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 systemically insure our lives. 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. To help understand the key features and advantages of life insurance, here's a quick lowdown:
Features of Life Insurance Plans
- Policyholder: Policyholder is the individual who pays the premium for the life insurance policy and signs a life insurance contract with a life insurance company.
A premium is the cost the policyholder pays the life insurance company for covering his/her life.
- Maturity: Maturity is the stage at which the policy term is completed and the life insurance contract ends.
- Insured: Insured is the individual whose life is secured via the life insurance. After his/her death the insurance company is accountable to provide a financial amount to the dependents.
- Sum Assured: The amount the insurance company pays the dependents of the insured if those events occur which are specified in the life insurance contract.
- Policy Term: Policy term is the specified duration (listed in the life insurance contract) for which the insurance company provides a life cover and the time period during which the contract is active (listed in the life insurance contract).
- Nominee: A nominee is an individual listed in the life insurance contract who is entitled to receive the predetermined compensation, as a part of the policy.
- Claim: On the insured's demise, the nominees can file a claim with the insurance provider in order to receive the predetermined payout amount.
Key Advantages of life Insurance Policy in India
- Death Benefits
life insurance enables individuals to protect themselves and their families, in case of any unfortunate happening in the life of the insurer. The insurer pays an amount equivalent to the sum assured as specified in the contract along with applicable bonuses. This is know as the death benefit.
- Investment Components
Certain whole life insurance policies offer two-pronged benefits of both insurance and investment. While one half of your premium is paid toward insurance, the other half is invested in equity, debt or combinations of both. You get the best of both worlds with a protective covering as well as high returns on your investments. You can make the most of this component by investing in funds that align with your investment horizon and risk appetite. Certain policies allow you to switch between funds as per your evolving goals. The Invest 4G plan offered by Canara HSBC Oriental Bank of Commerce gives you the option of choosing from a range of 7 unit-linked funds and 4 different portfolio management options as per your preference.
- Maturity Benefits
Life insurance policies can also double as a savings instrument by offering maturity benefits. If the insured survives the policy term and no claims have been made, the total premiums paid are returned at the time of maturity of the policy. In this manner, your life insurance plan can have a savings component, while also offering a protective cover.
- Tax Benefits
Under the umbrella of Section 80C of the Income Tax Act (ITA), individuals can reduce their tax liabilities by investing in specific instruments. Term insurance is one of them. Under section 80C, the premium paid for your life insurance policy is eligible to attain a maximum tax deduction for up to Rs. 1.5 lakh. In addition to this, under Section 10(10D), any payouts you receive from your insurance policy are completely tax-free (provided your premium does not exceed 10% of your Sum Assured, annually). If you have opted for a health-related rider, such as a critical illness or surgical care rider, you can also avail tax deductions under 80D of the ITA.
- Coverage Against Liabilities
To fulfill your dreams and attain your goals, you may have required a certain amount of financial support - in the form of loans, mortgages and other types of debt. Be it student loans or credit card debt, dealing with such liabilities can be a source of great financial strain, without a steady stream of income. While you may have the funds to pay off a part of your loans now, your family may find it difficult to manage such liabilities in the event of your unfortunate demise, owing to the loss of income. Thus, taking a life insurance policy ensures that your family has the financial means to steadily meet your loan and mortgage repayments, even in your absence.
You can opt for riders to enhance your life insurance coverage. A number of riders, ranging from Critical Illness to Accidental Total Permanent Disability are available and help protect you and your loved ones against instances wherein your life cover may not come into play.
life insurance and life insurance plans are an absolute necessity today. life insurance is a risk minimization 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.