Nature and Scope of Life Insurance

What are the Types of Life Insurance Plans? 

Here are the different types of life insurance plans available in the insurance industry that help you understand the nature of life insurance:

1. Term Insurance Plan

   Regular term insurance plans offer the base sum assured to the policyholder's family members if in case the policyholder passes away during the policy term. If the policyholder survives till the end of the policy term, no maturity benefit is provided. This plan remains active for a pre-specified period and is one of the most cost-effective plans available in the market.

2. Term Insurance with Return of Premium

   With term return of premium plans, the insurer pays out the life cover amount in case the policyholder suffers an untimely death during the policy period, but in case the policyholder outlives the policy tenure, all the premiums paid throughout the policy are returned at the end of the policy. The returned amount is subject to nominal deductions like

3. 100% Refund of Premium at No-cost Term Plans

   The 100% refund of premium plans provides the policyholders with the option of exiting the plan early and receiving all the premiums paid at the end of the policy. These plans also payout the base sum assured to the nominee in case the policyholder passes away during the policy term. 

4. Whole Life Insurance

   Whole Life Insurance plans provide coverage for the policyholder’s whole life i.e., till 99 or 100 years of age. The nature of life insurance for whole life is to provide lifelong protection and secure a large sum assured for the future generation as a legacy to leave behind. These plans also provide loan facilities to the life assured, and the overall purchasing procedure is simple online.

5. Child Insurance Plans

   The child insurance plans secure the financial future of your child by paying the sum assured to ensure your child’s dreams and aspirations are fulfilled in your absence. These plans also provide the waiver of premium option within the plan, through which the child can stay covered under the plan’s benefit even if the parent is no longer around to pay the premiums. 

6. ULIP Plans

   ULIP or unit-linked insurance plans combine the benefits of insurance and investment by investing a portion of the premium in market-linked funds for wealth creation and securing the other portion for life protection. These plans provide a wide range of market fund options through which you can select the fund you want to invest in as per your risk appetite.

7. Money Back Plans

   Apart from the death and maturity benefits, money-back plans provide different survival benefits to the policyholder who is associated with the policy term and give money during the policy term. Irrespective of all the paid installments, if the policyholder passes away, the family receives the whole sum. These plans are expensive as compared to other products.

8. Endowment Plans

   In Endowment Plans, the policyholder receives a lump sum amount of money if he/she survives the policy term till the maturity date. The plan offers insurance along with savings simultaneously. They come along with rider – add-ons that enhance the coverage of the plan. The endowment plan guarantees.

9. Retirement Plans

   Retirement plans are plans that guarantee a fixed income after your retirement and help in building a retirement corpus. This amount is then invested to produce after-retirement money flow, so forming a financial shield and helping in risk mitigation.

What are the Benefits of Life Insurance Plan? 

While discussing the nature and scope of life insurance, it is important to know the benefits of life insurance as they can help the policyholder secure their loved ones in their absence and secure a large amount to fulfil their lifelong dreams. Here is a list of all the benefits that can help explain the scope of insurance in India:

• Protect your family’s financial future: In the absence of the main income earner, the death benefit payout can help your family stabilise themselves financially and take care of their monthly expenses and other financial obligations like rent, fees, and other bills.

• Secure your kid’s future: Your kids can use the payout amount to fulfil their financial goals like paying for their higher education, funding their business or career, or paying for their marriage.

• Pay off any remaining liabilities: In case you took out a loan for your studies or house, your family might be burdened with the stress of trying to pay off the loan amount. The payout from life insurance can help your family take care of any existing loans.

• Fulfil lifelong dreams: If you outlive the policy term, most life insurance plans provide a maturity benefit which can help you fulfil any lifelong goals like securing your post-retirement life or building wealth to beat inflation.

• Life insurance tax benefits: Life insurance plans in India offer tax benefits as per the prevailing laws under sections 80C and 10(10D) of the Income Tax Act of 1961.

What Are the Factors that Affect Life Insurance Premium Rates?

Now that you know the nature and scope of life insurance plans, let’s find out the factors that can affect the premium rates of life insurance:

• Age: As per the nature of life insurance, the premium rates are lower for younger individuals and progressively increase with age.

• Gender: Various researches have shown that women live longer than men. Thus, the premium rate of life insurance premium is lower for women in comparison to men.

• Medical Conditions: In case you have any pre-existing ailments or previously have suffered from an ailment that might affect your current medical condition, you would be charged a higher amount of premium.

• Family History: If the probability of suffering from an illness is considerably high or any hereditary illnesses run in your family, you may have to pay a higher amount of premium.

• Coverage Amount: A higher amount of sum assured would result in a higher premium amount and vice versa.

• Lifestyle Habits: Lifestyle practices such as drinking alcohol and smoking can affect your health and result in numerous health problems. Thus, insurers charge a high amount of premium for people who drink alcohol or smoke.

• Occupation: If your job profile has a high risk, the premium for your policy would be higher than others. For instance, if you are working on a construction site or if your job is putting you at any kind of risk, like exposure to chemicals regularly, the insurer will charge a higher amount of premium.

What are the 3 Steps of the Life Insurance Claim Settlement Process? 

Step 1: Inform the Insurance Company: In case of the policyholder’s death during the policy term, the nominee needs to inform the insurer and fill out the company’s claims form. 

Step 2: Document Submission: The nominee needs to attach all the required documents and submit them to the company. These documents may differ for different insurers, but the most important documents required are the 

• Original policy documents

• Death certificate

• Post-mortem report

• Hospital reports

• Police investigation/FIR reports

Step 3: Claim Processing: Once the claims form is submitted, the insurer will assess and review the claim request and contact the nominee on the provided details. If the insurer finds the claims request genuine and valid, the insurer will payout the benefit amount in the nominee’s bank account.

Wrapping It Up!

Considering the difficult times, we are living in today, it is always a good idea to secure the lives of your family members with a life insurance plan. You should always make sure that you understand the nature of life insurance before buying a life insurance policy. A life insurance plan can be bought by anyone regardless of their income. Individuals having low income can opt for a lower sum assured amount that fits within the budget.

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