What is Life Insurance and What are its Features?

2025-03-10

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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.

Key Takeaways

Life Insurance acts as a safety net for your loved ones, ensuring they are financially protected in your absence by covering expenses, debts, and future financial goals.
Certain life insurance plans, like ULIPs and endowment policies, offer wealth accumulation along with life coverage, making them a smart long-term financial tool.
Retirement-focused policies provide a steady income post-retirement, ensuring financial independence and peace of mind in your later years.
Premiums paid qualify for tax deductions under Section 80C, and maturity/death benefits can be tax-free under Section 10(10D), making life insurance a great tax-saving instrument.
Factors like your financial goals, coverage needs, premium affordability, policy inclusions/exclusions, and the reliability of the insurer should be thoroughly evaluated before buying a plan.

Meaning of 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.

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Why Should You Have a Life Insurance Policy?

Life insurance is more than just a safety net—it’s a smart financial decision that secures your future and your family’s well-being. Whether you’re looking to protect your loved ones, grow your wealth, or save on taxes, a life insurance policy offers multiple benefits. Let’s explore why it’s essential.

1. Financial Security for Your Loved Ones

Life is unpredictable, and a life insurance policy ensures that your family is financially protected even in your absence. In case of an unfortunate event, your dependents receive a payout that can cover daily expenses, outstanding debts, and future financial goals like education and housing. This security prevents financial strain and helps your loved ones maintain their standard of living.

2. Long-Term Investment Opportunities

Many life insurance policies, such as endowment plans or unit-linked insurance plans (ULIPs), offer investment components that help you grow wealth over time. These policies provide returns on your premiums, making them a smart way to build a financial cushion while ensuring life coverage. Unlike traditional savings methods, life insurance offers both risk protection and wealth accumulation.

3. Retirement Planning and Peace of Mind

A well-structured life insurance plan can act as a financial backup for your retirement years. Policies with maturity benefits or annuity plans ensure you receive a steady income post-retirement. This added financial stability allows you to enjoy your golden years without worrying about medical expenses, daily costs, or unforeseen financial burdens.

4. Tax Savings Benefits

One of the key advantages of life insurance is its tax benefits. Under Section 80C of the Income Tax Act, premiums paid for life insurance policies are eligible for deductions, reducing your taxable income. Additionally, the maturity or death benefits received are often tax-free under Section 10(10D). This makes life insurance not just a protective tool but also a smart tax-saving instrument.

By investing in the right life insurance policy, you’re ensuring financial security, future stability, and significant tax advantages, all while giving yourself and your family peace of mind.

Did You Know?

While it may seem like a lot of money to set aside two years' worth of your salary, considering the long-term demands of your family, it may not suffice.

Source: Investopedia

Features of Life Insurance Plans

Life insurance is a financial instrument that pays out to beneficiaries in the event of the policyholder's death, giving them security and peace of mind. This can be crucial for providing loved ones with financial security, clearing debt, or even leaving an inheritance. When choosing a policy that best suits their requirements and goals, people can make more educated selections if they know the aspects of life insurance. Here are the characteristics of life insurance:

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

Types of Plans:

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 Life 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. This 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 Insurance 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 allocated 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.

Retirement Plans: Retirement plans, also known as pension or annuity plans, are designed to provide a steady income after you retire. These plans help you build a financial cushion over the years, ensuring you have a reliable source of income when your regular earnings stop.
- Key Features of Retirement Plans:
  - Regular Payouts: These plans provide a fixed sum at regular intervals after retirement, ensuring financial stability.
  - Wealth Accumulation: You contribute premiums over time, which grow into a retirement corpus.
  - Maturity Benefits: Some plans offer a lump sum at maturity, allowing flexibility in how you use your funds.
  - Tax Benefits: Contributions to retirement plans may qualify for tax deductions under Section 80C, and the returns can also have tax advantages under Section 10(10D).

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

Things to Consider Before Buying a Life Insurance Policy

1. Assessing Your Financial Goals

Before choosing a life insurance policy, think about what you want to achieve. Are you looking for long-term security for your family, wealth creation, or just basic coverage? Your financial goals will determine the type of policy that suits you best.

2. Evaluating Coverage Requirements

Consider your current and future financial responsibilities—loans, dependents, and lifestyle needs. The right coverage should be enough to replace your income and support your family if something happens to you.

3. Comparing Premiums and Features

Premiums vary based on the type of policy, coverage amount, and additional benefits. Compare multiple policies to find one that balances affordability and value-added features like critical illness cover or riders.

4. Understanding Policy Inclusions and Exclusions

Read the fine print! Know what’s covered and what’s not. Many policies exclude pre-existing conditions, risky hobbies, or certain causes of death. Understanding these terms can prevent unpleasant surprises later.

5. Selecting a Reliable Insurance Provider

An insurance policy is only as good as the company behind it. Research the insurer’s claim settlement ratio, customer reviews, and service quality to ensure reliability when it matters most.

Wrapping Up

With its many features and advantages, life insurance is an essential financial tool in the unpredictable world of today. In addition to giving loved ones a safety net, it gives policyholders peace of mind by guaranteeing their family's financial stability. There is a plan that works for everyone thanks to the range of policy alternatives, which include whole life and term insurance. These options also accommodate different needs and budgetary constraints. Features including loan provisions, cash value accumulation, death payouts, and possible tax advantages make life insurance a useful and adaptable addition to any investor's portfolio.

Now is a great time to look into your options as you consider the protection and peace of mind that life insurance provides. Buying a life insurance policy now will protect your family's future and be a big step towards overall financial planning. Examine the life insurance options that best suit your requirements to give your loved ones a secure future.

Glossary

Maturity Benefits: These are the guaranteed amount and bonuses your life insurance company gives you upon your survival during the policy's term.
Investment Component: This is a sum that the insurance contractor is required to return to the policyholder even if an insured event does not occur.
Permanent Disability Insurance: When a permanent disability occurs, the policyholder or life assured will be protected by permanent disability insurance. When a life insured or policyholder becomes incapable of working due to a disability, these insurance products provide them with income.

FAQs Related to Insurance Policy

Life coverage, maturity benefits, savings and investment advantages, riders, surrender value, tax benefits, grace period, and policy loans are among the features of life insurance policies in India. It is crucial to comprehend these characteristics and select a policy that aligns with your goals and requirements.

All insurance policies have the same basic purpose, which is to protect the insured from harm by attracting large numbers of risk-takers who are willing to pay to insure them. It provides you with monetary support for your harm and losses. The fund is also utilised to invest in the markets in order to create capital.

The most basic kind of life insurance, term insurance offers coverage for a predetermined number of years. A lump sum payment equal to the sum promised is made to the nominee in the event that the insured passes away during the term of the policy.

Yes. Typically, this window occurs 15 to 30 days following the insurance purchase. The policyholder has this window of time to cancel the policy at any time if they decide it does not fit their needs. Usually, a refund of the premium paid is issued after certain deductions.

Quotes for life insurance provide you with a clear picture of what you are getting into. These include the premium for a specific amount guaranteed that you would have to pay. You can compare policies and choose the best one for you with the premium. Above all, they provide you with an estimate of the cost of your coverage.

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.