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Before purchasing life insurance, it is important to understand how the plan works and how your beneficiaries can receive the policy benefits. Learning about this process helps you choose the right payout option to meet your financial goals.
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Life insurance is considered important for long-term financial planning. Buying the right life insurance is one of the best ways to protect your family members, providing them with financial help that they may need after your demise. For instance, you may buy life insurance to help your spouse cover loan payments and daily bills/expenses or to fund your child’s college education.
Life insurance is a contract between a policyholder and an insurer, where the policyholder pays the premium amount and receives a life cover upon the life assured’s death or after a certain period. This life cover (sum assured) can help secure the future needs of your family by paying a lump sum payment in case of policyholder’s death. Also, various life insurance plans pay maturity benefits at the end of the policy term. Let us understand the meaning of life insurance through an example:
For Example:
Ravi, a non-smoking male of 30 years age, with yearly salaried income of Rs. 12 Lakhs, bought a term insurance plan (a type of pure life insurance) to financially secure his loved ones. He compared the best term insurance plans on Policybazaar and chose the one that best suits his preferences. He chose 1 Crore life cover for a 30 years policy term, and will now be paying Rs. 948/month for the next 30 years to keep his family secured.
Term Plans
A life insurance plan will benefit your family in the following ways:
Financial Security for Family: Life insurance provides money to support your family financially if something unfortunate happens to you, helping them with daily expenses and future needs.
Debt Payout: It can cover any loans or debts you might have, preventing your loved ones from inheriting those financial obligations.
Education for Children: Life insurance can ensure that your children can pursue their education and career even if you're not there to provide for them.
Long-Term Goals: Some life insurance policies also offer a way to save money for your long-term goals or emergencies, providing additional financial flexibility. You can also plan your retirement with these life insurance plans.
Tax Benefits: You get tax deductions of up to ₹1.5 Lacs per year u/s 80C & 10(10D) of the Income Tax Act, 1961.
Peace of Mind: Knowing that your family will be financially secure can give you peace of mind and reduce worries about their future.
Life insurance works by offering your nominees/beneficiaries with a death payout in case of your death, but only if your policy is active at the time of your unfortunate death This means, you have duly paid the required premium amounts and the policy is still covering you at the time of death. Your family can use the payout amount to take care of their financial needs in your absence.
Before you buy the best life insurance plan in India, the insurer will require you to provide various details like the following to determine the suitable life insurance premium for your profile. You can
Age
Gender
Health and medical history
Amount of coverage you chosen
Types of life insurance like term life insurance, whole life insurance, etc.
The healthier and younger you are, the lower your premium rates will be. You should always compare the available life insurance plans from different insurers to find the one that fits your budget and best suits your needs.
There are two types of life insurance plans: term plan and savings plan:
Term Insurance Plans: Term plans provide a lump sum payment to your family or nominee in case of your uncertain death. These plans have the most affordable premium rates in comparison to other life insurance plans. They offer a high amount of coverage for a low cost. For example, Ravi, as mentioned above, had bought a term plan of 1 Crore life cover (sum assured) for a 30 years policy term and will be paying Rs. 948/month to keep the term insurance policy active. In this way, he has financially secured his family for the longer run.
Savings Plan: These plans offer guaranteed regular payouts to help you achieve your financial goals, like purchasing a house, or paying for your child's education. They also provide life cover benefits. For example, if you want to create wealth and build a corpus after your retirement, savings plans are crucial, such as ULIP.
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Life insurance plans generally cover all types of death i.e., except suicide within the first 2 years of the plan. This means all the following causes of death are covered:
Accident such as car accidents
Heart attack
Homicidal death (excluding if the assured is murdered by a nominee/beneficiary )
Critical illnesses
Death due to aging (old age)
Terrorism or war
A life insurance plan doesn’t death due to the following situations:
Suicide
Risky Activities or Adventure Sports
Intoxication
Exemptions for Natural Disasters
There are various life insurance payout options. These are the options that your nominee/beneficiary will receive depending on the insurer and the policy type. Here is a list of some of them:
Lump sum payout: Nominees/beneficiaries receive the full death benefit payout at a single go or one-time. These payments also include bonuses and loyalty additions (if any).
