Life insurance is a contractual arrangement between the insurance company (insurer) and the insurance policyholder (insured). In this contract, the insurer promises to pay a definite amount to the insured or their dependents upon the loss of the insured’s life or upon reaching the maturity of the insurance policy, in return for the payment of a specified premium.
How Life Insurance can be useful
Life insurance can prove to be quite useful in the following ways:
- We all know that ‘Death is inevitable’. Life insurance is one of the best ways to provide financial security to the policy holder’s family upon the unexpected loss of his/her life.
- They are flexible i.e. there are various types of life insurance policies based on individual needs and preferences.
- Life insurance helps to make long-term savings that may be used for several purposes, such as purchasing a new home, funding children’s education, children’s marriage expenses, payment of debts, hospital bills, treatment of critical illness, and so on.
- Through life insurance policies, we can avail comprehensive tax benefits according to the Income Tax Act of 1961.
Types of Life Insurance
Life Insurance may be broadly divided into the following plans or policies:
1.Term Insurance
Life insurance plans that are purchased for a certain period or term (e.g.: 10 or 20 years). The beneficiary/ nominee will receive the insurance amount only upon the death of the insured during the term of the policy. Term insurance is pure life insurance plans as there are no maturity benefits or savings and hence these policies are cheaper (less premium is required).
2.Endowment Policy
Endowment policies are similar to term policy but with the difference, that endowment policies offer life coverage as well as maturity benefits. Apart from covering the life of the insured, the insured will also get the assured amount on the maturity of the policy if he/she survives. However, in endowment policies, the premium to be paid will be higher.
3.Whole Life Policy
These are life insurance plans that remain till the entire (‘whole’) life period of the policyholder whereas other life insurance plans expire upon a certain period. The whole life policy is usually for100 years. Even upon the death of the insured during the policy period, a certain amount will be paid to the nominee.
4.Money Back Policy
This insurance plan offers dual benefits of an insurance policy as well as an investment, ensuring that the policyholder earns an income (periodic pay-outs) apart from getting a lump sum in case of his/her demise. Generally, the policy is available in 20 years and 25 years of maturity period.
5.Unit-Linked Investment Plans (ULIPs)
Unit-Linked Investment Plans (ULIPs) are long term plans in which the premiums that the policyholder pays every year get invested in their choice of funds (equity/debt/balanced funds). This market-linked plan thus offers significant returns on the premiums paid towards the insurance policy.
6.Annuity or Pension Plan
Through annuity plans, a policyholder can have a guaranteed income throughout his life or for a particular period; whichever may be desired by the policyholder. The annuity plan helps you to meet your retirement goals in case you outlive your earned income. An annuity plan is not tax-free.
Major Insurance providers in India
The life insurance sector in India is a vast one with several insurance providers and a variety of life insurance policies. Hence it becomes necessary for us to evaluate and choose accordingly. Here are some of the prominent insurance providers in India:
- LIC (Life Insurance Corporation)
- ICICI Prudential Life Insurance
- SBI Life Insurance
- HDFC Standard Life Insurance
- Max Life Insurance
To conclude, it may be understood that life insurance must be an integral component of the financial planning of every individual. And, today, the world is facing the biggest challenge of the century- the novel coronavirus (COVID 19). India has also witnessed a sharp rise in its COVID-19 cases and associated deaths. In such unforeseen circumstances, the importance of life insurance and its benefits comes into the picture.
