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Life Insurance in India: What You Absolutely Must Know
Life insurance is that insurance which pays out a guaranteed sum either on the death of the insured or after a set period, given regular payment of premiums by the insured. Life insurance policies can be pure protection plans, or plans offering some kind of return in addition to protection. According to an article on the website of the Insurance Regulatory and Development Authority of India (IRDA), there are 24 life insurance companies in India. Life Insurance Corporation of India (LIC) is the only public sector company in the life insurance business.
Categories of Life Insurance Policies
According to an article on bharti-axalife.com, there are four kinds of life insurance policies in India. These are term insurance plans, endowment plans, ULIPs, and pension plans.
- Term insurance plans are those which are purely designed to protect you from the risk of the untimely death of the insured, usually the earning member of the family. The plan is taken for a fixed period of time, and offers a guaranteed sum assured in the case of the death of insured. There are no benefits in case the insured outlives the period of the term policy. Term life insurance is the cheapest way to obtain financial security.
- Endowment plans offer a way to obtain returns on your savings, in addition to gaining protection. Thus, such plans offer a benefit upon maturity, even if the insured is still alive at the end of the policy term.
- ULIP, or unit-linked insurance plans, are life insurance plans that give you the benefit of investing in securities. Such plans are similar to mutual funds in that they offer a choice of investment options, depending on your risk profile. They invest your premium in equities and in debt instruments. Unlike a mutual fund, they also offer a sum assured in case of the death of the insured.
- Pension plans, also known as retirement plans, offer you a way to build your savings for the retirement years. The insured pays premium for a certain period of time, and on the plan’s maturity, benefits are paid out on a monthly or an annual basis.
Points to Keep in Mind While Purchasing Life Insurance
There are several points to keep in mind when purchasing a life insurance policy.
- Decide how much life insurance coverage you need. Do you want returns along with protection, or are you looking for a term insurance plan?
- Compare the different polices available. Look at the life insurance quotes for the different policies offered by the various life insurance companies. Choose a policy whose premium you can afford.
- Look at the claims ratio of the various life insurance companies. This is the ratio of claims paid out to the total number of claims made. This will give you an idea of whether the company pays the claims made by its customers. According to an article on livemint.com, the claims settlement record of insurance companies has improved in FY 2015 as compared to the previous year. LIC’s claims settlement ratio improved to 98.19% from the previous year’s 98.14%. Private sector life insurance companies settled 89.4% of the claims received in FY 2015, as opposed to 88% in the previous year.
- There are various tax benefits associated with taking life insurance policies, according to an article on moneycontrol.com. Premiums invested in life insurance policies are eligible for a deduction under Section 80 C of the income tax act, 1956 within an overall limit of Rs 150,000 per year along with other eligible items. However, in case the amount paid towards the life insurance premium exceeds 10% of the amount of the sum assured, the deduction can only be taken up to 10% of the sum assured. In addition, the proceeds on the maturity of the insurance policy will be fully exempt if the premium paid on that policy did not exceed 10% of the sum assured during any of the premium-paying years.