Periodic payouts: One part of the benefit amount is paid out as lump sum payment, whereas the rest of the benefits may get converted to annuities or instalments i.e., paid by the insurance company over the tenure of a pre-specified time.
Determine the financial goals of life: Life goals differ from one individual to another. For example, if securing your family is your prime objective, then buying term plan is the right decision. Because it pays a large amount to your beneficiaries/nominees when you’re not around. But if you are having a long term goal like buying a house or paying for children’s education, then plans like endowment or ULIP can be considered.
Assess your life cover: The life insurance cover should be at least 10-15 times of your annual income. You should assess the life cover as per their financial obligations and other financial objectives. Also, it is important to determine the need for family yearly expenses, children’s education, outstanding debts and marriage expenses to reach sufficient life insurance coverage.
Choose the right policy term: Always choose the right policy term. The policy term should be the duration that your family is going to be financially dependent on you.
Disclose all information from Life Insurer: Always disclose the relevant details such as financial obligations, medical history, lifestyle habits from your insurance company.
Check the Claim Settlement Ratio (CSR): It refers to the number of claims paid by an insurer for every registered claim. Always choose a company with a high CSR value, that indicates the quick claim paying ability. This also gives you an idea of how life insurance will work in India 2024 as per the regulating authorities. For example, ICICI Prudential Life Insurance has a claim settlement ratio of 97.82% for the financial year 2021-22.
*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply
Now that we have understood how life insurance works in India, let’s discuss how much life cover one needs and what points should be considered before choosing an appropriate life cover.
Calculate your outstanding debts, including mortgages, loans, and credit card balances before buying a term life insurance.
Consider your family's ongoing living expenses, such as utilities, groceries, and education costs.
Consider your long-term financial goals, such as retirement planning, and how life insurance fits into your overall financial strategy.
Determine how many years of income replacement your family would need if you were to pass away.
Take into account the age of your dependents and the number of years until they become financially independent.
Include the cost of your funeral, burial, or cremation, along with any other final expenses.
Estimate the cost of your children's education and factor this into your coverage amount.
Subtract your current savings, investments, and any existing life insurance coverage from your total needs.
Seek guidance from an insurance advisor or insurance expert who can provide personalized recommendations based on your specific situation.
As per the insurance experts, it is always advised that an individual should choose the coverage amount 10-15 times of the annual income.
You can use the Human Life Value (HLV) calculator to estimate the amount of life insurance coverage you may need based on your financial obligations.
Note: You can easily calculate the premium of your life insurance plan using the term insurance premium calculator.
The steps of claim settlement process and the documents required are mentioned as follows:
Claim intimation: The nominees of the deceased policyholder will have to approach the insurer to let them know of the unfortunate event and intimate the claim settlement process.
Documentation: The nominees will then have to submit the necessary and correct documents to verify the death and claim the payout. The documents required in the process are:
Original documents of the policy
Copy of original death certificate
Nominee/Claimant’s ID Proof
Hospital Bills/Physician’s certificate
Police Reports (Panchnama, FIR, Police Investigation Report, Charge sheet) if applicable
Autopsy/Post Mortem report (PMR) and Viscera Report if applicable
Claim settlement: The claim process begins after the company receives all necessary documents and forms. The company reviews the documents, makes a decision (subject to terms and conditions), and informs the nominee/claimant.
Here are the steps to buy life insurance plan online in India, with the help of Policybazaar:
Step 1: Visit the official Policybazaar website and go to the Term Insurance section.
Step 2: Provide your name, contact details, gender, and date of birth.
Step 3: Enter the information regarding your job type, yearly income, educational qualifications, and smoking/tobacco consumption habits.
Step 4: Choose your preferred term insurance plan from the available list
Step 5: Pay using your preferred mode to complete the process.
Life insurance policy is an insurance product for both protection and helps individuals create wealth in the long-term. Make sure that you compare the plans online and choose the best plan as per your requirement. Policybazaar helps find and compare best life insurance plans from 15+ top insurance companies. Thus, once you are aware of how life insurance works in India, you will be able to choose the best plan for you and secure your loved ones for the longest time.
To get deatiled list of best life insurance plans available in the market, read the article on Best Life insurance plans in India 2024.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
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