Life Insurance is a contract between an insurance policy holder and an insurer, where the insurer promises to pay a sum of money to the beneficiary when the insured person dies or after a pre-determined period in exchange for the premiums paid by policyholder.
In life insurance policy you need to pay premiums for a specified policy term and life insurance company provides you with a comprehensive life cover, in return. Life Insurance protects future of your loved by paying a lump sum amount referred to as death benefit if an unfortunate event occurs. Some life insurance policies provide you a Maturity Benefit after the end of the policy term.
Lack of awareness is one of the major impediments for widespread adoption of life insurance. The availability of different types of insurance products also confuses some people. But most life insurance policies function in a similar manner. Let us understand what is life insurance and how does it work.
Life Insurance Policy Meaning
Life insurance is defined as a legally binding contract between a policyholder and an insurer in which the insurance company provides financial protection to the policyholder and pays a death benefit to the nominee when the insured dies. For a life insurance policy to remain in force, the policyholder must pay regular premiums over the period of time or pay a single premium upfront.
In a nutshell, all the benefits of a life insurance policy are tied to the payment of premiums, which is why one should opt for a premium that can be easily serviced. A life insurance policy works only if the policyholder has paid all premiums regularly.
As you have understood the meaning of life insurance policy you will find it easier to know how life insurance works.
How does a Life Insurance Policy Work?
Life insurance is a legal contract where you pay a small sum as a premium for ensuring a large protective sum. The insurer will make the large sum available to your family and dependents in the case of your untimely demise.
Usually, the life insurance is available for a limited period. Thus, if your death occurs within this period the life insurer is bound to pay a death benefit, which is also called sum assured. However, in the case of your surviving the term, you may reciveve a maturity benefit depending on the type of life insurance.
Whole life insurance plans however, are more likely to pay the death benefit than maturity benefit.
Let’s understand this with an example:
Mr. Shah bought a life insurance policy from Canara HSBC Life Insurance. The 20 year policy has a sum assured of Rs 10 lakhs and an annual premium of Rs 25,000 payable for 20 years, i.e., premium payment term = policy term.
The sum assured of the policy is also payable as maturity benefit if Mr Shah completes the policy term. Here’s how this life insurance policy will work for Mr Shah:
- Mr Shah Completes the Policy Term
1. He has paid a total of Rs 5 lakhs as premiums for the life cover
2. He will receive maturity benefit of Rs 10 lakhs + any bonus (if applicable)
3. Policy will terminate after paying the maturity benefit
- Mr Shah dies in the 10th policy year
1. He has paid a total of Rs 2.5 lakhs in premiums for the life cover
2. His nominees will receive a total of Rs 10 lakhs + any bonus (if applicable) in the 10th policy year
3. Policy will terminate after paying the death benefit
- If Mr Shah opted for Premium Protection in the policy, upon his death in the 10th year the policy will
1. Pay the death benefit (10 lakhs only) as usual to his family in the 10th policy year
2.Continue to accumulate investment value
3.Will pay the promised maturity value of Rs 10 lakhs + any bonus (if applicable) at the end of 20 year policy term
Benefits of Life Insurance Plans
Life insurance plans are long-term investment and protection plans with several benefits. A few of the most prominent benefits of life insurance plans are:
1. Financial Protection
A major benefit of any life insurance plan is that it provides financial security to your family members. Life insurance policies include a death benefit. If you die during the term of the policy, then a pre-defined amount, known as the sum assured is given to your family members.
This ensures that your family members are financially secured even after you are not present with them.
2. Builds Saving Habit
To keep your life insurance policy active, you are required to pay regular amounts known as premiums. Without the payment of premiums, your policy can get canceled. Thus, by investing regularly, you inculcate a habit of savings which benefits you in the long run.
3. Helps in Tax-Savings
To promote savings and investment, the government has made many investment instruments eligible for tax savings. Life insurance is one such instrument. You can avail of a tax deduction of up to Rs 1.5 lakh towards the premium you pay in a year u/s 80C of the Income Tax Act 1961. Thus, you have the benefit of investment as well as tax savings.
