Features and Benefits of Life Insurance in India

2024-06-23

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The average penetration and density of life insurance in India is a measly 2.76%. There have been improvements in this arena but overall the growth has been rather slow in India. Not many people are aware of the benefits of life insurance and the numbers for penetration are an indicator of the same.

Accidents and mishaps are strong indicators of how fragile human life can be and how we need to insure our lives systemically. It is an important tool for providing an individual's family with safety and security. It acts as a protective cover to safeguard the insured's dependents. In the event individuals do not insure their lives, their dependents end up facing the tragic loss of their loved one along with a whole host of liabilities such as rent, loans, EMI's and child services.

Life insurance is crucial for families to feel security and a sense of confidence to continue their lives without losing their everyday stability. The objectives of life insurance, such as providing safety and security to your dependents, underscore its importance. To help understand the key features and benefits of life insurance, here's a quick overview.

Key Takeaways

Life insurance secures your family’s future by covering expenses like EMIs, rent, and education during tough times.
Understanding nominees, insured details, and claim settlement ratios ensures smooth payouts and hassle-free policy management.
Plans like ULIPs help build wealth while offering life cover and supporting retirement, education, or property goals.
Evaluate needs, compare plans, and ensure timely premium payments to choose the best life insurance for your goals.
Riders enhance coverage, while premiums offer tax benefits under Section 80C, improving your financial security.

What is Life Insurance and Why is it Important?

Life insurance is a financial contract between you and the insurance provider. It is designed to offer your loved ones financial protection in case of the policyholder’s unfortunate demise. By paying regular premiums, you ensure that your family receives a lump sum (called the death benefit) in case of an unexpected event during the policy term.

In fact, more than just a safety net; think of it as a crucial tool to secure your family’s financial stability and future goals. Understanding the features of life insurance can help you make informed decisions about the right coverage for your needs. Other than financial security and peace of mind, here’s what a life insurance plan offers:

1. Income Replacement

If you are the primary earner, your income loss can create financial stress in the family. Life insurance helps replace this lost income, ensuring your dependents can meet daily expenses and maintain their standard of living.

2. Debt Repayment

Unpaid loans, debts, or credit card dues can significantly create a financial burden. Here, life insurance proceeds can help clear these debts, preventing your loved ones from facing financial stress.

3. Child’s Education and Future Planning

One of the key features of life insurance is its role in securing your child’s educational future. The coverage benefit can fund school fees, higher education, or other important milestones.

4. Wealth Creation with Savings

Certain life insurance plans offer maturity benefits, combining protection with savings. These plans help accumulate wealth over time, ensuring you have funds for future goals like buying a home, starting a business, or retirement planning.

5. Tax Benefits

Life insurance premiums are eligible for tax deductions under Section 80C of the Income Tax Act, making it a tax-efficient way to secure your family’s future. The death or coverage benefit remains tax-free under Section 10(10D).

Features of Life Insurance Plans

The numerous features of a life insurance plan cater to an individual's diverse needs. Some of them include:

Sum Assured: The sum assured is the guaranteed amount that the insurance company pays to the nominee or beneficiary upon the insured's death. You can choose the sum assured based on your financial needs and future goals, ensuring adequate coverage for your family's financial stability.
Policy Term: The policy term defines the duration for which the insurance coverage remains in effect. Depending on the selected policy, it can vary from a few years to several decades. Longer policy terms provide extended protection and may include additional benefits like maturity payouts in certain types of policies.
Premium Payment: Premiums are periodic payments the policyholder makes to the insurance company in exchange for insurance coverage. They can be made monthly, quarterly, half-yearly, or annually, offering flexibility to suit your financial planning and budget.
Grace Period: The life insurance policyholders are granted a grace period following the premium due date, during which they can pay without incurring penalties. This period typically ranges from 15 to 30 days and is crucial for maintaining an active policy and ensuring uninterrupted coverage.
Convenience: Accessing life insurance in India has become remarkably convenient. You can now purchase life insurance policies online through insurance websites or aggregators, eliminating the need for physical office visits. This streamlined process not only saves time but also offers a hassle-free experience. Many insurers issue policies instantly with minimal documentation, ensuring swift coverage without delays.
Wealth Creation: Wealth creation is one of the important features of life insurance plan. Life insurance products such as Endowment Plans and Unit Linked Insurance Plans (ULIPs) in India provide more than just insurance coverage; they serve as effective savings instruments. The objectives of life insurance plan are to allow you to systematically accumulate a corpus over the policy term to meet various financial objectives such as funding education, securing retirement, or purchasing a home.

