Benefits of a Life Insurance Policy
Life insurance is a contract between the insurance company and the insured customer in which the insurance company agrees to pay a particular amount known as Sum Assured in the event of the death of the Policyholder to the nominee as a death benefit or legal heir in return for a consideration known as Premium Amount. The life insurance contract is valid for the period mentioned in the policy copy both agreed by the insurance company and the insured customer. This period can range from 5 years to 99 years of the life of the person and the coverage is present throughout the period of insurance.
The life insurance business dates back to the 1800s in India where the first life insurance company “Oriental Life Insurance Company” has started functioning in India under British Management. The first Indian Life insurance company “Bombay Mutual Life Assurance Society” was started in the year 1870 under the Indian Management and has offered life insurance solutions to the Indians. In the year 1912, The Indian Life Insurance Companies Act was enacted to regulate the life insurance business in India.
As we know Life Insurance Corporation of India is the largest and oldest existing insurance company in India carrying out its operations. LIC has the lion share in the life insurance business in the Indian market and the smaller share is being taken by the Private life insurance companies. LIC is the oldest life insurance company in India and the only government-run life insurance company in India and there are almost 25 private life insurance players in the Indian market competing for the life insurance business. The life insurance penetration in India for the year 2020 stands at 3.7% of the GDP which is one of the lowest in the world, while the World average stood at 6.31% of the GDP for the same year. The life insurance policy sector in India is growing at the rate of 12% while the general insurance sector is growing at the rate of 18% per annum.
Despite many efforts taken by the Indian government by announcing Rebates and Subsidies the life insurance penetration in our country has not been satisfactory due to the mindset of people. Insurance is still considered as an expense by many people that don’t yield any real-life insurance policy benefits for them when they are alive and this thought process has been changing in recent years due to the creative and thought-provoking campaigns by the insurance companies.
There are so many uses of life insurance policies. Let us understand about life insurance policy benefits.
Life cover against any uncertainty:
Life insurance policy as defined above is the contract between the insurance company and the insured customer in which the insurance company provides cover against any unfortunate event or uncertainty such as Death or Disability. In the life insurance policy, the cover can be taken for a certain period depending on the requirements of the customer. The minimum coverage period is 5 years and the maximum period is 99 years or till death for most of the life insurance policies.
Uncertainty can be defined as the state of being uncertain such as the death which is evident but the date and time of death cannot be predicted. Death is inevitable but is an uncertain event that can occur at any time resulting in the destruction of a family if the breadwinner of the family passes away suddenly. All the uncertainties related to death and disability can be handled by taking a life insurance policy in your name.
The government of India has started encouraging people to purchase life insurance policies by providing tax exemption for the premium paid under a life insurance policy. In case of death, the sum assured that is paid to the nominee is tax-free since the proceedings are from the life insurance due to the death of the policyholder. In the case of Maturity proceedings in life insurance, income tax benefits have to be paid as per the eligible slab due to the nature of the proceedings being investment earnings.
Under Section 80C, life insurance premiums paid is eligible for a tax deduction up to Rs.1.5Lacs. Under section 80C of the income tax act 1961, there are other options that can be used to claim the tax deductions, or the entire life insurance premium amount can be claimed under the 80C section.
Under section 10 (10D) of the Income-tax Act,1961 any amount of sum insured plus the accrued bonus paid on Maturity or Surrender or on Death of the policyholder are tax-free if the premium payment in any year exceeds the prescribed percentage of the actual sum insured.
Financial Security for the family:
Financial security is the ultimate goal of any human being. Financial security can be achieved by many methods such as investing, working a job, or taking a life insurance policy! The life insurance policy provides financial support to your family in case of your sudden demise and a Maturity payouts policy provides financial security after your retirement.
Having a life insurance policy 10 times your annual income can save your family sail through uncertain times in case of your sudden demise. If you are the breadwinner of your family, then it is of utmost importance for you to have a life insurance policy as your demise may put your family’s financial situation in jeopardy. In case of the policyholder’s sudden demise the life insurance company pays the sum assured to the nominee or the legal heir of the deceased which helps the family to survive in a better position.
Each one of us thinks to provide a good future and comfortable life to our children and family members, but we also need to think about what would happen to them if we meet with any unfortunate incident? Life insurance policy cover in such situations can help your children and family get out without any financial crunches. If you plan to provide everything to your family other than financial security, then it may lead to difficult times after your sudden demise or sudden disability.
Inclusion of Riders:
A rider in a life insurance policy can be defined as the extra coverage provided to the customer with the existing life insurance policy on payment of extra premium and the coverage of the rider remains equal to or less than the basic policy period. Riders such as Disability benefit, Critical Illness, Waiver of premium, return of premium, etc are available to the customer on payment of extra premium.
Disability benefit is the most preferred rider in the life insurance policy which provides sum assured to the policyholder or nominee in case of disability due to an accident. Critical illness rider provides the sum assured to the policyholder in case of diagnosis with any of the critical illnesses mentioned in the policy copy. The diagnosis report is enough to claim the critical illness proceedings from the insurance company and this rider is intended to provide the customer with critical illness treatment costs. Waiver of premium rider provides you an opportunity to waive your future premium payments in case of accidental death or disability or diagnosis with a critical illness.
Life insurance policy is considered as one of the financial investing tools in our country for the future and also plays an important role in financial planning. Investment advisors stress the importance of a life insurance policy for every individual planning for their future. We invest to grow our money and lead a comfortable life with that investment returns when we are not able to work.
A life insurance policy is the only tool that has the option of investment as well the insurance coverage in the market. Life insurance products are designed to provide both the insurance coverage and the investment option in a single product thereby providing comforts to the customers. A part of the premium paid for a life insurance policy goes into investment and the other part of the premium is utilized to provide coverage against any unfortunate event.
Loan against Life insurance policy:
Some of the Life insurance policies provide us with the option of a Loan against the life insurance policy. Life insurance companies provide their customers with loans against their life insurance policies (a few kinds) up to a certain limit and charge interest for the amount provided. This amount provided by the life insurance companies would be less than the premium paid by the customers over the policy period.
These life insurance policies provide loans against the premium paid under the policy by the policyholder. The life insurance premium accumulated over a period of time along with any accrued bonus is used to give the loan. This loan is given at a nominal interest rate for occasions such as Child’s marriage, Study purpose, or any other similar occasions.
Life insurance companies offer retirement options to their customers which include Annuity plans and Retirement plans. These plans include both the life insurance policy coverage as well as the Investment option. An annuity is a plan that helps the policyholder to get regular payment for life after making the lump-sum payment. The insurance company invests the lump sum amount of the investor to pay back the returns generated from the investment.
Retirement plans require periodic payments i.e. monthly, quarterly, half-yearly, or annually to be made by the policyholder to the insurance company up to a certain period of time i.e. retirement time. The insurance company will invest this amount and pay a certain amount to the policyholder after retirement. This corpus depends on the plans chosen by the policyholder, the more the risk-taking capacity of the customer generates more corpus and vice versa.
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