4. Achieve your Big Financial Goals
Some life insurance policies build a cash value over time. Life insurance policies such as ULIP, have an investment component as well. Your premium is invested in marketable securities and earns a return. With time they build into a large corpus that can be used to achieve goals such as your child’s education, child marriage, etc.
5. Wealth Protection & Distribution
Life insurance plans are one of the safest long term investment options. Thus, a life insurance will mean you can preserve your wealth for a long time against tax and inflation. This feature means that a life insurance plan is also a great instrument for retired investors to generate long-term pension.
Different Types of Life Insurance Plans in India
Now that you know what is a life insurance policy, let us understand how many types of life insurance policies are available. Life insurance plans are based on your discretion. There are various types of life insurance policies that you can choose from. Remember that it is important to consider your financial goals when you are planning to buy the best life insurance plan. Listed below are the different types of life insurance plans that are available:
1. Term Life Insurance Plan
Term insurance is the most popular one in life insurance category. It has a specific period and expires at the end of the term. The best things about a term plan are the premiums are quite affordable. These plans can be bought by people who have just started their career as the premiums are low. Some of the best term life insurance plans offer critical or terminal illness cover – that means the policyholder will be paid a lump sum amount on diagnosis of life-threatening diseases to help them cover the medical expenses.
Learn more about Term Insurance Plans.
2. Whole Life Insurance Plan
As the name suggests, it is a policy that covers you till you turn 99. That means, you can be protected till you are 99 years of age. Whole life insurance plans have a death benefit along with cash value. The life insurance policy’s cash value will grow over time and can be withdrawn by the policyholder when it accumulates enough value. Or, it can also be withdrawn if the policyholder opts for a loan on the life insurance policy.
3. Unit Linked Insurance Plans
ULIPs are investment plus insurance plans so that you can enjoy best of both the worlds. This is a type of life insurance policy that offers life cover along with investment opportunities. Most of the ULIPs have a lock-in period of 5 years, hence, it can be considered as a long-term investment plan. It function as per market dynamics and you should understand your risk appetite before buying a ULIP.
4. Endowment/ Saving Plans
This is a type of life insurance policy that offers you a life cover along with an avenue for savings. If you buy the best saving plan, you can save regularly over a period and this will lead you to get a lump sum amount at maturity. Buying an endowment or saving plan is beneficial if you have long-term financial goals such as funding your child’s education, buying a new house, or spending a carefree retirement life.
5. Money Back Policy
Money back policy is a type of life insurance policy that gives money-back at regular intervals. A percentage of the Sum Assured is paid back at intervals during the policy tenure. These life insurance plans offer Survival Benefits, which are paid out during the plan tenure and at maturity. If the policyholder passes away when the policy is in force, the entire Sum Assured is paid to the beneficiaries irrespective of the Survival Benefits already paid.
6. Child Insurance Plan
Child insurance plans are life insurance policies that are opted to safeguard the future of your child. Along with providing a life cover, it helps in building an education fund to support your child’s dreams and aspirations. Child plans are investment plus insurance plans designed to assist you in creating wealth for your child’s future needs. You can invest in these plans right when your kid is born to build a strong financial cover.
7. Retirement Plans
These life insurance policies help you build a retirement corpus so that you can enjoy your post-retirement life. You can make your spouse the beneficiary to your life insurance plan. So, in case, something happens to you, they can be financially independent. Also, having the best life insurance plan will help you pay for medical expenses during retirement.
Learn how to plan for medical expenses during retirement?
How to Buy Life Insurance Policy Online?
Now that you know what is a life insurance policy and how it works, let us move to the buying process. Buying a life insurance policy has got simpler with time, thanks to the online channels that allow purchasing a policy easily, without any hassles. Applying for a life insurance plan is easy in India. You can either contact the nearest branch of an insurance company. Or you can buy a life insurance plan online. Canara HSBC Life Insurance has optimized its procedure by taking it online. You can ditch the unnecessary paperwork and choose the convenience of buying a life insurance plan from the comfort of your home. Life insurance companies conduct a verification of all the details provided by the buyer before issuing a policy. One has to fill out an application form with details like medical history and family health history. The insurer may even ask you to undergo a medical examination, if required.