Nominee: A nominee is the person you designate to receive the life insurance payout in case of an unfortunate demise. Choosing a trusted nominee ensures your family’s financial needs are met without complications. To ensure the right person benefits from your policy, it’s crucial to update nominee details regularly, especially after major life events like marriage, childbirth, etc.
Insured: The individual receiving coverage by the policy is known as the insured. In the event of the insured’s unfortunate passing away during the policy term, the insurer pays the death benefit to the nominee. When selecting a life insurance plan, it’s important to assess the insured's age, health condition, and financial responsibilities to determine the appropriate coverage amount.
Claim Settlement Ratio: The Claim Settlement Ratio (CSR) reflects the percentage of claims successfully settled by an insurance company in a financial year. A higher ratio indicates a greater likelihood that your family’s claim will be processed smoothly and on time. Checking this ratio helps you choose a reliable insurer that ensures financial protection for your loved ones without delays.

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Advantages of Life Insurance Policy

Life insurance is a crucial financial product that offers several benefits to individuals and their families. It's not merely an insurance option, but it also helps generate wealth over time. Listed below are some of the advantages of life insurance policy:

Death Benefits: Life insurance enables individuals to protect themselves and their families in case anything unfortunate happens to the insurer's life. The insurer pays an amount equivalent to the sum assured as specified in the contract, along with applicable bonuses. This is known as the death benefit.
Wealth Creation through Investment Components: A few life insurance policies offer wealth creation benefits as well. In such life insurance plans, you can invest your premiums in different funds based on your risk appetite. These life insurance plans are excellent wealth builders in the long run.
Financial Security: The primary importance of life insurance policy is that it provides your family with long-term financial security. Life insurance policies provide a lump sum of money to financially support your family in the case of your early demise. Plans like the Canara HSBC Life Insurance Young Term Plan can look after the family’s regular expenses, future goals, and any ongoing debts after your death.
Loan Option: A cheaper loan facility is one of the important benefits of life insurance plans. You can use your life insurance policy with the investment part for a loan as well. Life insurance plans like Guaranteed Savings Plans, Money Back Plans, and Whole Life Insurance Policies acquire a cash value over time. You can borrow at a low rate of interest against this cash value.
Life Stage Planning: The benefits of life insurance grow as you progress through your life stages. Life stages refer to the multiple major stepping stones like marriage, childbirth, home purchase, retirement, etc. You can use life insurance plans to prepare for each of these life stages. For example, Term Insurance for protection, a Child Plan for a child’s marriage and education, ULIP for building wealth, a Pension Plan for retirement, etc.
Assured Income Benefit: Assured income is another important benefits of life insurance plan. iSelect Smart360 Term Plan offers a regular income payout option for your family after your early demise. Similarly, Life Insurance Plans can offer a long-term guaranteed income to you and your spouse.

Six Factors to Consider Before Buying a Life Insurance Policy:

Here is a list of the factors you should consider before buying a life insurance policy.

Sum Assured: The first and foremost thing to look at is the amount you will be covered through your insurance. You are required to choose the sum assured before the commencement of the policy. Assess all the future needs and expenses of your family members before deciding the sum assured amount.

Experts typically advise acquiring a life insurance policy that equals 10 to 15 times your annual income. For a more precise estimation, utilising an online life insurance coverage calculator is recommended.

Type of Policy: When choosing a life insurance policy, it's essential to align your selection with your specific financial goals and needs. There are various types of life insurance policies, each catering to different objectives.
- Term life insurance is ideal if you're seeking substantial coverage at affordable premiums, even without maturity benefits.
- Endowment life insurance combines savings and life coverage into one plan, making it suitable if you want both benefits.
- A Unit Linked Insurance Plan (ULIP) is preferable if you aim to integrate investments with life insurance.
- Whole life insurance offers coverage until age 99, ensuring long-term security.
- If planning for your child's future milestones like education and marriage, a child insurance plan fits best.
- An annuity plan is suitable if you seek a life insurance policy that also provides retirement benefits.
- Assessing these options against your financial objectives will help you choose the most fitting policy.

Duration of the Policy: This is the time for your policy to be active. Life insurance policies come with different terms. They can range from 10 years to even covering for you till the age of 100. The longer the policy is, the lower your premium can be.

Ideally, it's important to choose a life insurance policy that remains in effect until your retirement at a minimum. This ensures that during your working years, your family can rely on your income to fulfil their financial needs. If something were to happen to you during this time, your life insurance serves as a safety net, providing financial protection for your loved ones.

Additional Benefits of the Life Insurance Policy: Be sure to take note of the benefits involved in the policy. These can be bonuses, riders, etc. Some of the riders include waiver of premium rider, accidental death benefit rider, critical illness rider, and more. Riders enhance the scope of the policy. Make sure that your policy contains these benefits before buying.

Flexibility: The life insurance policy should be flexible. These can be in the form of providing multiple payment options, freedom to choose the mode and duration of payments, etc. The more flexible a policy is the more it is easy for you to customise according to your own.

Terms and Conditions: Make sure you read the terms and conditions part associated with the policy thoroughly. There can be certain things that you might not be aware of or the agent did not communicate with you.

For example, examine the grace period provided for late premium payments. Determine if there is a waiting period required. Also, review other policy terms such as nomination procedures, loan availability, surrender charges, and the surrender value. Understanding these details is crucial for making an informed decision about the policy.

