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Is Life Insurance Worth Buying?

dateKnowledge Centre Team dateMay 12, 2021 views157 Views
Is Life Insurance Worth Buying?

Life insurance plans help you meet some of the most important financial goals in life. Starting from the very basic financial need of ‘safety’ for your family, life insurance can continue to offer services until your natural demise.

Legally, life insurance is a contract between you and the insurer. Under this contract, the insurer promises to pay a large sum of money to your family for a nominal premium cost. However, life insurance plans offer a lot more than just a tool of financial protection.

You can use life insurance plans to:

  • Meet important future goals for the family, like child’s higher education and marriage
  • Build wealth while passively investing in equity markets
  • Build a tax-free retirement corpus for yourself and your spouse
  • Create a reliable source of long-term (lifetime) income after retirement
  • Leave a legacy for your children or grandchildren

With so many possibilities, you can even say that life insurance plans can help you look after almost every investment need you will encounter in your life.

Types of Life Insurance Plan

Depending on the use and purpose of the life insurance plan we can have the following types:

Pure Protection Plans

Pure protection plans offer financial safety in case of a contingency. For example, death, illness, disability, etc. Pure protection plans cannot be used for meeting future financial goals. However, they will help the survivors sail through life without financial hiccups.

There is no investment component in these plans.

Saving Plans

Savings plans consist of safe investment plans. These plans can help you preserve your wealth and achieve very important goals. Most of these plans will offer guaranteed returns, where you can estimate the maturity value of your investment in the beginning.

These plans are best for saving money towards very important life goals and offering protection to such goals of your family.

Unit Linked Insurance Plans

Unit-linked life insurance plans or ULIPs are excellent investment plans which also let you invest in equity markets. If you are an aggressive investor who wants to manage your high-risk portfolio passively, ULIPs are the best option for you.

ULIPs offer many features and options for you to ensure that your money keeps working as per the market movements even without your intervention.

Invest 4G by Canara HSBC Oriental Bank of Commerce Life Insurance is one such plan that you may consider investing in.

Pension Plans

Pension plans are the life insurance plans which help you build a reliable income stream. These plans are also safe investment plans. However, they focus on a long-term regular income, rather than only the growth of your portfolio.

These plans are best if you need to have a reliable long-term source of income out of a large corpus. You will usually get two choices with pension plans:

1. Immediate Annuity Plans: The income period starts immediately after investment

2. Deferred Annuity Plans: The income period will start after a few years from investment

For example, if you invested Rs. 2 crores and want to receive a quarterly income, the immediate annuity plan will start paying off right after the first three months. The deferred annuity plan, on the other hand, will ask you for the deferment period first.

So, if you choose a five-year deferment period, your first pay-out will happen five years and three months later.

Pure Protection Plans Saving Plans Unit-Linked Plans Pension Plans
Purpose Provide financial protection to the insured and family Provide a long-term and safe investment option Provides an aggressive investment portfolio for wealth building Provides reliable and long-term regular income
Maturity Plan expires at maturity Pays the guaranteed value or maturity value Pays the fund value at the time of maturity The plan expires and nothing is paid out
Life/Protection Cover 100% Sum Assured 10-15 times of your annual premium 10-15 times of the annual premium 10 times the annual premium
Benefit Pay Out Options Lump-sum and regular income mode Regular money backs and lump sum maturity As per investor choice & systematic withdrawals Paid as regular income at fixed intervals
Riders Accidental Death & Disability, Critical Illness, Child support benefit Accidental Disability, Goal/ Premium protection Accidental Disability, Goal/ Premium protection Terminal illness
Bonus NA Loyalty and Guaranteed bonuses Loyalty additions and wealth boosters Guaranteed additions
Joint Holding Available Available Available Available

Whole Life Plans

Whole life plans are a simple variation of the existing plans. The only difference is that these plans can continue to cover your life until you reach 99 or 100 years of age. There are two types of whole life plans:

  • Whole Life Term Plan: Lower premium and saving component and continues till the age of 99. You can choose a limited premium payment term or equal to the policy term.
  • Whole Life Endowment Plan: Higher premium and saving component, achieves higher cash value and can work as a retirement financial support.

Both these plans will help you leave a legacy for your family.



Is it a Smart Investment?

Life insurance is a tool and will only be as good as the choices of the user. However, if you choose the right plan for the right goals, this tool will definitely be your smart choice. Apart from all other features related to protection and investment, the following benefit makes life insurance a smart investment:

  • Investment in life insurance plans is deductible from your taxable income in any fiscal year under section 80C, within the limits of Rs. 1.5 lakhs
  • Any accrued interest and partial payments received from a life insurance plan is exempt from tax
  • Maturity value and death benefits are also exempt from tax

Thus, life insurance helps you beat both inflation and taxes if used properly.

A life insurance policy is a protective layer added to you and your family members. It also does not let your family suffer due to a financial crunch in the case of your untimely death.

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Frequently Asked Questions (FAQs) for Life Insurance

The premium is one of the most important factors to consider before buying a 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 www.canarahsbclife.com.

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. 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.

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 chances of contracting diseases is low. Young people also opt for 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. Policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the 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 physicianâ 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 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.

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: An 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 policy, the insurance companies generally pay 80% of the total premiums paid.

Buying life insurance 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. Online insurance policies also offer higher benefits. Customers should, however, buy online 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 policy to increase the cover or avoid claim rejection. In case of multiple 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 the 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 life insurance, the insurance company asks for the nominee details. Only the person named as the nominee in the policy can cash out a life insurance policy 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 the 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 family receives the death benefit. In the case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment options are chosen the policy works as a source of regular income.

It is a popular misconception that life insurance is only for accidental deaths. A term life insurance plan like iSelect 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 life insurance in your early 20s because it’s 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 life insurance 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 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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