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Characteristics of Life Insurance Plans

Life insurance plans are essential for anyone looking to secure their family in case of an unforeseen event. They help you secure your family’s financial future as well as achieve your lifelong goals. In this article, we will understand the benefits of a life insurance policy and the various characteristics of life insurance plans. 

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What is a Life Insurance Policy?

Life insurance plans help secure your family financially, in case of your unfortunate death. All you have to do is pay your premiums for the policy term and during that tenure, if you suffer an unfortunate death, your family will receive the sum assured selected at the time of policy purchase. Broadly, life insurance plans can be categorized into two simple types:

  • Term Insurance Plans - Term life insurance plans are pure-protection plans that offer a death benefit in the form of a lump sum payment to your family/nominee in your absence at affordable premium rates. Term plans are the most efficient and affordable forms of life insurance policies and offer high life cover in low premium rates.
    For example, Mrs. Pooja, a 33 year old non-smoking female, with annual income of 14 Lakhs, purchased a term plan of Rs. 1 Crore for her family’s financial security, so that when she dies, the family/nominees will get the claim amount after her death.

  • Savings Plan - These plans provide a guaranteed payout at regular intervals to meet your financial goals such as buying a house or paying for your child’s higher education while providing life-cover benefits.
    For example, you wish to have a source of wealth creation after your retirement. In this case, savings plans are a great help, as they not just secure you financially, but also make sure you have a mode of saving money. ULIP is one such savings plan available in India that provides the dual benefit of wealth creation and life cover.

*Note: You can also learn about life insurance in hindi.

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What Are The Features Of Life Insurance?

Here are the features of life insurance:

  • Financial Security: Life insurance provides money to your family after you pass away. It helps them cover expenses and maintain their quality of life.

  • Debt and Expenses: It can help pay off any outstanding debts, like a mortgage or loans, so your loved ones don't struggle with financial burdens.

  • Child’s Education: If you have children, life insurance can help fund their education even if you're not there to support them.

  • Peace of Mind: Knowing your family will be financially supported brings peace of mind, especially during difficult times.

  • Funeral Costs: Life insurance can cover funeral and burial expenses, easing the financial burden on your family.

  • Tax Benefits: You also enjoy life insurance tax benefit if you buy life insurance plans, under sections 80C, 80D, 10(10D) of the ITA, 1961.

*Note: It is advisable to first know what is term insurance and understand the features of life insurance, the additional riders, and exclusions before you buy term plan.

What Are The Characteristics Of Life Insurance?

Now that you have understood what the features of life insurance are, let us see the various characteristics of life insurance:

  • Family’s Financial Protection: The primary purpose of life insurance is to provide financial protection to the insured person's family or dependents in the event of their death. The death benefit, paid to the beneficiaries, helps cover immediate and ongoing financial needs, including funeral expenses, outstanding debts, and children’s higher education and career, and daily living expenses.

  • Policy Term: Policy term is the specified tenure for which the insurance company offers a life cover and the term during which the contract is in force. You can select the policy term as per your requirement and stay covered under a life insurance plan for as long as you want. Several plans like No-cost Term Insurance Plans give you the option of canceling your life insurance policy at a specific age decided by the insurer and returning the premium amount paid until that point. 

  • Premium Payments: Life insurance plans offer you life cover for the desired policy term in exchange for premiums paid on a regular basis. You can also select to pay the premiums in a single lump sum amount as a single premium or for a limited term. You can choose to pay your premiums at the frequency best suited for your lifestyle like monthly, quarterly, bi-annually, or annually.The premium amount depends on factors such as the insured person's age, health, occupation, lifestyle, and the sum assured. Premiums can be paid annually, semi-annually, quarterly, or monthly, depending on the policy terms and the policyholder's convenience.
    Note: You can easily calculate the premium of your term insurance plan using the term insurance calculator

  • Wealth Creation: Various life insurance plans like savings plans help you grow your wealth over time with their investment (ULIPs) feature. The returns from these plans can be used to fund your child’s marriage, higher education, or your unexpected medical expenses in the long run. 

  • Riders: Life insurance policies in India offer riders that can be added to the base policy for enhanced coverage or additional benefits. Some common riders include accidental death benefit rider, critical illness rider, waiver of premium rider, etc.

  • Assign Nominee: Life insurance plans provide you with the flexibility to assign and choose between your preferred nominees at any point during your life insurance term.

  • Claim Benefit: The family of the policyholder can file for a claim benefit in case the life assured suffers an unfortunate death during the policy tenure. The nominee will be eligible to receive the predetermined payout payable by the insurance company.

  • Tax Benefits: Life and term insurance tax benefits can be availed under the following sections of Income Tax Act of 1961:

    • Deductions under Section 80C: Premiums paid for keeping the life insurance policies active can claim tax deductions under Section 80C of the ITA. This provision allows individuals to claim tax deductions for the premium amount, subject to a maximum limit of ₹1.5 lakh per financial year.

    • Tax-exempt Death Benefit: The death benefit received by beneficiaries is exempt from taxation under Section 10(10D) of the Income Tax Act. This means that the entire amount received as the death benefit is free from tax obligations, providing substantial financial relief to the family or dependents of the insured individual.

  • Death Benefit: A life insurance plan will provide a lump sum death benefit to your nominees in case of your unfortunate death within the policy tenure. This amount can be used by your family to meet their financial obligations in your absence.

  • Maturity Benefit: In case you outlive the policy term then you will receive the sum assured as the maturity benefit, in case of a savings plan. Term plans conventionally don't offer any maturity benefit but several variants of term plans like Term Insurance with Return of Premium return the premiums paid during the policy term, at the end of the policy tenure.

