the term plan for which he had paid the premiums regularly. However, the reason you should buy a term plan is to get a larger coverage at a minimal premium. This would provide financial security for your beloved family.



Endowment Plans

This type of life insurance plans offers both insurance as well as investment benefits. Endowment plans allocate certain value towards the sum assured, while the balance value is invested in asset markets i.e. debt and equities. Here, bonuses are also declared periodically either on maturity of the policy or after the death of the insured. A lump sum amount is paid to the beneficiary on the death of the insured or after the specified duration, whichever is earlier.

For example: Rohit bought an endowment plan for tenure of 30 years for a sum assured of Rs. 1 crore. Rohit survives the entire tenure of 30 years and therefore the insurance company pays him the maturity benefit, i.e. the entire sum assured of Rs. 1 crore and the accumulated bonus (if any). But, if Rohit doesn’t survive the policy term, the nominee would receive the sum assured (as death benefit) of Rs. 1 crore (Plus Bonus (if any) and the policy will be terminated.

Unit Linked Plans (ULIPs)

In this type of life insurance, a certain portion of the premium is paid towards the life cover of the insured while the balance amount is invested in equities and debts. Market volatility is completely responsible for the investment portion of the unit linked plans and therefore inculcates a habit of saving in a person.

For example, Amit bought a ULIP for 20 years with an annual premium of Rs. 20,000. The plan would fetch him a cover of Rs. 2 lakh (10 times of Rs. 20,000). Post deduction of charges, say Rs. 5,000, the balance amount of Rs. 15,000 would be invested in a fund. Suppose the NAV of the fund is Rs. 10, Amit will get 1500 units (15000/10) of the fund. The value of your fund will also increase if the NAV increases and would decrease if the NAV decreases.

Money Back Life Insurance

In the Money Back Life Insurance policies, a periodic payment is made to the insured only if he is alive as a survival benefit. However, on death of the insured, the insurance company pays the entire sum assured along with the survival benefit.

For example, Rita bought a money back life insurance plan for a term of 20 years and a sum assured of Rs.5 lakh. She would get 15% of the total sum assured after the 5th, 10th and 15th years of the policy term. In short, she would get 60% of the sum assured as the survival benefit and 40% of the sum assured on maturity.

Whole Life Insurance

Here, a dual benefit of insurance, as well as an investment, is offered. An insurance cover for 100 years or for the whole life of the insured, whichever is earlier is provided by the whole life insurance policies. The nominee or the beneficiary is also paid a bonus that is calculated on the total sum assured. This amount is paid only after the death of the insured.

For example, Shilpa got a whole life insurance plan with a sum assured of Rs. 1 crore for a term of 20 years. She pays an annual premium of Rs. 1 lakh regularly. In case of any critical illness, Shilpa would get a certain amount and the future premiums would be waived off. In case of death, the nominee would be eligible to get compensation too.

Why Life Insurance is Necessary?

Apart from providing financial aid to the insured’s family, life insurance also offers the below benefits that make it a necessity to buy:
  • Certainty
    Certainty

    Life insurance offers a peace of mind during any uncertainties such as critical illness or death. The funds paid by the insurer would take care of your financial goals in your absence.

  • Tax exemption
    Tax exemption

    You can avail tax benefits under Section 10 (10D) of the Income Tax Act for the claim received. Additionally, you are eligible for tax exemptions under Section 80C for the premiums paid.

  • Retirement plans
    Retirement plans

    It offers you retirement plans to breathe a sigh of relief. It helps you build a corpus for your retirement apart from offering a life cover and offers lump sum or monthly payouts & annuities.

  • Encourages savings
    Encourages savings

    Usually, life insurance policies are bought with a specified motive. These motives might include, child’s education or marriage, etc. A person gets discouraged from utilizing these funds for any other motive. Therefore, the corpus of the individual increases.

Consider these before Buying a Life Insurance Policy

Buying a life insurance policy is not really a big deal. Because no one wants to unnecessarily pay a bomb for the type of policy they want to buy or purchase a policy that is actually not as per their requirement.

The below things would help you decide what exactly you should look for in a life insurance policy:

Review your life insurance requirements timely

Analyze and evaluate your life insurance requirements and review your policy on time. Certain changes like marriage, an addition of a family member, job change or demotion etc. calls out for a necessity to re-evaluate your insurance needs.

Analyze your coverage

The amount of income you offer to your family members who are dependent on you, your loans and financial expenses would help you to know your coverage better. Based on this, you can decide on the coverage you would need to cover your family for your financial liabilities in your absence.

Ensure your capacity for payments of the premium

Ensure your capacity to pay the premiums. This is because, the premiums might increase and in the future, you might not be in a position to pay the premiums.

