Life Insurance and Premium

31A Insurance protects you from financial loss and risk of loss is transferred to another party through a contract. The insured receives a contract called the insurance policy. Insurance is a contract between the insurance company and the life assured (insured) and the premium is the consideration which makes the contract complete. The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated.

Life insurance vs Non-life insurance

Life insurance is an insurance cover that gives out a certain amount to the insured or their nominated beneficiaries upon a certain event such as death of the individual who is insured. The risks that are covered by Life Insurance include – premature death, income during retirement, illness.

Non-Life Insurance covers things apart from the things covered in Life Insurance. The coverage period for most non-life insurance policies and plans is usually one year, whereby premiums are normally paid on a one time basis. The main products of non-life insurance includes – motor insurance, fire/house owners/householders insurance, travel insurance.

Insurance Premium & Level premium

An insurance premium is generally expressed as premium per thousand rupees of sum assured and is illustrated in the form of tables of premium rates by insurance companies. Premium varies across insurance plans, policy terms, sum assured and the age of the proposer. Periodicity or mode of premium payment depends on the type of policy chosen and also on the payment options that the policy offers.

When the premium charged under a policy remains the same throughout the duration of the contract, it is called level premium. In this case premium level is guaranteed and cannot be changed by the company at a later date. This is advantageous for both the life assured and the insurance company and therefore most life insurance plans except some term insurance plans involve level premium payment.

Importance of Life Insurance in your life

Life insurance as “Risk cover”: First and foremost, insurance is about risk cover and protection – financial protection, to be more precise – to help outlast life’s unpredictable losses. By buying life insurance, you buy peace of mind and are prepared to face any financial demand that would hit the family in case of an untimely demise.

Life insurance as an “investment”: The total amount invested in life insurance goes towards providing for the risk cover, while the rest is used for savings. In life insurance, unlike non-life products, you get maturity benefits on survival at the end of the term. In the unfortunate event of death within the tenure of the policy, the family of the deceased will receive the sum assured. Thus, insurance is a unique investment avenue that delivers sound returns in addition to protection.

Life insurance as “Tax planning”: Insurance serves as an excellent tax saving mechanism. Buying a life insurance plan entitles you tax benefits on:Your premiums under Section 80C. Maturity or death claim proceeds under Section 10 (10D).

Important types of life insurance policies

Here are a few common types of covers, including whole life and term insurance policy.

Term Plan: Term insurance policy offers coverage only for a set period of time. On the occurrence of death or permanent disability during the tenure of the plan, the beneficiaries will be paid benefits to cover income loss or unpaid debt. However, if the insured survives the term of the plan, no such benefits are paid.

Whole Life Insurance: Whole life plans strive to give you lifelong protection. Such cover comes with death benefits, meaning your family can continue to be financially stable after your death. It also comes with maturity benefits, after the expiry of the term. Most people use this type of policy to create an inheritance or estate for their children.

Savings and Investment Plans: There is a savings quotient linked to such policies. They come with a specified maturity period, as decided by the insurer. On the occurrence of any unforeseen event of the death or permanent disability, during the tenure of the policy; the sum assured will be received by the said beneficiaries to the policy. If the insured survives the term of the policy, the agreed maturity benefits become payable.

Retirement Plans: Insurance plans that ensure financial independence after retirement.

Child Plan: These plans can be taken in the name of the child or the parent. However, it is only for the benefit of the child. This helps parents mobilize finances when the child reaches a particular age or stage of life.

What is Riders?

Life insurance riders are contingent additional benefits over a primary policy, which come into play in case of a specific eventuality. They offer financial cover over and above basic sum assured in a life insurance policy. Critical illness rider, Disability rider, Accidental death benefit rider, Term rider and Waiver of premium rider are some of the different kinds of life insurance riders.

Protect your family with life insurance
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