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How does a permanent life insurance policy work?

dateKnowledge Centre Team dateAugust 13, 2021 views214 Views
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When you plan for your future, one thing that does not come top-of-mind is the possibility of untimely death. What will happen to your family and loved ones if you die? It can be uncomfortable to plan for it in advance, but if you do so, you will do a lot of good to your family. To protect your family from every kind of situation, you need to take a Permanent Life Insurance Policy.

What is a permanent life insurance policy?

A permanent life insurance policy is a popular name given to whole life insurance plans in the USA. A whole life insurance plan is a type of insurance plan that provides you with death benefits as well as survival benefits. When you opt for a whole life insurance plan like iSelect Star Term Plan, the policy gives you cover for as long as you live.

You pay the premium for 10 or 15 years, depending on the option you chose. You get insurance cover for your entire life. For example, you are 25 years of age, and you buy a whole life insurance plan for 15 years and a sum assured of Rs 50 lakh. You will stop paying the premium when reaching 40 years of age. The death benefit will last for life.

How Does Whole Life Term Plan Work?

When you decide to go for a whole life term plan like iSelect Star term plan from Canara HSBC Oriental Bank of Commerce Life Insurance, below are the steps you follow:

1. In the first step, you choose the policy term to ensure it continues till you reach 99 years of age. For example, if you are 30 years of age at the time of buying the plan, you need a policy term of 69 years.

2. Next, you can choose a premium payment term (PPT). Select a shorter premium payment term to ensure all premium payments before retirement. With the iSelect Star term plan you can select a premium payment term up to the age of 60.

3. Next, you can choose a coverage option:

a) Level life cover
b) Increasing life cover

In the level option, you have an option to increase your Sum Assured thrice during the policy term. The option to increase the life cover amount is available at three crucial stages in your life:

  • Marriage
  • Childbirth
  • Home purchase with home loan

For example, you buy a term plan in your 20s with a sum assured of Rs 1 crore. You get married at the age of 30, within one year of your marriage, you have an option to increase your Sum Assured by 50 per cent. So after your request is processed, you will have a Sum Assured of Rs !.5 crores, under the same policy.

At the time of birth of a child or, purchase of a house, you have an option to increase Sum Assured by an additional 25 per cent, i.e. new sum assured will be Rs. 1.75 crores.

The premium, of course, will also increase as per the new sum assured. However, the increase will be nominal compared to buying a new life insurance plan.

Increasing In this option, the sum assured will increase by 5 per cent (of the initial sum assured) every year. The maximum increase in the sum assured will be 100 per cent of the original Sum Assured.

Learn how an increasing sum assured in a term plan is your weapon against inflation.

For example, you buy a Whole Life Term Plan with a Sum Assured of Rs 50 lakh. The Sum assured will be Rs 62,50,000 at the end of 5 years, Rs 87,50,000 after 15 years, and Rs 1 crore after 20 years. Post this, it will continue to remain the same.

4. Once you have decided on the coverage option, you can add riders to your plan. You can choose from multiple options like Accidental Death Benefit (ADB), Accidental Total & Permanent Disability Benefit (ATPD), or Child Support Benefit.

5. Last, you decide how benefits should be paid to your nominee. It can be a lump sum, monthly income, or a combination of two. If you go ahead with monthly income, you can start increasing the payment by 5 or 10 per cent every year. Under the combination option, you can decide the per cent you want a lump sum and how much should go to monthly income.

The plan will expire under the following circumstances:

  • A death claim is filed under the plan
  • A terminal illness claim is filed
  • You outlive the plan past the age of 99 years

This term plan has a very high chance of paying the benefit amount to your nominees. Since you can change the nomination anytime during the policy term, the policy works both as a protection plan and a legacy plan for you.

How Does Whole Life Insurance Work?

