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Life Insurance is a contract between you and a life
insurance company, which provides your beneficiary with a
pre-determined amount in case of your death during the
contract term.
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| Buying insurance is extremely useful if you are the
principal earning member in the family. In case of your
unfortunate premature demise, your family can remain
financially secure because of the life insurance policy that
you have purchased. |
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The primary purpose of life insurance is therefore
protection of the family in the event of death. Today,
insurance is also seen as a tool to plan effectively for
your future years, your retirement, and for your children's
future needs. Today, the market offers insurance plans that
not just cover your life and but at the same time grow your
wealth too.
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| If you have dependants and financial
responsibilities towards them, then you certainly need
insurance. |
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| Having a family means dependants, which, in turn
means financial commitments. Financial commitments come in
the form of loans, children's education, medical expenses
etc. |
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Imagine what would happen if you were to lose your
life suddenly or become disabled and cannot earn. . Being
insured in a situation like this is a necessity.
When you insure your life, in effect what you are doing is
insuring your earning capacity. This guarantees that your
dependants will be able to continue living without financial
hardships even in case of your demise. |
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Most insurance plans available today come with a
savings element built into it. These policies help you plan
not only for protection against death but also for a
financially independent future, which would enable you to
have a comfortable retirement.
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| In order to buy a life insurance policy, you must
pay premiums to the life insurance company. The amount of
premiums payable depends upon the type of policy, term of
policy contract, sum assured and your age. |
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You could pay these premiums monthly/ half-yearly/
annually/ or as a single premiums.
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| The primary need is buying financial
security for your family. Other aspects that insurance helps
fulfill are: |
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| Tax benefits |
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| The Tax exemption available under our insurance and
pension policies are described below: |
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Under
Sec.80C of the Income Tax Act
Premiums paid upto maximum of Rs.1,00,000/-, subject to
maximum of 20% of Sum Assured ,to effect or keep in force
an insurance on the life of the individual, the spouse and
any child of the individual. |
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Under
Sec.80CCC of the Income Tax Act
Premiums paid upto maximum of Rs. 1,00,000/- to effect or
keep in force a contract of annuity plan for receiving
pension.
However, u/s.80 CCE, the aggregate amount
of deduction under section 80C, section 80CCC, and section
80CCD shall not, in any case exceed Rs. 1 lakh. |
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Under
Sec.80 D of the Income Tax Act
Premiums paid (other than through cash) towards Critical
Illness Rider, subject to a total maximum of Rs.15,000/-
(an additional Rs 5,000 for senior citizens) to effect or
keep in force an insurance on the health of the
individual, spouse and dependent parents or children. |
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Maturity
Benefits are exempted Under Sec.10(10D) of the Income Tax
Act.
Maturity benefits are tax free. However in cases where
premium exceeds 20% of Sum assured in any year, benefits
paid in excess of premiums paid will be taxable. |
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As a tool of financial planning
Most insurance plans available today have a built in savings
element. Plans like the Endowment Plan, fMoney back Plan,
Child Advantage Plan, Preferred Retirement Plans, etc allow
you to meet your dual financial goals of life cover and
Savings for the future. |
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Collateral security for loans
You may avail of a loan from the insurance company against
certain plans. Your policy could also be pledged as a
collateral to raise funds from banks and other financial
institutions. In case of your unfortunate death the loans
may be repaid from the proceeds of the life insurance
policy. |
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Savings
Insurance promotes compulsory savings with regular premium
payments and helps build up a corpus of funds along with
financial security for the dependants in case of premature
death. |
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For your medical needs and that of
your family
Hospitalization costs and quality healthcare is becoming
increasingly expensive. Without insurance, you can actually
face a situation where you have withdrawn all your money and
borrowed to pay the medical bills. This can be provided with
our Critical Illness Benefit. Insurance provides you the
option of covering yourself towards any critical illnesses
that can become extremely costly. Choosing this facility
pays you a lump sum upon diagnosis of certain diseases like
cancer, kidney failure, heart attack, stroke, coronary
bypass, vital organ transplants, Alzheimer's disease,
paralysis, etc. |
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| One of the simplest rules is to assume that
insurance is a replacement for your lost earning capacity.
Calculate your total income for the years that you expect to
work. |
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| Assuming that the prevailing interest rate is 8%,
you need to insure your life for at least 12 times your
current annual income. Assuming that a family needs Rs.100
annually for household expenditure and the rate of interest
would be at 8%, then the breadwinner needs to have a life
insurance policy of approximately Rs.1200. If the insurance
amount were to be put in the bank by the family, the family
would get a comfortable Rs.96 p.a., which would at least let
the family maintain the current life style. |
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However to calculate your insurance need more
precisely, use the following steps:
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Calculate Monthly
Livable Income required (Post tax). This is the monthly
amount that the survivors of the policyholder will need in
the event of his death. This is taken at 70% of the
current total family expenses. Denote this as
"M". |
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Calculate Monthly
Income required (Pre tax) as M/ (100-t)%. Denote this as
"M1". Here t = Tax rate. |
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Calculate Annual Income
(A) = M1*12. |
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Assume
Estimated-earning rate on capital as 8%. Denote this as
"r". |
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Calculate Capital
livable income required (C ) as A/ r%. |
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Subtract Existing
Insurance Cover amount (if any) from "C". |
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The final amount you
arrive at is the amount for which you should buy
insurance. |
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Term Insurance, also known as pure life cover, is
the cheapest and the simplest form of insurance. Under this
insurance policy, against payment of regular premium, the
insurer agrees to pay your beneficiaries the sum assured in
event of your premature death. However, if you survive till
the end of the policy term, nothing is payable to you. This
policy has no savings component and the premiums you pay are
purely a cost to buy you life cover. For example, Term Plan.