Earlier, Life Insurance policies could be purchased only offline via an agent. But advancements in technology have made it possible for you to buy insurance online with just a few clicks.
Here are the steps you can follow to buy your insurance online.
1. Log in to the site: https://www.canarahsbclife.com/index.html
2. You will be provided with all the life insurance options available
3. Calculate your premium by clicking on the ‘check premium’ button. After entering the details you will be given an estimated premium.
4. Move forward and enter your basic details in the application form provided
5. Undergo medical tests (If asked)
6. Based on the information entered, the premium is given
7. Pay your premium from the various online modes available. You can pay via credit card, debit card, net banking, etc
8. After the verification of details, the policy will be issued to you
How to Choose the Right Type of Life Insurance Policy?
Only understanding what is a life insurance policy is not enough. You must know what type of life insurance policy will be suitable for your needs. In addition to the amount of coverage you need, you should also figure out what type plan you need. Of all the types of life insurance plans available, there are two major questions that will help you determine the right policy –
1) How long you want your life insurance coverage to last?
2) What goal do you wish to prioritize and save for?
Answer these questions and find a life insurance plan that suits your needs.
For example, if you want a life cover where you can add your spouse too, then look for insurance plans that offer such benefits. iSelect Star Term Plan allows you to add your spouse in the same life insurance policy at discounted rates. Secure their financial future by helping them get a life cover.
How to Claim Life Insurance after Death of the Policyholder?
In the event of an untimely death of the insured, the insurance company pays the sum assured to the nominee. The claims process is very simple; the insurance company has to be informed as soon as possible after the death of the insured. The nominee has to fill a claims form and submit with required documents like death certificate. The insurance company verifies the claim and releases the benefit. In some cases, the insurance company may choose to examine the claim. You will have to provide additional documents and the claim settlement will take slightly more time. Claims can be paid out in a lump sum or in regular monthly instalments. You can choose the way you want the nominees to receive the death benefit. If the policyholder passes away, as a beneficiary of the plan, you can follow these 3 steps to file a claim:
1. Death Certificate
You will be asked to submit a copy of the death certificate of the policyholder when you start the claim process. The life insurance company may need a certified copy, hence, you must keep this document handy, if you do not want to delay the process.
2.Contact the Insurer
Contact the life insurance company and inform them. Although, when a loved one passes away, we have a lot on our plates to deal with. However, the sooner you start the entire process, the better it is.
The life insurance company may need a lot of other documents such as claim form. Ensure that all the necessary documents are ready with you before you start the claim process.
Do I Need a Life Insurance Plan?
Yes! Life insurance policies are a guarantee for your loved ones. Buying the best life insurance policy can help in providing financial assistance to your family in an unfortunate event. This covers accidental death, permanent and temporary disability, and child support. You need a life insurance plan if:
a) You are married
b) You have children
c) You are unmarried
Whether you are single, married or have kids, you need a life insurance plan to stay protected. If your family relies on you for financial support, it is better you consider buying the best life insurance plan. The cost of education is spiraling and building an education fund right from the beginning is the only solution if you want to secure their future. Also, even if you are single, unexpected expenses may pop up anytime, catching you completely off-guard.
How much Life Insurance Cover do I Need?
Life insurance cover depends on your beneficiary’s monthly income and expenses. You need to evaluate your liabilities and assess your financial goals. It requires a thorough self-assessment of retirement corpus and life goals. However, experts suggest that you should always buy a life cover at least 10 times of your income. You can be assured that you have adequate life cover for you and the beneficiaries. Not buying the right policy cover may put you in a fix. You do not need to pay premiums beyond your budget. Analyze your existing financial circumstances and calculate the premium before making any decisions.
How much Does a Life Insurance Plan Cost in India?
