What are the things that we are most insecure about in everyday life? Is it health, money or housing? Or is it all three of them? And if so then how can these insecurities be resolved? The most instant answer that comes to our mind is an inclusive insurance plan that can work as a safety deposit, a security assurance that can be used in times of financial emergencies.
This safety deposit further helps us go through not only our monetary crisis but eventually helps us cope with the emotional distress as well.
Imagine buying a new car with years of sacrifices and savings. You would want the best protection plan for your vehicle but what if you fail to do so. One might lose/damage their car in situations like an earthquake, riots, fire, explosions or in an act of violence. You can also lose your car in a robbery or in a criminal act.
The worst is engaging in an accident which might not be too harmful to yourself but will certainly defect your car. In times like such, the motor insurance plan comes handy by reimbursing the repair cost or compensating for other incidents. Likewise, life insurance is guaranteed protection you provide to yourself as well as your family to safeguard and shield you in difficult times.
What is Life Insurance?
Life insurance is basically a partnership between the policyholder and the insurance company also called the insurer. It’s a type of business agreement which allows the policyholder to avail special benefits in the form of money or other specified assistance.
However, the agreement is broken if the policyholder fails to furnish the annual instalment of the premium amount. Life insurance money is usually given to the family of the policyholder upon the death of the person insured.
The compensation mostly depends on the type of agreement stated in the policy bond. Other times where the sum could be given by the insurer is in the case of a serious illness. There can be some extra services included in the life insurance policy like funeral cost, transportation expense etc.
Although the policy clearly states that a certain amount of sum would be given upon the death of the insured person. Still, there are some incidents which are willfully excluded from the policy. They are death/injury by suicide, criminal act, riot, war and fraudulent. These exceptions are mentioned in the insurance policy.
There are two Primary categories types of Insurance Plans:
- Protection Plans – These are the ones especially crafted to get a benefit usually in the form of money. They are simple protection plans in a catastrophic time. The best example of this type is a term insurance plan.
- Investment Plans – These are modelled to attain an investment package to ensure the growth of equity by various premium instalments. The best example of this type is a whole life insurance plan.
Components of Life Insurance
As stated above, life insurance is a deal or pact between the insurer and the policyholder. However, there are more than just two participants in the life insurance policy.
The one who provides the benefits and other services is definitely the insurance company or the insurer. The other part of the deal is with the one who agrees to pay the premium instalment for the life insurance plan.
Now, this person who buys the policy, the one who pays the premium is called the owner of the policy. Most often the owner is also the insured person, the one whose demise will cause the insurer to pay the insurance amount.
But the owner can also buy the policy for someone else, therefore, the person for whom the owner buys the policy becomes the insured person. So there’s the insurer, the owner ( policyholder) and the insured.
To understand better let’s assume that A and B are married. A buys the life insurance policy for B. Thus, A becomes the owner and B becomes the insured. But A can also buy the policy for himself. Therefore, A is both the owner and the insured person.
The one who benefits from the insurance policy, the one who gets the money upon the death of the insured person is called the beneficiary. The beneficiary is decided and approved by the owner of the policy.
In some companies, the beneficiary can be changed or switched from one person to another only if the insurance policy doesn’t have an irrevocable beneficiary selection. If in case the owner wants to change the beneficiary and the policy has an irrevocable beneficiary selection then any changes made to the policy agreement has to be approved by the original/former beneficiary.
Terms of Policy Agreement :
The most important term in the policy agreement is that of exclusions. The life insurance policy strictly prohibits any act of violence that may result in the death of the insured person.
Special emphasis is given to suicide sections. Any act which may indicate suicide immediately nullifies the insurance bond. Hence, there will be no compensation provided to the beneficiary and the policy is voided.
Some companies also follow the rule where suicide is only considered within a period of time starting from the time when the policy is bought.
The insurance policy matures fully on the death of the insured after reaching a specified age.
Other Elements :
The calculation of the premium amount which ultimately decides the cost of the insurance is decided using mortality tables. Mortalities tables are nothing but simply devices that estimates the approx expense one would expect depending on their age.
The premiums are calculated such as they are enough to provide for all the necessary requirements along with a margin of profit. Age plays a big role in the calculation of the premium amount because the older one gets the more likely they are to die.
The mortality tables have distinct sections for smokers and people who don’t smoke. Also, the medical history of the family is taken into consideration while calculating the premium amount known as underwriting. Factors that include the evaluation are:
- Personal medical history
- Family medical record
- Driving history
- BMI ( Body Mass Index )
On the basis of these elements, a person is given a health rating. This rating is then used while calculating the final premium amount which the owner has to pay either annually or on a regular basis.
