10 Most Common Questions About Life Insurance

1. What is Life Insurance in simple words? Is it necessary to buy it?

   Life insurance is a contract between an individual and an insurance company. Under this, the insurer promises to provide financial protection to the policyholder's family with a predetermined sum upon the life assured's death. To maintain this coverage, the insured pays premiums to the insurance company, either periodically or as a lump sum.

   The primary purpose of life insurance is to offer financial protection to the insured's dependents/ beneficiaries in the event of their death. It serves various purposes, including income replacement, debt repayment, covering final expenses like funeral costs, and aiding in estate planning.

   Life insurance is like a safety net for your loved ones if something happens to you. Suppose you have dependents who rely on your income, significant debts, or a desire to ensure financial stability for your loved ones after your passing. In that case, a life insurance policy may be essential.

2. What are the types of Life Insurance available in India?

   In the Indian market, there are several types of life insurance policies available to cater to different needs and preferences:

   • Term Life Insurance: This type of insurance provides coverage for a specified period. If the insured person passes away during the term, the insurer pays the death benefit to the beneficiaries. Term life insurance offers pure protection without any investment component, making it more affordable than other life insurance types.

     Note: Know what is term life insurance first and then buy a term plan for your loved ones.

     Note: You should also check the term insurance benefits if you are planning to purchase the term insurance plan.

   • Whole Life Insurance: Whole life insurance provides coverage for the entire lifetime of the insured person as long as premiums are paid. It includes a savings or investment component called cash value, which accumulates over time and can be accessed by the policyholder through loans or withdrawals.

   • Endowment Plans: Endowment plans offer insurance coverage and savings/investment benefits. These policies provide a lump sum payout to the policyholder if they survive the policy term or to the beneficiaries in case of the insured person's demise during the term. Endowment plans typically have higher premiums than term insurance but offer guaranteed returns.

   • Unit Linked Insurance Plans (ULIPs): ULIPs are life insurance policies combine coverage with investment options. Policyholders can invest their premiums in various funds (equity, debt, or balanced), and the returns are linked to the performance of these funds. ULIPs offer flexibility in investment choices but involve market risks.

   • Money-Back Policies: Money-back policies provide periodic payouts (survival benefits) during the policy term and a death benefit payable to the beneficiaries in case of the insured person's demise. These policies offer liquidity through regular cash inflows, making them suitable for meeting short-term financial needs.

   • Child Plans: Child plans are designed to secure a child's future by providing financial protection and meeting milestones like education expenses. These policies offer a lump sum or periodic payouts to the child in case of the parent's demise, along with other benefits like a waiver of premium.

   • Pension Plans: Pension plans, also known as retirement or annuity plans, are designed to provide a regular income stream during retirement years. These plans allow the policyholder to contribute premiums regularly or as a lump sum. Upon retirement, the accumulated corpus is utilized to purchase an annuity, guaranteeing a steady income for the rest of the policyholder's life or a specified period. 

   Each type of life insurance policy has its features, benefits, and suitability depending on individual financial goals, risk appetite, and protection needs. It's essential to carefully evaluate these factors before choosing a life insurance policy. 

3. What is the importance of Life Insurance? 

   Life insurance is crucial because it offers financial security to your loved ones after your death. It provides a lump sum payment to your beneficiaries, which can be used to replace lost income, pay off debts like mortgages and loans, and ensure ongoing financial stability. Life insurance offers peace of mind for families with dependents, knowing their needs will be cared for even if you're no longer around. Life insurance is a safety net, offering protection and reassurance to those you care about most.

4. How can life insurance policies provide tax benefits?

   Life insurance policies often offer tax benefits to policyholders. Premiums paid towards life insurance policies are eligible for tax deductions under Section 80C of the Income Tax Act up to a specified limit. Additionally, the maturity amount or death benefits received from life insurance policies are typically tax-free under Section 10(10D) of the Income Tax Act, ensuring that the policyholder or their beneficiaries do not have any tax liabilities. 

   These tax benefits make life insurance a popular investment choice for individuals seeking financial protection and tax savings. 

5. How do I determine the right life insurance coverage for me?

   The ideal life insurance coverage depends on various factors, including financial obligations, income, lifestyle, debts, and future goals. A common rule of thumb is having coverage at least 10-15 times your annual income. You should also consider your family’s expenses, outstanding loans, children's education, and other liabilities to ensure they remain financially secure in your absence. An online life insurance calculator can help determine the most suitable coverage.

6. What happens if I miss a premium payment for my life insurance policy?

   If you fail to pay your life insurance premium on time, most insurers provide a grace period (usually 15 to 30 days) during which you can pay without losing coverage. If the premium remains unpaid after the grace period, your policy may lapse, meaning you will lose the benefits and coverage. Some policies allow reinstatement within a specified timeframe, but it may require additional charges and a health assessment.

7. Will the premium of my Life Insurance Policy remain constant throughout the policy term?

   Yes, the premium is determined based on various factors discussed earlier, and once set, it remains fixed for the entire policy duration. The premium is calculated considering the insured's age, health, coverage amount, and policy type. Once the premium is determined at the time of policy issuance, it does not change over the plan's tenure.

   This fixed premium structure provides policyholders with stability and predictability in their insurance expenses, allowing them to budget accordingly and ensuring consistent coverage throughout the policy term.

8. What are the Riders in Life Insurance Policy?

   Riders are additional features or benefits that policyholders can add to their insurance policies to enhance coverage or customize their protection according to their specific needs. These riders provide additional benefits to the standard coverage offered by the base insurance policy. Common riders include:

   • Accidental Death Benefit Rider: Provides an additional payout if the insured person's death occurs due to an accident, in addition to the base sum assured.

   • Critical Illness Rider: Offers a lump sum payout if the insured is diagnosed with a critical illness covered under the rider, such as cancer, heart attack, or stroke.

   • Waiver of Premium Rider: This rider waives future premium payments if the insured becomes disabled or unable to work due to injury or illness, ensuring the policy remains in force.

   • Income Benefit Rider: This rider provides the beneficiary with a regular income stream and a lump sum payout in case of the insured's death.

   • Term Rider: Offers additional term insurance coverage for a specified period, typically aligned with the base policy's term.

   • Hospital Cash Rider: Provides daily cash benefits during hospitalization to cover incidental expenses not covered by health insurance.

9. What is the free look period in life insurance? 

   The free look period in life insurance is a time frame during which you can review your policy after purchasing it and decide whether you want to keep it or cancel it for a full refund. It typically lasts around 15 to 30 days. During this period, you can carefully read the policy terms, discuss them with family or advisors, and ensure they meet your needs. If you decide the policy isn't right, you can cancel it within the free look period without any penalties or charges.

10. What is the difference between term insurance and life insurance? 

    Term and life insurance are both types of life insurance, but they work differently. Term insurance provides coverage for a specific period, like 10 or 20 years, and pays out a benefit if you die during the policy term. It's typically more affordable but offers no cash value or savings component. On the other hand, life insurance provides a financial net to your loved one after your demise and maturity benefits in case you outlive the policy tenure.

Summing It Up:

Buying life insurance helps secure your family’s future, offering peace of mind and security for the insured and their beneficiaries. Additionally, it helps you save money for your future financial needs and helps you to fulfill your milestones. With so many insurance plans, you can choose the best policy for yourself and secure the future of your loved ones.

Note: Check out the best term life insurance in India and choose one that suits your requirements.

Note: Before buying a term plan, it is suggested that the premium be calculated using Policybazaar's online term policy calculator.

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