According to an IRDAI (Insurance Regulatory and Development Authority of India) study, life insurance penetration in India in 2019 was a mere 3.69%. This demonstrates that one of the biggest working-class populations in the world does not consider life insurance an essential part of financial planning.

A large part of this is due to the lack of awareness of key financial concepts like insurance and their unique significance in modern life. Here, we delve into the basics of life insurance and its key features.

What is life insurance?

Technically, life insurance is a contract between an insurance company and a person, known as the life insured. The contract offers the guarantee of financial compensation to the policyholder’s beneficiaries for loss of a policyholder’s life. This financial compensation is provided in return for the payment of a regularly paid fixed amount known as a premium.

Also Read - Insurance Meaning

Features of life insurance

Benefits
The primary benefit offered by a life insurance policy is known as the death benefit, or the amount paid to the nominee upon the death of the policyholder. This amount is also known as the sum assured and could also include bonuses. In recent times, policies also offer a benefit upon maturity of the policy, in case the policyholder outlives the term. These benefits are popularly termed as maturity benefits.

Riders
A rider provides an enhanced amount of coverage to the policyholder and can be availed along with their insurance policy at a nominal cost. Some of the most popular riders are Accidental Death Benefit, Accidental and Permanent Disability Benefit, Waiver of Premium, etc.

Investment Components
Some life insurance plans come with the dual benefit of an investment component as well. With a single premium, you secure a life cover while also accumulating wealth through investments in a diverse portfolio. Depending on the terms and conditions of the plan, one can invest in equity, debt instruments or various combinations of both. Those opting for policies such as ULIPs can switch and redirect funds, as and when they please.

Tax Benefits
Various kinds of life insurance plans have different tax benefits as per relevant sections of the Income Tax Act. Generally, the premium paid for a life insurance policy tax-deductible up to Rs. 1.5 lakhs under Section 80C. The payout received from an insurance policy, too, is exempt from tax under Section 10(10D) of the ITA. Additionally, premiums paid toward riders like critical illness and surgical care can also be claimed as deductions under Section 80D.

Loans component
Your life insurance policy can not just provide you with a life cover, but also help you during a crisis like loan repayment. One benefit of opting for a loan against a life insurance policy is that the rate of interest charged is lower than that of a personal loan. When you take a loan against a policy, you are essentially borrowing from yourself. The rate of interest for such a loan depends upon the premiums paid by you.

In order to understand better the various features of life insurance plans,it is also necessary to delve in detail into the numerous different types of plans prospective policyholders can choose from:

Term insurance
A term insurance is a pure life cover which offers financial security with the most basic of life insurance benefits- a higher sum assured, at a lower premium rate. Term insurance policies can be availed for a predetermined period of time.

A term insurance plan that you can consider would be the iSelect Smart360 Term Plan. The Canara HSBC iSelect Smart360 Term Plan is as diverse as a term plan could get and more. It offers an insurance cover at a price that won’t pinch your pockets. It also offers a plethora of options like augmentation of your cover through various riders, spouse cover, etc. You can also enjoy Loyalty Additions and other discounts, apart from tax benefits as per prevailing tax laws.

Endowment policy
Endowment plans offer the dual benefits of financial protection as well as savings. Such plans are relatively low-risk in nature.

Whole life policy
As opposed to the term insurance policy, which offers protection for a predetermined period of time, this kind of policy extends for the entire lifetime of the policyholder. The premium rates for such policies are higher when compared to that of term insurance.

Money back policy
Money back policy is also similar to an endowment policy, except that it offers multiple survival benefits that are alloted proportionally over the term of the policy.

ULIP

This unique type of plan offers life insurance benefits along with an investment component. It is highly flexible in nature. Thus, life insurance has something for everyone. Once more individuals are made aware of the multitude of features and benefits that life insurance plans have to offer, the insurance penetration rate in India is sure to grow in leaps and bounds.