Life insurance policies are not only beneficial towards the death penalty or compensation but have other benefits as well. One such is taxation. A person legally capable of paying life instance premiums is eligible to enjoy some tax relief.
Of the Indian penal code under section 80C of the Income Tax Act, 1961 all the sum of premiums paid during an existing life insurance policy can be eliminated from the payable income tax. INR 150,000 is the maximum amount of money that can be absolved from the tax.
It also assists by excluding the person if other financial burdens like Employee Provident Fund ( EPF ), Equity Linked Savings Scheme ( ELSS), Public Provident Fund ( PPF ), National Saving Certificate ( NSC ) etc.
In order to avail these tax benefits, one must be a certified Indian Citizen.
Apart from there tax benefits, in India, the policyholder is furthermore qualified to be excluded from the tax on the received death benefit money. Under section 10(10D) the death amount received on the death of the insured person is exclusively not includes from Income tax.
- Death Benefit
One of the main objects of the life insurance policy is to receive a death benefit upon the demise of the insured person. The beneficiary could be a family member or a close relative.
However, the insurer has the full right to investigate the cause of death and other circumstances before paying the claimed insurance amount if the insurance company has any doubts about the authenticity of the death.
In most cases, the death benefit is easily granted to the designated beneficiary soon after the demise of the insured person. The amount payable by the insurance company solely depends on the premium amount paid during the policy.
The amount can be paid in instalments like the premium amount. The duration of the instalment is divided either for a certain period or for the whole lifetime of the beneficiary.
- Life Risk Cover
A risk cover protects the owner and the family of the owner of the life insurance policy against any misfortune that can possibly lead to a sudden crisis. Having a comprehensive life insurance plan, therefore, provides both mental and financial security.
Return on Investment
There is no other insurance policy which can claim this benefit to be true. Life insurance policy is kind of a no loss policy because whatever you invest in the form of premium instalments are ultimately returned to you either after the policy matures or upon the death of the insured person.
To buy any insurance plan it is crucial to know what are the options available out there to choose from. Knowing all the choices and the different plans allow you to decide which one of the plan will be the most useful and relevant. You can strategise the premium depending on your budget and age.
In the end, you can choose the one most preferable to you. As mentioned earlier life insurance plan can of two types. Protection plan and Investment plan but these just the types of plan available.
Further, there are several kinds of life insurance plans both for investment and protection which can serve you for your desired purpose.
Life insurance plans are broadly divided into seven, they are :
- Term Life Insurance
Term life insurance plan is as simple as a plan can be. It simply provides death risk cover up to a specific period of time. When the insured person dies within the time frame of a valid term life insurance policy, the insurer gives the death benefit amount to the beneficiary.
But if the policy matures after the insured person reaches a certain age. The insurance company returns the premium amount along with whatever benefits the policyholders has secured. This is known as the Term Plan with Returns of Premiums ( TROPS). Such plans are a bit expensive than regular term insurance plans.
Term life insurance is the most basic and reasonable insurance plan out there that usually most prefer to buy. The policy is highly appreciated for its high sum assured at a low premium price.
- Unit Linked Plans ( ULIPs)
As we know that life insurance plans can be used for both protection and investment. A Unit Linked Plan is what you can call a combination of both the types. It allows you protection and investment both in a single insurance plan.
The premium for this is further divided to be used as risk coverage as well as a part of the premium is capitalized in several funds. These funds are bonds, equities, market funds etc which the insurance company handles and based on the premium amount, a sum of it is invested.
This kind of life insurance plan is best suited for those who are interested in a long term investment plan which has flexibility towards the invested money.
- Endowment Plan
Endowment Plan also known as traditional life insurance is again a mixture of saving and investment both at the same time. However, the level of risk factors for investment in Endowment Plan is much lower compared to offer investment plans.
If the insured person reaches a certain age where the policy expires, the insurer provides the beneficiary with the maturity services. Also, the Endowment plan offers to choose bonuses from time to time which is all collectively paid either on the demise of the insured person( including the death benefit ) or when the policy matures.
Along with this, there’s also an investment factor in the policy using which the policyholder can invest some amount of capital into several investment funds. These investments have lower risk factors and are best for a long term saving plan which can help in financial planning.
- Money-Back Life Insurance
As the name of the policy indicates, the Money-back life insurance policy is creatively designed. So that the insured can get a certain amount of money from the sum assured at specific intervals of time. It’s the policy which works as a provider from time to time to assist in financial difficulties and not just when the policy matures or the insurer dies. This way the insured can avail some of the insurance benefits and reach certain monetary goals.
The Money-back plan is best utilized if someone is planning for short term investment.