The actual cost of buying a life insurance policy depends on the following few factors:
1. Life cover amount
2. Your current age
3. Lifestyle and habits
4. Current and history of physical health
5. Family health history
6. Policy tenure you are intending to choose
Is Buying a Life Insurance Policy Worth it?
A life insurance policy aims to protect your family. In simple terms, the death benefit received by the nominee(s) replaces the financial assistance you provided to your dependants. In the wake of the pandemic, more people are scrambling to buy the best life insurance. Because of the financial security it provides, buying a life insurance plan is worth it. In a way, this smart financial tool must be an integral part of financial planning. Your family will be financially savvy in case something happens to you. If you protect your loved ones with the promise of a life insurance plan, you can be assured of fulfilling all the promises you had made to them, even if you are not around. And Canara HSBC Life Insurance will always keep “Aapke Vaade Sar Aankhon Par”. Listed below are our top life insurance plans that you consider:
1. Guaranteed Income4Life Plan
Guaranteed Income4Life, as the name suggests, this life insurance plan guarantees regular income along with providing a life cover. It is a highly customizable plan that offers flexibilities in terms of premium payment options and increasing life cover. The plan has 3 different variants to suit your financial requirements and goals. Whether it is lifelong protection for you and your spouse or fulfilling your child’s education needs, preparing you for early retirement or giving you that extra income to make sure every promise is fulfilled; Guaranteed Income4Life has it all covered.
2. Guaranteed Savings Plan
It is a guaranteed income plan which ensures that you get a guaranteed maturity benefit. The premiums to be paid are high, but you receive a better value in return. The GSP covers for the entire life term even though you pay premiums for a limited time. Customize your savings horizon as align them accordingly with your financial goals to meet your milestones. Whether you are planning to build an education fund for your child’s future, or you want to save for your child’s marriage, or you want to retire and lead a happy life – this savings plan may help you achieve your life goals.
3. iSelect Star Term Plan
iSelect Star Term Plan is a life insurance plan that offers a limited premium payment option. It is tailored to suit the Indian market as it is budget-friendly. The plan offers the option of adding the spouse, thereby adding a discount for the spouse. Also, it has a return of premium option. That means, if the policyholder outlives the policy term and has paid all the premiums, then the premiums will be paid back at maturity. This is a win-win! The plan also offers a variety of riders that you can add for enhanced protection.
FAQs Related to Life Insurance Meaning :
Life Cover is the lump-sum amount that the insurance company pays to the designated nominee in case of an unfortunate event. The lump sum of money which is paid after the completion of the policy term is referred to as the Maturity Benefit.
The life insurance premium is the cost of your life insurance policy. You pay premiums to the insurance company and in return, they provide you with life coverage.
You can pay your life insurance premiums in a single instalment, or regular modes. Insurance companies provide you an option to pay your premium monthly, quarterly, and even yearly.
You are expected to deposit the regular premiums within a specific time after the due date. If you fail to pay the premium even after the grace period then your policy will lapse.
The nominee is a person/s who will receive or is entitled to receive the sum assured after your death. At the time of purchase of a life insurance policy, you are required to assign a nominee who will receive the death benefit.
You can appoint more than one person as your nominee. Generally, nominees are your family members but they can be an entity as well.
Yes, one of the benefits that a life insurance plan provides is that it can help you save taxes. You can avail of tax deductions of up to Rs 1.5 lakhs on the premium paid towards your life insurance policy u/s 80C of the Income Tax Act.
Also, the maturity benefit that you receive or the death benefit that your family will receive after your death, both are tax-exempted.
There is no standard cost of buying life insurance. It varies from individual to individual. The premium that you need to pay towards your life insurance policy is based on many factors. These factors include your age, gender, income, the plan that you have chosen, etc.
If you buy the policy at a young age and you are fit then you can get very affordable rates.
In typical life insurance cases, once you miss your premium installment, you are given a grace period to pay the premium amount. In case you fail to do so even after the grace period, your policy will lapse and the benefits will no longer be paid out. However, depending on the type of policy, you might also be offered a revival period, to revive the policy; paid up can also happen depending upon type of policy and the number of premiums paid.