If you choose the Life Plus option under the iSelect Star term plan, you get the features offered by a whole life insurance plan. Under this iSelect Star’s whole life cover you get the following benefits:

  • You can choose a premium payment term that extends up to the age of 60
  • All the premiums you paid for the policy will be returned to you at the end of the premium payment term
  • The policy continues without the need of further premiums until your natural demise or contracting a covered terminal illness
  • If you reach the age of 99 without a claim you will receive the policy sum assured

Now that you know the types of permanent life insurance and how they work, you can easily pick the right plan without any confusion. Buying a permanent insurance plan helps you not only protect your family while you are building their future but also leave a legacy when you are done.

Additionally, you may choose a limited premium payment term for your policy. Ideally, you should be able to pay off all the premiums for the entire policy tenure within your employment period. That way you will not have to worry about premiums during retired life, and the policy can work as a legacy plan after you.

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Frequently Asked Questions (FAQs) Related to Life Insurance Policies

The premium is one of the most important factors to consider before buying a life insurance policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the premium calculator available in the 'Tools and Calculator' section of

Life insurance plans come with several riders which increase the efficiency of the policy for the buyer. For instance, if you have a history of terminal illness in your family it would be advisable to opt for terminal illness rider with your term insurance plan. Riders or add-ons help in customising the standard policy benefits for the requirement of different families. The iSelect term insurance plan comes with a built-in cover for terminal illness, and option for protection against accidental death or disability. You can also opt to cover your spouse's life under the same policy by paying an additional premium.

Life insurance companies calculate the premiums based on several factors such as age, gender and occupation.

Age: It is one of the biggest factors that influence life insurance premiums. Premiums tend to be low when the life insured is younger as the chance of contracting diseases is low. Young people also opt for the best life insurance policies with longer tenures and pay premiums for a longer duration, which makes the policy cheaper for young people.

Gender: The insurance premium for women is generally lower when it comes to life insurance plans. Women live longer and pose a lesser risk of a claim leading to lower premiums for them.

Lifestyle habits: The premiums for people who smoke or drink is always higher due to higher health risks.

Policy term: Policy terms are also taken into consideration by insurers while deciding the premium amount. Life insurance policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the best life insurance policy also determines how much you will have to pay for the plan. People who buy life insurance policies online have to pay lower premiums as compared to offline policies.

Occupation: The nature of your work is an important factor that influences the premium amount. Certain occupations like shipping and mining are considered more dangerous as compared to jobs in services industries. The insurance premium rises with the risk profile.

Processing life insurance claim is a transparent and smooth process with Canara HSBC Oriental Bank of Commerce Life Insurance.

In case of the death of the life insured, the nominee will have to intimate the company by filling a Death Claim Form and sending it to the nearest branch office.

Once the form is received, the claim is registered by the insurer.

After the registration of the claim, the company will send the claims pack along with the related forms such as physician’s statement form and employer certificate that need to be filled.

Along with the duly filled forms a few documents such as original [policy document, death certificate, copy of bank passbook, hospital or treatment records, photo identification and address proof have to be provided.

The claim is processed on the submission of relevant documents. Once the documents are verified, the claim amount is released post all due diligence.

Household expenses rise with age. The cost of children's education increases along with other lifestyle expenses. The iSelect term plan offers an option to increase the cover according to the life stage. If opted, the insurance cover increases by 25% at every 5-year terminal till the 20th policy year.

Even though a life insurance policy is bought to protect your family in your absence, there are chances of the claim being rejected due to several factors.

False information: If the policyholder provides false information or conceals important information while buying the life insurance policy, the insurer has the right to reject the claim after his/her death.

Type of death: Deaths due to suicide in first policy year, intoxication or pre-existing disease is not covered under life insurance plan.

Premium payment: The payment of premiums on time is of utmost important to avail the benefits of life insurance. Life insurance policy may lapse on the failure to pay the premiums

Nominee details: A life insurance company can put the claim on hold if the nominee details have not been filled or not been updated by the policyholder.