- Whole Life Insurance
Whole life insurance plan is for the whole life of the insured person. It has a death risk cover up to the age of 100 years. Whereas other life insurance plans such as term insurance are only valid for a certain age, whole life insurance covers the whole life of most buyers and upon the death of the insured the beneficiary receives the death benefit amount along with bonus money if there is any.
The coverage amount for this plan is decided and fixed at the time when the policy is bought. As it is obvious the premium amount for this policy is a lot higher than what it is for regular life insurance plans.
However, if in some case the insured person crosses the age of 100 years, the insurer provides the maturity benefit to the beneficiary appointed.
There’s also an option where one can withdraw some money from the sum assured after all the premiums are paid.
- Child Plans
This life insurance plan is modelled for those parents who want to secure their child’s future by stocking a certain amount of money for a child’s education and other needs. A premium of this plan is usually installed yearly if not there is a one-time payment option.
And if the parent dies during the existing policy duration, the sum assured is given to the beneficiary ( the child). If the child wants further continue the policy until maturity, he/she is eligible to do so until the premiums are timely paid.
- Retirement Plan
Retirement is the time where a person dreams of acquiring the most comfortable and soothing life. But such lifestyles are expensive and unaffordable especially when you are retired and not employed any more.
Retirement plans help you grown some money for your retirement so that you can fulfil all your retirement dreams without having to worry about financial support.
The beneficiary elected gets the sum assured if in case the insured dies while the insurance plan ongoing.
Retirement plans are a sort of saving plus investment scheme to benefit from later in life.
List of Best Life Insurance Companies in India 2020
Most of the life insurance companies in India are joint ventures between private and international financial firms. Among the topmost insurance firms, only Life Insurance Corporation ( LIC ) is the public sector company rest all are private insurance companies.
Let’s take a look at top 5 life insurance companies in India 2020 :
- Aditya Birla Sun Life Insurance Company
Aditya Birla is a joint venture between Aditya Birla Group and Sun Life Financial Inc. concurrently they form Aditya Birla Life Insurance which is one of the most popular insurance firms in the country.
The company has secured a customer reach of 2.5 million with 600 branch offices in 500 different cities. The insurance company is best known for its Unit Linked Life Insurance Plans along with health, retirement and group plans.
The popularity of Aditya Birla is moreover because of the claim settlement ratio which is 97.15 %
- Aegon Life Insurance Company
Aegon Life Insurance Company commenced in the year 2008 and soon became one of the leading companies that we have today in the Insurance business in India. The company is the result of the partnership between the international leading financial corporation and Bennet, Coleman & Company.
The unique terms of the company made it stand out among the contemporary insurance companies. It aims at providing a customer-specific service enhanced by professional assistance at all times. Some of the prominent plans offered by the company are term plans, group plans, protection, saving and child plans along with several retirement and pension schemes.
- Aviva Life Insurance Company
Aviva Life Insurance Company is the biggest insurance brand in India. It is also the most famous and leading insurance company around the globe. It has 121 branches in India and a wide customer base. Aviva Life Insurance is a union of Dabur Group and Aviva Group. They are the very first to establish a form of Unit Linked and Unitized with Profit Plan in the Insurance industry. Being the International brand the prices are shockingly lower than one would expect. The plans are available at an affordable price with lots of benefits offered. Popular plans by Aviva Life Insurance are protection, ruler, child, savings, retirement, health, term and group insurance plans.
- Bajaj Allianz Life Insurance Company
Another famous international insurance firm in India is the Bajaj Allianz Life Insurance Company. The company is a joint venture between one of the most popular European insurance brand Allianz SE and Bajaj Finserv Ltd. and over the past few years, the company has evolved into a leading insurance provider in the country.
The company was inaugurated in the year 2001 and since then it has reached a position where it offers a variety of customer-based insurance services.
The benefits and investment returns for the Bajaj Allianz insurance plans meet the demands of the customers. Hence, are even more desirable. The company has ULIP, child, health and retirement plan along with many other popular plans offered by other insurance companies.
- Bharti AXA Life Insurance Company
Bharti AXA Life Insurance Company started its work in the year 2006 with two companies that are Bharti Enterprises and AXA group. The company has 123 branch offices in the country spread all over different states.
Bharti AXA has its headquarters situated in Mumbai, India. It has grown to be one of the most favourite insurance company in India offering various products in the insurance business.
There plans from child to health and retirement to group plans available for all kinds of the audience at a reasonable price. In the last couple of years, the company has marked a claim settlement ratio of 97.28 %, therefore, making it even more profitable.
Thus, Life Insurance is a very imperative step for both an individual and a family. So secure your life before it is too late.