Merits and Demerits of Life Insurance Policy:
Life insurance is being seriously considered by many Indians after the entry of the coronavirus. Life insurance is an agreement between the customer and the insurance company in which the insurance company pays the death claim of the insured to the nominee of the insured in case of the sudden death of an insured person. Life insurance is considered one of the best financial tools available in the markets as it covers both the investment and insurance parts under a single policy.
Merits of Life Insurance
- Easy to Buy: When it comes to buying a life insurance policy then it is a simple and hassle-free process. Buying a life insurance plan is easy and in the times of COVID-19, it is highly recommended to buy the life insurance plan online. Besides, buying a life insurance plan online will also help you to save more money than what is bought offline.
- Financial Security: The main purpose of life insurance is financial protection. If the sudden demise of the insured can put the family in jeopardy. With no regular income, the family may soon face a financial crisis. Having a life insurance policy helps your family come out from any financial crisis after your sudden demise.
- Death Benefit: In case of any unexpected event to you, which results in the loss of income to the family, the insurance company provides compensation in the form of the death benefit to the family. The nominee of the insured receives the death benefit as well as the accrued bonus if any, depending on the type of the policy. The death benefit can be claimed as a lump sum or monthly benefit, in which the monthly benefit option can be a boon for the family having old age people or disabled people.
- Return on Investment: Whenever you visit a financial advisor for financial planning you can see that most of them suggest you go for life insurance. They encourage you to invest in life insurance so that you and your loved ones are not only protected but also a considerable amount of returns can be obtained from the policy. Many life insurance schemes in India provide decent returns as well as bonuses that no other investment tools offer. Life insurance is considered one of the safest tools for investment as the money invested is returned to you or your family at the time of maturity or as a death benefit.
- Income tax exemption: The premiums paid under the life insurance policy are eligible for income tax exemption under section 80C. At present under this section of income tax, you can avail of a maximum tax deduction of Rs.1.5Lakh.
- Additional Coverage: Additional coverage is also called riders. The riders allow you to increase the coverage and get comprehensive coverage. Riders may include coverage against personal accident, waiver of premium payments, critical illness, loss of income due to a disability, etc.
- Retirement Income: Life insurance policies can also be taken for the purpose of regular income after retirement. These policies are called annuity policies and are available with every life insurance company. If you take an annuity policy and pay a premium till your retirement age, then after your retirement monthly income is paid to you by the insurance company.
- Loan availability: In the event of any emergency such as a college fee or property purchase, the loan can be availed against your life insurance policy. These days almost all insurance companies are providing this option. When you apply for a loan a certain amount of your sum assured is provided as the loan amount.
Demerits of Life Insurance
- High premium for aged people: This is the major disadvantage of the life insurance policy. The higher the age the higher would the premium to be paid in the life insurance. This is due to the simple fact that the risk increases with the age so is the premium. So, it is advisable to take life insurance at a very early age to prevent yourself from paying high premiums. There is a chance where the insurance companies have rejected or denied providing policy to old age people having ailments.
- Difficult to calculate the returns: The returns on the life insurance policies are quite complicated and it is highly difficult to predict the returns. The returns from life insurance are purely based on market conditions and performance. So a particular figure is difficult to arrive at in the case of life insurance unlike PPF and other fixed deposit schemes.
- Complex Policies: In India, many insurance companies offer different types of life insurance plans. You can choose the best life insurance plan as per your requirement. But it can also create confusion in the minds of the customer because different insurance policies have different features. Some policies are simple, and some are not so simple. It can be daunting to choose the right life insurance policy.
- Insurance Companies May Not Pay the Benefits: The insurance companies use various tricks to avoid paying the benefits even after the maturity of the policy and also they have denied paying the sum assured or the death benefit to the policyholder or the nominee. They would mention many hidden charges or clauses to reduce the pay-out. So, it is important to carefully understand the details of the policy and choose a company that has a positive pay-out rate. Things to know about the merits and demerits of life insurance and the importance of having life insurance it is advisable to talk to our agent before entering a contract.
- Awareness of Exclusions, Hidden clauses: Any financial product available in the market certainly has some exclusions and hidden clauses incorporated into it. It is your responsibility to find out those clauses and choose the right life insurance policy. For example, most of the policies don’t pay for suicide in the first year and almost all the policies exclude loss of life due to drugs overdose or involvement in criminal activities.