To understand the various features of life insurance plans, it is also important to know life insurance meaning and why one should buy life insurance. 

*Note: Always check the claim settlement ratio (CSR) of the insurance company for 5 consecutive years before buying a plan from them to be certain if they are reliable and trustworthy.

**You can get up to 30% more affordable prices than males on term insurance for women on Policybazaar, with an average of 15% more affordable rates.

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How To Buy Life Insurance Plans From Policybazaar?

Now that you have understood what the characteristics of life insurance are, you can follow these steps to purchase a life insurance policy from Policybazaar:

  • Step 1: Visit Policybazaar’s website and click on Life Insurance.

  • Step 2: Select the type of life insurance plan you want to purchase i.e., term plan or investment plan.

  • Step 3: Fill in your basic details like name, date of birth, contact number, and gender.

  • Step 4: Answer the questions regarding your smoking and chewing tobacco habits, your annual income, occupation type, and qualifications.

  • Step 5: Select the life insurance policy most suitable for you and proceed to pay.

Final Thoughts

Before buying life insurance it is important to understand the characteristics of life insurance plans to make the most of your plans. You can go through the characteristics of term insurance listed above before purchasing the life insurance policy best suited to you as per your requirements from Policybazaar’s official page.

FAQs

  • Q: What is an insurance contract?

    Ans: An insurance contract is a legal agreement between an individual or entity and an insurance company. In this contract, the insured party pays premiums to the insurer in exchange for financial protection or compensation in the event of specific covered losses, such as accidents, illnesses, or property damage. The contract outlines the terms, conditions, and coverage details, ensuring both parties understand their rights and obligations.
  • Q: What is life insurance?

    Ans: Life insurance is a financial contract between an individual and an insurance company. The individual pays regular premiums, and in return, the insurance company provides a payout to the designated beneficiaries upon the insured person's death. This payout, known as the death benefit, helps provide financial security and support to the deceased person's loved ones, ensuring they have funds to cover expenses and financial needs after the insured person's passing.
  • Q: Explain the unique characteristics of life insurance.

    Ans: Life insurance's unique characteristics lie in its dual function as both a financial safeguard and an investment vehicle. It provides a death benefit to beneficiaries, ensuring financial protection in case of the insured's demise, while certain policies offer a cash value component that can be used during the policyholder's lifetime, making it a versatile tool for long-term financial planning and security.
  • Q: What are the advantages and characteristics of life insurance?

    Ans: Life insurance provides a range of advantages, including financial security for loved ones by offering a death benefit to cover expenses and replace lost income, the ability to clear debts, facilitate estate planning, and ensure business continuity. It offers tax benefits, peace of mind, and opportunities for charitable giving, while certain policies may accumulate cash value for savings and investments. Life insurance also serves as a safety net for long-term care costs and can protect the death benefit from creditors, making it a versatile and essential tool for managing financial risks and securing the future.
  • Q: Why is life insurance important?

    Ans: Life insurance is crucial because it provides essential financial protection for your loved ones by offering a death benefit to cover expenses and replace lost income, ensuring their financial security in the event of your passing. It also helps clear debts, facilitates estate planning, and ensures business continuity. With tax benefits, peace of mind, and opportunities for charitable giving, life insurance serves as a versatile and essential tool for managing financial risks, securing the future, and leaving a legacy for your beneficiaries.
  • Q: Are there any tax benefits associated with life insurance plans?

    Ans: Yes, premiums paid for life insurance policies are tax-deductible up to Rs. 1.5 lakhs under Section 80C of the Income Tax Act. The payout received from the insurance policy is also exempt from tax under Section 10(10D) of the ITA, 1961. Premiums paid for riders like critical illness and surgical care can also be claimed as deductions under Section 80D.
  • Q: What is the primary feature of a life insurance policy?

    Ans: The primary feature of a life insurance policy is the death benefit, which is the amount paid to the nominee upon the policyholder's death.
  • Q: What is the sum assured in a life insurance policy?

    Ans: The sum assured is the amount guaranteed to be paid to the nominee upon the policyholder's death, which may also include bonuses.
  • Q: What are the 4 features of life insurance?

    Ans:
    • You can enjoy long term coverage and secure your loved ones for the future
    • You can get high life cover at low premium rates
    • You can avail life insurance tax benefits under the Income Tax Act of 1961.
    • Premiums are lower for non-smokers and women
  • Q: Are life insurance payouts taxed?

    Ans: In most cases, the money your beneficiaries receive from a life insurance policy (death benefit) is tax-free.
  • Q: What Are The Types Of Life Insurance?

    Ans: Below mentioned are the different types and characteristics of life insurance:
    • Term life insurance provides affordable coverage with death benefits during the policy term, and certain variants offer maturity payouts.
    • Whole life insurance offers lifelong protection and is ideal for those with dependents in their later years.
    • Endowment plans combine life cover with wealth creation, offering payouts at maturity and upon the policyholder's passing.
    • Money back policies provide periodic payments and a lump sum at maturity, or the full sum assured in case of death.
    • Retirement plans build a corpus for non-working years, with options for lump sum or regular income.
    • Unit Linked Insurance Plans (ULIPs) offer investment and insurance, while child insurance plans meet future financial needs.
    • Group life insurance is provided as an employment benefit, extending financial support to employees' families in case of death.
  • What are the benefits of term life insurance?

    Ans: Here are 4 common term insurance benefits:
    • Low premium rates
    • Tax Benefits
    • Death Benefit
    • Long term coverage
  • What are the key features of a best term insurance plan in India?

    Ans: Below mentioned are the key features of a best term life insurance in India:
    • Affordable premium rates
    • Long-tenure life protection
    • Easy to understand and buy
    • Riders availability
    • Whole life protection
    • Tax benefits

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