Claim Settlement: Last but not least, the claim settlement process of the insurer must be considered. Go through the process so that you know the steps involved to get the claim. Also, check the company’s claim settlement ratio.

Did You Know?

In the financial year 2020-21, the life insurance industry in India disbursed benefits amounting to ₹3.99 lakh crore. This sum represents 63.42% of the total gross

How to Choose the Right Life Insurance Plan?

Selecting the right life insurance plan is essential to ensure your family's financial security. By following these steps, you can make an informed decision that aligns with your needs and goals.

Evaluate Your Needs

Start by assessing your financial responsibilities, lifestyle, and long-term goals. Consider factors such as your family’s monthly expenses, outstanding debts, future education costs, and major milestones like marriage or retirement. Understanding your needs will help you determine the right coverage amount and policy type.

Research Carefully

Explore different types of life insurance plans, such as term insurance, whole life insurance, and savings-linked policies. Each plan offers unique benefits, so it's important to choose one that matches your financial objectives. Additionally, understanding the features of life insurance can help you identify key aspects like maturity benefits, premium flexibility, and payout options.

Compare Various Plans

Comparing multiple insurance providers ensures you find a policy that offers comprehensive coverage at a competitive premium. Look for important factors such as the Claim Settlement Ratio, customer reviews, and policy inclusions or exclusions. Using online tools like an investment calculator can simplify this process.

Get Your Policy

Once you've selected the right plan, carefully review the terms and conditions before finalising your purchase. Ensure all personal details, nominee information, and medical history are correctly documented to avoid future claim issues.

Pay Your Premium

Timely premium payments are crucial to keeping your life insurance policy active. Many insurers offer flexible payment options, which are monthly, quarterly, or annually. This, in turn, allows you to manage your budget effectively. Setting reminders or opting for auto-debit can help you stay consistent with your payments.

Life Insurance - Top Selling Plans

We bring you a collection of popular Canara HSBC life insurance plans. Forget the dusty brochures and endless offline visits! Dive into the features of our top-selling online insurance plans and buy the one that meets your goals and requirements. You and your wallet will be thankful in the future as we brighten up your financial future with these plans.

Family Shield: Enhanced Protection

iSelect Smart360 Term Plan

3 Plan options
Life cover till 99 years
Steady income benefit
Block your premium at inception

Start Young, Pay Less, Stay Secured

Young Term Plan

Life cover till 99 years
Coverage for spouse
Block your premium rate
Covers 40 critical illness

Fixed Returns, Zero Risks & Worries

iSelect Guaranteed Future Plus

4 Plan options
Life cover + Guaranteed benefits
Accidental death benefit
Premium protection cover

Wrapping Up

Life insurance serves as a critical safeguard against the uncertainties of life, alleviating the mental burden of what might happen to one's family in the event of an unexpected tragedy. The peace of mind it offers is invaluable, providing financial stability to cover expenses and maintain the family's lifestyle in case of the unexpected demise of the policyholder.

Thus, choosing a life insurance policy is not just a prudent decision but a proactive step towards securing the future of loved ones. Additionally, policies that offer maturity payouts contribute to capital accumulation or retirement savings, complemented by potential tax benefits, further enhancing financial well-being.

Glossary:

Money Back Plan: A life insurance policy that returns a portion of the sum assured at regular intervals during the policy term, providing liquidity and meeting short to medium-term financial goals.
Guaranteed Income Plan: A type of life insurance plan that offers assured periodic payments to the insured or their family. It helps provide financial stability and meet the ongoing financial needs.
Assured Income: Regular payouts guaranteed by the insurance company to the policyholder or their beneficiaries, ensuring a steady stream of income over a specified period.

FAQs on Life Insurance Benefits

No. Riders are the additional benefits that enhance the scope of your base life insurance policy. Thus, you need to purchase a basic life insurance policy to add a rider. After you purchase the policy, you get the chance to choose among the riders. These do not work without insurance.

The returns that you get if you survive the policy’s term are known as maturity benefits. Though death benefits are available in every life insurance policy, the maturity benefit differs amongst policies. These depend on the type of policy you are buying.

Your life insurance plan's validity is based on the occurrence of the following events that are listed below:

When you have surpassed the term of your policy

When you die during the policy, and your family gets the claims

*In case you have opted for the premium funding benefit, the investment part of your policy will continue even after death.

You can add as many riders as the insurance company offers. Each rider is different and caters to a specific purpose. There is no limit on riders. However, note that each rider will increase your premium.

Life insurance plans are an absolute necessity today. It is a risk minimisation and protection tool that can help insured and their dependents in multiple ways while dealing with a variety of life events. By understanding the key features and benefits of a life insurance policy, you can make an informed decision.

Yes, life insurance primarily functions as a death benefit, providing a financial payout to designated beneficiaries upon the insured's death. It ensures their financial security and stability.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.