This is suitable for you if… |
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You are looking for a
low cost life cover without any savings benefits attached.
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You are at that stage
in life where insurance cover is vital but you cannot
afford high premium payment due to low income. |
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| Further if you are a non-smoker not only good
health is guaranteed but also cheaper insurance through the
Preferred Term
Plan. |
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| An Endowment Policy is a combination of savings
along with risk cover. These policies are specifically
designed to accumulate wealth and at the same time cover
your life. In simple words, these polices are issued for
specific time periods during which you pay a regular
premium. If you die during the tenure of the policy, your
beneficiaries will receive the sum assured along with the
accumulated bonus additions and if you outlive the policy
tenure you will receive the sum assured along with
accumulated bonus additions (if any). For example, Endowment Plan. |
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This is suitable for you if…
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You want to accumulate
capital for anticipated financial needs like buying an
asset such as a home, providing for your old age, your
children's education, marriage, etc. |
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| Yes, a MoneyBack Policy. This is an anticipated
endowment policy with an additional feature of receiving a
benefit at regular intervals during the tenure of the
policy. The risk cover continues for the entire sum assured
inspite of the installments already paid. If you outlive the
policy, the balance sum assured along with accumulated bonus
is paid back to you. For example, Money Back Plan. |
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| This is suitable for you if… |
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You plan to coincide
the funds received from the policy with your future
anticipated needs like a car, an overseas holiday,
children's educational needs, marriage expenses, etc. |
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All policies provide yearly, half yearly and
quarterly modes of premium payment.
In the Endowment Plan,
you also have the option to pay the premiums only for a
limited period of time and not for the full policy term.
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| Yes, Life Insurance , which can be used as an
investment option to build wealth for your child's
anticipated financial needs like education or marriage or
business while covering his / her life. |
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| Riders are additional benefits that can be attached
onto your basic life insurance policy. These riders give you
the benefit of increasing your risk cover in case of certain
events happening. For instance if you have taken an Accident
Death Benefit rider and you die due to an accident then your
beneficiaries can get upto a maximum of twice the basic sum
assured. |
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| Similarly there are different riders addressing
different contingencies like Critical Illness, Permanent
Disability Benefit, etc. There are riders available that
waive your future premiums in case of death or disability of
the proposer. |
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| These riders come at a nominal cost. and can be
availed of depending on the policy taken. These can only be
taken at the beginning of the policy term. |
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Riders offered by Life Insurance are Accidental Death
Benefit, Permanent Disability Benefit, Critical Illness
Benefit, Term Benefit, Preferred Term Benefit, Life Guardian
Benefit, and Accidental Disability Guardian Benefit etc.
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| The maturity values are product specific. Please
refer to individual product pages for exact details. |
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| Life Insurance offers a grace period of 30 days
after the premium payment due date for paying the
outstanding premium. If you fail to pay the premium on your
policy within this grace period your policy will lapse. You
can revive your lapsed policy by paying your outstanding
premium and 6% handling charges. This facility is available
for six months. However, you can still revive the policy
within 5 years from the date of issue of policy. But if you
are applying for revival of your policy in this period, then
shall entail submission of proof of good health and your
premiums will be recalculated. |
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However, if your policy has been in force (in
existence with all premiums paid on time) for three years
and after that you fail to pay the premium, then your policy
will get serviced out of your balance in your Accumulation
Account. Every year the amount in this Accumulation Account
will be used to covering your life (mortality charges and
other expenses) will be deducted from your accumulated fund.
This will continue till this fund has sufficient balance
after which your policy will be terminated.
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| On maturity, you will receive the sum assured or
the Accumulation Account whichever is higher. Lets
understand how does this work… |
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Every year you will pay
premium on your policy. |
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This premium will get
credited to an Accumulation Account. |
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The amount required
towards your life cover expenses and any other expense
would be deducted from this Account. |
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The balance will be
invested in sound financial securities (as per IRDA
regulations) on your behalf. |
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The bonuses declared
each year by the company would be added to the
Accumulation Account. Thus, every year the value in your
Accumulation Account will get compounded. |
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At the end of the
policy tenure, you would receive the amount in the
Accumulation Account or the sum assured, whichever is
higher. |
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| Yes. The premium that you pay on your insurance
policy is mainly dependant upon two things - your age and
the tenure of the policy. The younger you are, the lower is
your insurance premium amount. . At younger age, you would
be physically sound and may not be suffering from illnesses/
medical. This would entitle you to a lower premium on the
policy. Therefore it is advisable to buy insurance at an
early age to reduce the cost of insurance. |
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| Yes. Retirement Plans. This is a pension plan,
which helps you to regularly invest your savings during your
earning life in order to build up a retirement corpus to
take care of your post retirement needs. Further you may be
eligible for a tax deduction on the premiums paid up to Rs
10,000 (as per current tax provisions) per financial year
under section 80CCC of the Income tax Act. On retirement you
can withdraw upto one-third of the Accumulated Account,
which is tax-free and for the balance amount, you can buy an
annuity. |
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| Yes. With the Endowment Plan, there is a Limited
Premium Payment (LPP) option. Under this option you can take
a policy for 10 to 30 years and opt for paying premiums for
3, 5, 7, 10 or 15 years after which premium payment ceases
but the cover continues for the entire tenure of the policy.
This option is suitable for people who are sure of secured
income only for a specified period of their earning life
during which they want to pay off all their premiums. |
