Life Insurance

Life insurance is a contract between an individual and an insurance company where the individual pays premiums in exchange for the insurer's promise to pay a lump sum (called the death benefit) to the beneficiaries upon the insured person's death. There are also policies that offer a combination of life coverage and savings/investment options.

Life insurance provides financial protection to your dependents in case of your untimely demise. It helps:

• Secure the future of your family.
• Provide income replacement for loved ones.
• Pay off debts and liabilities.
• Ensure children’s education, marriage, etc.
• Accumulate savings or investments in some plans.

Some common types of mutual funds in India include:

• Term Insurance: Pure risk cover, offering a large sum assured at a low premium. It provides a death benefit to the nominee if the insured dies within the term.
• Endowment Plans: Combines risk cover and savings, paying out a lump sum at the end of the policy term or on death.
• Whole Life Insurance: Provides lifelong coverage, with the sum assured paid to beneficiaries in case of death, anytime during the policyholder's life.
• Unit Linked Insurance Plans (ULIPs): A combination of insurance and investment. A part of the premium goes into the market, offering the possibility of high returns along with insurance coverage.
• Money Back Policy: A policy that pays periodic returns during the policy term and the remaining sum assured is paid on death or at the end of the term.
• Child Plans: Specifically designed to ensure financial security for your child's future education, marriage, etc.
• Critical Illness Insurance: Provides a lump sum amount if the policyholder is diagnosed with critical illnesses like cancer, heart attack, etc.
• Pension Plans: Aimed at providing a regular income post-retirement.

The coverage depends on various factors, such as:

• Your family’s financial needs (monthly expenses, debts, education, etc.).
• Your income and savings.
• The number of dependents. A general rule of thumb is that your life cover should be 10-15 times your annual income. However, you can also use a detailed needs analysis to determine an appropriate amount.

Premiums are determined based on several factors:

• Age: Younger individuals pay lower premiums.
• Health Status: Insurers may require a medical check-up. Pre-existing health conditions may increase the premium.
• Occupation: Riskier occupations may lead to higher premiums.
• Coverage Amount: Higher sum assured means higher premiums.
• Policy Type: Comprehensive policies or ULIPs with investment components tend to have higher premiums.
• Lifestyle Factors: Smoking, alcohol consumption, and other habits can increase premiums.

The grace period is the time allowed beyond the due date of a premium payment during which the policyholder can still make the payment without losing coverage. Typically, it ranges from 15 to 30 days.

Yes, most insurance policies allow modifications such as:

• Changing the Sum Assured: You can increase or decrease coverage.
• Changing Beneficiaries: You can update the person who will receive the death benefit.
• Riders: Adding additional coverage for critical illness, accidental death, etc

To file a life insurance claim:

• Inform the insurer: Notify the insurance company as soon as possible after the death of the policyholder.
• Submit required documents: Death certificate, policy document, identity proof, medical records (if required), etc.
• Claim Processing: The insurer will verify the documents and process the claim.
• Payment: Upon approval, the sum assured will be paid to the beneficiary.

A nominee is the person you designate to receive the death benefit if something happens to you. You can choose one or more nominees, and they need to provide the required documents to claim the insurance amount.

Life insurance has several tax benefits under the Income Tax Act:

• Section 80C: Premiums paid for life insurance policies are eligible for tax deductions (up to ?1.5 lakh per annum).
• Section 10(10D): The death benefit received by the nominee is tax-free.
• Tax on ULIPs: Returns from ULIPs may be subject to tax if the premium exceeds 10% of the sum assured.

Yes, life insurance policies can be surrendered after a certain period (typically 3 years or more), and the policyholder can receive a surrender value. The amount depends on the premiums paid, the policy type, and the duration.

If you miss a premium payment:

• Within the grace period: The policy remains active.
• After the grace period: The policy may lapse, and you will lose coverage, though you may have the option to reinstate it by paying the overdue premium along with any penalties.

ULIPs (Unit Linked Insurance Plans) combine insurance with investment. A portion of the premium is used for life cover, and the remaining amount is invested in equity, debt, or a mix of both, depending on the policyholder’s preference. The returns are market-linked and vary based on the performance of the underlying assets.

Riders are additional benefits or add-ons that can be attached to a basic life insurance policy for enhanced coverage. Some common riders include:

• Accidental Death Benefit: Additional payout in case of death due to an accident.
• Critical Illness Rider: Covers specified critical illnesses like cancer, heart attack, etc.
• Waiver of Premium Rider: Waives off future premiums if the policyholder becomes disabled or critically ill.

You can buy life insurance through:

• Directly from Insurance Companies: Visit the insurer’s website or branch.
• Insurance Agents/Brokers: Agents help you choose the best policy.
• Online Portals: Many insurance companies allow you to compare and buy policies online.

Not all policies require a medical check-up. However, for higher coverage or for applicants above a certain age (typically 40-45 years), insurers may require a medical examination to assess health risks.

Yes, you can switch your life insurance policy from one insurer to another without losing your policy benefits under the portability option, but this is typically applicable to health insurance and not life insurance policies. Life insurance portability varies by insurer and policy type.

The free look period allows policyholders to review their insurance policy. If the insured dies within this period, the insurer will pay the death benefit to the nominee, subject to the policy terms.