All You Needed to Know About Life Insurance in India

Life insurance -- call it a safety net or a promise to protect your loved ones financially; the bottom line is that it is a must for every family in this uncertain world. The right life insurance policy can provide peace of mind, knowing that your family's future is secure. But with so many options available, how do you choose the right one? Understanding the types of life insurance policies is the first step in making an informed decision that aligns with your financial goals and the needs of your loved ones.

Different Types of Life Insurance Policies in India

Life insurance comes in various forms, each designed to meet different financial goals. Here’s a quick overview of the most common types in India:

• Term Insurance Plans: Term insurance is the most straightforward and essential type of life insurance, particularly crucial for families where a single individual is the primary breadwinner or caregiver. It offers financial security by providing coverage for a set period, like 10, 20, or 30 years. If the policyholder dies within this period, the nominee receives the death benefit, ensuring the family’s financial stability.
  However, there is no maturity benefit if the policyholder survives the term. Given its simplicity and affordability, every household in India should consider having a term plan, especially those with dependents.
• ULIPs – Unit Linked Insurance Plans: ULIPs combine the benefits of life insurance with the potential for wealth creation by investing part of the premium in equity or debt markets. These plans are ideal for long-term financial goals like building a retirement corpus or funding significant life events, as the investments have the potential to grow over time.
  Since ULIPs are market-linked, they offer high rewards but also carry an element of risk. It’s advisable to opt for ULIPs only if you have a disposable income to invest, as the market’s volatility can lead to fluctuations in returns. Nonetheless, ULIPs provide a unique opportunity to combine life cover with investment growth, making them appealing for wealth creation.
• Money-Back Insurance Plans: Money-back plans are ideal for those seeking a combination of insurance coverage and periodic returns. Unlike traditional life insurance policies, they provide regular payouts, called “survival benefits,” during the policy term. These payouts can be a helpful source of liquidity to meet financial needs at various life stages. If the policyholder survives the term, they receive the remaining sum assured. In the unfortunate event of the policyholder’s death, the nominee receives the full sum assured, ensuring financial security for the family. Money-back plans are particularly suited for individuals who prefer a steady stream of income throughout the policy term, alongside insurance protection.
• Whole Life Insurance Plans: Whole life insurance provides lifelong coverage, usually up to 100 years, offering a guaranteed death benefit no matter when the policyholder dies. In addition to the life cover, whole-life plans often come with a savings component that accumulates cash value over time, which can be borrowed against or used during the policyholder’s lifetime. These funds can be helpful for financial emergencies, retirement, or leaving behind a substantial inheritance for loved ones.  
• Child Insurance Plans: Child insurance plans safeguard a child’s future by providing financial support for important milestones, such as higher education, marriage, or starting a business. These plans typically combine life insurance with an investment component that grows over time, helping parents build a substantial corpus to secure their child’s future. In case of the policyholder’s (usually the parent’s) death, the plan continues without requiring further premium payments, ensuring that the child’s financial needs are still met. Child plans are an excellent way to secure your child’s financial future, even in your absence.
• Retirement Insurance Plans: Also known as pension or annuity plans, retirement insurance policies are tailored to help individuals accumulate a financial corpus during their working years, which will provide regular income during retirement. These plans ensure you maintain a comfortable lifestyle after retirement, with payouts paid either as a lump sum or as regular income. Retirement plans are crucial for those who want financial independence in their golden years, allowing them to meet their post-retirement expenses, from daily living costs to medical bills.
• Universal Life Insurance: Universal life insurance is a flexible form of permanent life insurance. It allows policyholders to adjust both the premium payments and the death benefit over time. It also comes with a savings component, where a portion of the premium earns interest.
  This makes it a versatile option for those whose financial circumstances may change over the years, allowing them to modify the policy accordingly. The accumulated cash value can be accessed during the policyholder’s lifetime, providing an added financial cushion. Universal life insurance suits individuals looking for flexibility in their insurance plans while also wanting to build a cash reserve over time.
• Variable Life Insurance: Variable life insurance is a permanent policy that offers both death benefits and an investment element, where the cash value is tied to the performance of a portfolio of investments, such as stocks or bonds. The value of the policy, as well as the death benefit, can fluctuate based on market performance. While this offers the potential for significant growth, it also introduces a higher level of risk, as market downturns could reduce the policy’s value. Variable life insurance is suitable for those with a higher risk tolerance and an interest in growing their wealth while maintaining life insurance coverage.

Here’s a guide to buying life insurance in India, that can help you with your decision

Tax Benefits on Types of Life Insurance

Life insurance policies not only provide security but also offer significant tax benefits under the Income Tax Act, 1961:

• Section 80C: Premiums paid for life insurance are eligible for a tax deduction of up to INR 1.5 lakh per year, applicable to all life insurance policies.
• Section 80D: While primarily for health insurance, some life insurance policies with health riders also qualify for deductions.
• Section 10(10D): The death benefit received by the nominee, or the maturity proceeds are exempt from tax, ensuring the full benefit reaches your family.

Read our blog to learn more about how to get tax-smart with insurance. 

How to Choose the Right Life Insurance Policy

Choosing the best term plan for yourself may seem daunting, but here’s how to simplify the decision:

• Align With Your Goals: Choose a policy that matches your financial goals. For low-cost family security, opt for an online term insurance plan. For investment and protection, consider ULIPs.
• Consider the Sum Assured: Ensure the sum assured covers your family’s living expenses, debts, and future goals. Typically, it should be 10-15 times your annual income. You can also opt for a combination of policies – term, savings, and ULIP and build a solid financial cushion for your family.
• Policy Term: Align the policy term with your financial obligations. For example, a longer term might be needed if you have young children.
• Add Riders: Enhance your coverage with riders like critical illness cover or accidental death benefits for extra protection.
• Research the Company: Check the insurance company’s claim settlement ratio and customer reviews. Make a note of its solvency ratio which is an indicator of its financial stability and reliability.

Things to Remember While Buying Life Insurance

When buying a life insurance plan, keep these key points in mind:

• Understand Policy Terms: Know the terms and conditions, including exclusions.
• Evaluate Coverage Needs: Assess your financial situation to determine the right coverage amount.
• Check for Exclusions or Hidden Costs: Be aware of any exclusions or hidden fees that might impact your coverage.
• Review the Policy Details: Always read the fine print to ensure you fully understand the policy details

Wrapping it Up

Buying life insurance is easier once you have done your homework. A thorough research before buying your life insurance policy will fetch you the peace of mind you crave.

Get started now with our term plans, a must for every household.