Compare the quotes with different insurers

Before finalizing on a particular insurance policy, ensure that you compare the quotes with different insurers. This would give you a scope to narrow down your search as per your requirement post comparing the quotes, features, benefits etc. of different insurers.

Read your policy carefully

Reading your policy document is very important. Not everything is covered in a life insurance policy. There are exclusions too. Therefore, knowing what is not covered is equally important to know along with knowing what is covered!

Don’t jump for riders unnecessary

If you are not happy with your basic life insurance policy, you may consider buying riders that would fulfill all your health requirements. However, be wise and choose the riders. Do not jump for them if not required.

How to Choose the Best Life Insurance Plan

The below steps would help you find the best life insurance policy in India:

Analyze your insurance need

Always buy insurance with an objective. If you don’t have any reason to buy, it’s better not to buy simply because you may end up buying an unwanted product. For instance, if you have no dependents, you may simply opt for a mediclaim instead of a life insurance policy.

Number of dependents

If you are the only sole earner of the family, you should buy a life insurance plan. This is because your dependent family should not suffer due to sudden income loss after you are gone.

Opt for term plans

It is advisable to opt for insurance plans to provide your family a financial help during any uncertainties like death or critical illness, etc. Term insurance is advisable to fulfill these conditions.

Know the coverage amount

Once you know the need and type of policy you wish to opt for, determining the coverage amount becomes a bit too complicated. This is because no one wants to remain under-insured. It is advisable to opt for a minimum sum assured of 8-10 times of your gross annual income.

Research the insurance company you opt for

Always check the claim settlement ratio of the insurance company you wish to buy a life insurance plan from. This is because you will know the worth of the insurance company that would help your beloved family to settle the claims in your absence.

Reveal all the details to the insurance company

Many times insurance companies reject the claims with reasons as silly as correct information not provided at the time of filling the proposal form. Giving true information about the pre-existing diseases, smoking habits, etc. would help you from losing any policy benefits and smooth claim settlement.

Buy at a younger age

It is good to start early for a life insurance plan. This is because higher the age, higher would be the premium. Also, the death chances are less when you are young. You are also more likely to have problems with increasing age.

Watch out your outstanding liabilities

Before opting for a life insurance, watch out for your outstanding liabilities like car loan, home loan etc. This is because you would know what coverage to opt for depending upon the outstanding debts.

How is your Life Insurance Premium Determined?

Age

Your premiums would be lower if you buy a life insurance plan at a younger age. With your increasing age, your premiums also increases and also the insurer’s level of risk. So, don’t wait till you grey, apply today!

Gender

Research says that women generally live longer than men. Which means insurance companies find men more risky than the women when it comes to life insurance claims. Therefore, their premiums too are slightly lower than the men.

Smoking habits

Insurance companies usually calculate the premiums based on risk factors like your smoking, snuffing and drinking habits. This includes chewing tobacco and other intoxicating stuff.

Duration of coverage

The longer the duration of your coverage, the greater is the risk undertaken by the insurance company. Short-term life insurance plans have lower premiums than long-term life insurance plans. Though, short term life insurance has lower premium than long term life insurance policies, the coverage/ policy term offered is also lower. Plan for a cover that protects for a longer duration.

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What are the Exclusions in a Life Insurance Plan?

A life insurance agreement between the insurer and the insured would pay the sum assured when the insured pays the premium regularly. This would, however, happen only during an occurrence of an insured event. However, not anything & everything are covered in a life insurance plan. The insurance company would investigate in case the death occurs in an unnatural way. The sum assured is not paid if death occurs due to the below reasons:

  • Consumption of drugs, alcohol or any intoxicated stuff
  • Participation in any dangerous activity
  • Participation in a criminal act
  • Due to war
  • Due to pre-existing diseases
  • Due to pregnancy or childbirth
  • Due to self-inflicted injuries or suicide
  • Excessive smoking leading to lifestyle diseases

Life Insurance Claim Process

Death Claim

If you pass away during the policy term (the policy is yet to be matured), then your nominee can claim for your life insurance policy. This claim is a “death claim” or a “life insurance claim”. During a death claim, your nominee or your family member should intimate the claim by calling Coverfox.com.

There can be an early death or a non-early death. It is completely based on the time since the policy was bought. An early death is where you die within three years from the policy commencement date. Your nominee or the beneficiary will have to approach Coverfox.com or the insurance company and fill the claim intimation form.

