Life Insurance
To define individual life insurance, it’s a contract between the insured and the insurance company where the latter pays a certain sum of money to the former after a stipulated time period or upon the death of the former in exchange for payment of the premium amount for a fixed duration.
When we talk about the life insurance policy, it offers a financial security to the policyholder under which the insurance service provider guarantees to pay the nominated beneficiary a certain sum of money. In exchange, the policy holder pays a predefined amount to the service provider on a regular basis. This forms the crux of individual life insurance.
There are numerous life insurance plans that one can choose as per convenience and availability. To calculate the assured sum of the policy, the insurance company takes into consideration various factors into account, such as lifestyle, number of dependents, and finances etc.
Individual Life Insurance
There are a variety of products that a person can choose from in individual life insurance. There are mentioned as under:
Types of Life Insurance Policies
Term Insurance
Term insurance is a life insurance plan offered by an insurance company that offers financial coverage to the policyholder for a certain period.
Endowment Policy
The endowment plans pay out a lumpsum amount assured under both scenarios – death and survival (upon maturity).
Whole Life Policy
The policyholder pays regular premiums until his death, upon which the corpus is paid out to the family.
Unit Linked Insurance Plan
ULIP is a life insurance product, which provides risk cover for the policyholder the benefit of insurance and investment in a single integrated plan.
Money Back Policy
Money back plan works as a life insurance product as well as an investment plan which provides life insurance cover against the death of the policyholder along with periodic returns.
Annuity/ Pension Plan
Annuity is a type of pension product designed for securing a steady cash flow during your retirement years so that you are not dependent on others in your old age. It is a plan, where an income is paid at regular intervals, in return for a lump sum paid up-front.
Benefits of Taking Life Insurance
Life Risk Cover
A life insurance policy provides you with a high life risk cover that keeps you and your family protected in case of an unfortunate event.
Death Benefits
Investing in a life insurance policy gives you and your family a secure future. In case of any untoward happening to the insured, the insurer pays up the entire amount i.e. the sum assured along with the bonus to the bereaved family. Life insurance also safeguards the interest of people who have diminishing incomes with advancing age, people who meet with accidents or for retired people. There are numerous policies available, you can choose the policy that will best suit your requirements.
Return on Investment
Life insurance schemes yield better when compared to other investment alternatives. Most of the life insurance schemes offer bonuses that no other investment scheme can offer. The money invested in life insurance is safe and covers most risks. The money invested will fetch good returns and will be returned fully as sum assured either after the completion of the term or after the demise of the insured. Both ways the money invested and the returns are safely paid back.
Tax Benefits
The Section 80C of the Income Tax Act is an effective way for the salaried person to reduce tax liability. Under this section, investments made in the specified instruments are subject to rebate. Currently, the amount available for rebate under section 80C is Rs. 100,000 which can be invested in life insurance premiums, pension superannuation fund, employee provident fund, equity linked mutual fund schemes, National Savings Certificates and public provident fund (maximum Rs 70,000). The amount invested in these instruments is eligible for rebate through deduction of the amount from gross taxable income.
Riders
Riders are the additional benefits that can be bought and added to a basic insurance policy. These options allow you to increase your insurance coverage. Riders cover risks that are beyond the scope of the main life policy, resulting in a more comprehensive protection. The riders may cover critical illness, personal accident, family income benefit and waiver of premium benefit). This additional cover steps in during situations where the main life insurance policy may not come into play. They also provide tax benefits and make you eligible for deductions in line with life and health covers. For instance, if you opt for an accidental death rider, you can claim deductions under section 80 C on premiums paid; for critical illness, the relevant section will be 80 D.
Life Stage Planning
Life insurance aids you in life stage planning where you can plan your life’s financial goals as per your convenience. It helps you plan for your life stage needs. Life Insurance not only provides for financial support in the event of untimely death but also acts as a long-term investment. You can meet your goals, be it your children’s education, their marriage, building your dream home or planning a relaxed retired life, according to your life stage and risk appetite.
Assured Income Benefits
Your family stays secured due to the assured income they receive on regular intervals. This income aids in paying for all rents, loans and other expenses like house rent, telephone and electricity bills, Child education etc. This income compensates for the income that discontinues after the loss of the earning member.
Loan Options
Life insurance provides you the advantage of taking a policy loan in case you are in desperate need of money. The loan amount that can be taken in a percentage of the cash value or sum assured under policy depending on the policy provisions.
Life Risk Cover
A life insurance policy provides you with a high life risk cover that keeps you and your family protected in case of an unfortunate event.
Factors to be Considered While Calculating Premium
Age
Physical Condition
Medical Condition
Occupation
Group Life Insurance
Group life insurance products can be classified into Term Insurance based products and Fund Management based products. Term insurance-based products include Group Term Life Insurance and Credit Life insurance whereas, Fund Management based products include Group Gratuity Scheme, Group superannuation, Group Leave Encashment and Group annuities.
Benefits of Group Life Insurance
Group life insurance offers cover at subsidized rates. Hence. they are beneficial to large segments of people who are unable to afford life insurance.
Members of an eligible group who are otherwise uninsurable under individual insurance can be covered under group insurance.
Group insurance is more affordable than a similar number of individual policies.
Types of Group Insurance
Group Term Life Insurance
A group insurance plan that provides a lump sum to a beneficiary in case of death of a covered member during the defined covered period. A group term life policy is usually issued for a period of one year and renewable each year. The premiums are experienced rated, based on the company’s deaths, and range of employee’s ages.
Group Gratuity Plan
A fund management-based group insurance scheme that pays a Gratuity as a stated benefit to employees generally when they retire, resign or separate from the company, after completion of 5 years in employment. Every employer has to obtain insurance for his liability for payment towards the gratuity.
Group Investment Linked Insurance Plan
A group insurance plan that combines the dual advantage of investment and protection and offers the members the best of both worlds. These can also be called as group unit linked plans and give you the advantage of market linked investments.
Group Leave Encashment Scheme
A Group Leave Encashment Scheme helps the employer to fund their Leave encashment liability payable to your employees. This product can be linked or non-linked in nature.
Group Mortgage Redemption Assurance Scheme
Group Mortgage Redemption Assurance Scheme is a group insurance policy that covers the life of a member who has taken a loan.
Group Critical Illness Rider
An add on rider that can be opted along with your group insurance plan that gives you added financial protection in case of a critical illness.
Most of the Group Insurance Plans that are available in the market are covered under the EPFO (Employee Provident Fund Organization). It makes it compulsory for the employers to offer insurance to the employees under the Miscellaneous Provision Act 1952 and Employee’s Provident Fund. Group Insurance is beneficial for both employees as well as for employers as it accords a world of benefits to both.
Factors taken into consideration for Group Life Insurance
Size of the Group.
Profile of Members e.g. Occupation, Age, Annual Income etc.
Benefits opted.