Suicide: If the life insured commits suicide within 12 months of buying the life insurance policy, the insurance companies generally pay 80% of the total premiums paid.

Buying the best life insurance plan online is not only safe but a better option. Online life insurance policies have lower premiums and the individual is not required to visit the insurer's branch or a bank. The best life insurance policies online insurance offer higher benefits. Customers should, however, buy online life insurance policies only from credible insurers and should check for SSL certificate on the website to ensure that the website is legitimate.

The cost of life insurance policies varies depending on factors like age, gender and occupation. The average cost of life insurance plans, especially term plans, is very low compared to the amount of coverage offered.

An individual is allowed to have multiple life insurance policies. People opt for more than one life insurance policy to increase the cover or avoid claim rejection. In case of multiple life insurance policies, even if the claim is rejected by one insurer, the beneficiaries may receive the benefit from a different insurer.

Life insurance policies are of different types. In case of unit-linked or endowment policies the policyholder receives the maturity benefit at the end of the policy term. However, in the case of term insurance plans, there are no maturity benefits. The death benefit is only paid out after the death of the life insured.

When you buy a life insurance policy, the insurance company asks for the nominee details. Only the person named as the nominee in the life insurance plan can cash out in case of death of life insured.

A life insurance policy is generally taken for a specified period. After the policy duration of a term plan gets over, the policy simply terminates and ceases to exist. However, in case of unit-linked plans or endowment, you can use the policy as a tool for retirement planning and the accumulated corpus is used by the insurer to pay you monthly amounts for your entire life.

If a policyholder purchases a term plan for 25 years and dies during the policy term, the beneficiary receives the death benefit. In case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment option is chosen, the policy works as a source of regular income.

It is a popular misconception that life insurance plans are only for accidental deaths. A term life insurance plan like iSelect Star Term Plan also covers terminal disease along with death. A terminal illness cover is important as health insurance pays only for the cost of treatment and hospitalization, but a terminal illness cover pays you a lump-sum amount which takes care of other expenses. On the other hand, unit-linked policies such as Invest 4G cover death and also provide decent returns for other financial goals such as buying a house of child's education.

It is ideal to buy a life insurance plan in your early 20s because it is the time when people have just started with their professional life and so there are lesser responsibilities and financial liabilities to take care of. Also, if you buy the best life insurance plan at this age, you will be paying relatively lower insurance premiums since it’s a due fact that mortality rate in case of young people is low. And that is why life insurance companies offer lesser premium rates to younger people as they think that they are most likely to be fit and healthier with less chances of filing a claim in future.

Once you have cancelled your life insurance policy, you will instantly lose your life insurance cover. Afterwards, your insurance company will get in touch with you and ask for valid reasons regarding the cancellation of your policy. In case you cancel your life insurance policy within the grace period, i.e. 15 to 30 days, depending on your insurer, then insurance company will reimburse the premium amount paid by you. But, no refunds will be paid to you if the policy is cancelled after the grace period.

Yes, you can take life insurance under Married Women’s Property (MWP) Act, 1984 only if you are a married man and a resident of India. Buying a life insurance plan under MWP Act would be helpful in saving your family’s financial well-being when you are not around. As per this policy, only wife and children would be eligible to receive the death benefits. You can also buy a policy if you are a widower or a divorcee. However, in that case, you can give your child’s name as your beneficiary. It is very simple to buy a life plan under MWP Act. All you need to do is to fill up an MWP addendum while purchasing an insurance policy.

Yes, there are different payment options for you to pay premiums. Here’re some of them

    1. Regular premium payment option – This premium payment option allows you to pay premiums equal to your policy term either monthly, quarterly, half yearly or annually.

    2. Single payment option – Through this premium payment option, you can pay the lump-sum amount in one single payment.

    3. Limited payment option -In this premium payment option, you can pay premiums for a specific period of time less than policy term either monthly, quarterly, half yearly or annually, but benefits of insurance can be enjoyed for a longer period of time.

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