The below documents would be required:

  • Completely filled claim form
  • Death certificate
  • Nominees id proof
  • Age proof of the policyholder
  • Life insurance policy details
  • Assignment deeds
  • Legal evidence of title in case the policy is not nominated
  • Medical reports and doctors certificate
  • Post-mortem report
  • Police inquiry report

Document Checklist - Life Insurance Policy

Natural Death

The below documents needs to be presented during a natural death claim:

  • Completely filled in Claim settlement form
  • Original death certificate issued by the local authority
  • Copy of medical reports, death certificate, admission notes, test results, discharge summary, etc.
  • Policyholders age and identity proof
  • Claimants age and identity proof
  • Proof of the bank account of the claimant
  • Proof of the policyholders current address

Accidental or Unnatural Death (Including Suicide)

The nominee or the relative should intimate the claim by calling Coverfox.com or the insurance company. The below documents need to be presented for a hassle free claim:

  • Completely filled Accidental Death benefit form
  • Death certificate
  • Police FIR copy
  • Medical or the doctors report confirming the cause of death
  • A statement mentioning the date, location and situation of the accident occurred
  • Proof of identity and relationship of the beneficiary

Accidental Disability and Dismemberment Claim

The below documentation needs to be presented for processing the claim:

  • Original policy copy
  • Medical records like investigation reports, discharge summary, etc.
  • Policyholders age proof and identity proof
  • Claimants photo and identity proof
  • Bank account details of the claimant
  • Address proof of the policy holder

Critical Illness

The below documentation needs to be presented for processing the claim:

  • Original policy copy
  • Medical records like investigation reports, discharge summary, etc.
  • Policyholders age proof and identity proof
  • Claimants photo and identity proof
  • Bank account details of the claimant
  • Address proof of the policy holder

Terminal Illness

The below documentation needs to be presented for processing the claim:

  • Original policy copy
  • Medical records like investigation reports, discharge summary, etc.
  • Policyholders age proof and identity proof
  • Claimants photo and identity proof
  • Bank account details of the claimant
  • Address proof of the policy holder

Waiver of Premium

The below documentation needs to be presented for processing the claim:

  • Original policy copy
  • Medical records like investigation reports, discharge summary, etc.
  • Policyholders age proof and identity proof
  • Claimants photo and identity proof
  • Bank account details of the claimant
  • Address proof of the policy holder

The insurance company would investigate the genuineness of the claim and respond to the settlement accordingly. In case of incomplete documentation, the insurance company would raise a requirement and inform the insured’s nominee.

Life Insurance Company Claim Settlement Ratio

Life Insurance CompanyAnnual New Business PremiumTotal Values of Claim SettledAverage Value of claimClaim Settlement Ratio
LICRs. 2,64,975 croreRs. 9,690 croresRs. 1.30 lakhs98%
Max LifeRs. 6,970 croresRs. 261 croresRs. 2.90 lakhs97%
Tata AIA LifeRs. 1,731 croresRs. 87 croresRs. 2.70 lakhs97%
ICICI Prudential LifeRs. 4,782 croresRs. 406 croresRs. 3.80 lakhs96%
Aegon LifeRs. 336 croresRs. 40 croresRs. 7.90 lakhs95%
HDFC LifeRs. 7,705 croresRs. 300 croresRs. 2.50 lakhs95%
Reliance LifeRs. 3,070 croresRs. 220 croresRs. 1.60 lakhs94%
SBI LifeRs. 8,930 croresRs. 390 croresRs. 2.60 lakhs93%
Canara HSBC LifeRs. 734 croresRs. 30 croresRs. 5.70 lakhs93%
Bajaj Allianz LifeRs. 4,166 croresRs. 352 croresRs. 2.10 lakhs91%
Sahara LifeRs. 146 croresRs. 7 croresRs. 1.00 lakhs90%
Future Generali LifeRs. 510 croresRs. 30 croresRs. 1.90 lakhs90%
Exide LifeRs. 1,835 croresRs. 52 croresRs. 1.80 lakhs89%
Kotak LifeRs. 2,674 croresRs. 94 croresRs. 3.80 lakhs89%
Birla SunlifeRs. 2,344 croresRs. 216 croresRs. 3.40 lakhs89%
PNB MetlifeRs. 1,905 croresRs. 125 croresRs. 4.70 lakhs85%
Edelweiss Tokio LifeRs. 251 croresRs. 14 croresRs. 11.80 lakhs85%
IDBI Federal LifeRs. 950 croresRs. 43 croresRs. 4.70 lakhs85%
DHFL PramericaRs. 858 croresRs. 14 croresRs. 3.00 lakhs84%
Aviva LifeRs. 883 croresRs. 101 croresRs. 8.10 lakhs82%
Star Union Dai-ichi LifeRs. 887 croresRs. 33 croresRs. 2.90 lakhs81%
Bharti Axa LifeRs. 1,043 croresRs. 50 croresRs. 5.00 lakhs80%
IndiaFirst LifeRs. 1,425 croresRs. 41 croresRs. 3.00 lakhs72%
Shriram LifeRs. 964 croresRs. 42 croresRs. 2.80 lakhs60%

"Source: IRDA Annual Report 2015-16"