What is life insurance?
Life insurance is a contract between a life insured person and a life insurance policy provider. As per the policy terms and conditions, the life insurer gives a certain amount of coverage to the policyholder. In case of death, the nominee or beneficiary receives the sum assured under the life insurance policy.
The death benefit can help the family pay off the loans or expenses in addition to their own earnings after the death of the insured person. Depending on the type of life insurance plan, the policyholder can receive maturity proceeds or death benefits when the insured person dies during the policy term.
Top benefits of a life insurance policy
Life insurance is a financial protection product that offers security to the policyholder’s family. It has a number of benefits depending on the plan purchased and its features.
Financial security for your loved ones
A life insurance plan offers:
• Financial support to the nominees or beneficiaries after the policyholder’s death
• Replacement of the policyholder’s income
• Coverage of expenses and children’s education
• Repayment of debts
• Stability to the family in terms of financial support
Wealth creation through investment options
Wealth can be created through investment options offered by certain insurance companies, including Unit Linked Insurance Plans or participating life insurance policies.
Tax benefits under sections 80C and 10(10D)
Insurance plans may offer tax benefits under the Income-tax Act, 2025, subject to applicable conditions and limits. Eligible premiums and policy proceeds may qualify for tax benefits under the relevant provisions of the Act, depending on the type, terms and premium of the policy.
Death benefits to cover family expenses
The death benefits from a life insurance plan can replace the lost income of the policyholder and help the nominee or beneficiary to manage finances and pay off debts.
Maturity benefits
The maturity benefit is paid to the policyholder in case of survival benefit as mentioned in the terms and conditions of the life insurance plans. In case of certain plans, such as endowment or money-back policies, the sum assured is guaranteed and depends on the terms and conditions of the particular issuer and plan chosen.
Additional coverage through a rider
Life insurance riders are additional benefits that can be added to a life insurance policy to offer extra coverage to the policyholder. Some of the common riders offered are accidental death benefit rider, critical illness rider, permanent disability rider and waiver of premium rider. The riders come with an additional premium and terms and conditions offered by the particular insurance company.
Types of life insurance
1. Term insurance plans
Term insurance plans provide pure protection and cover your family’s financial needs against unfortunate events at an affordable premium. These are pure risk protection, non-participating, indemnity-based policies, which generally have a low premium rate. With the risk cover provided by a term plan, you can take care of your family’s needs like daily expenses, children’s education, marriage, and more. Riders like critical illness and accidental death benefit can be added to your term insurance policy for extra protection. Term insurance plans can be bought as a standalone policy or along with other products like ULIPs.
2. ULIPs – unit-linked insurance plans
ULIPs are hybrid products that provide protection as well as investment needs. With ULIPs, you get to choose from various fund options like aggressive, moderate, and conservative depending on your risk-taking ability. ULIPs come with a 5-year lock-in period and offer benefits such as fund switching, partial withdrawal, loyalty addition, and wealth boosters. You can also enjoy tax benefits on your premium payments under the relevant sections of the Income-tax Act. ULIPs have a minimum tenure of 5 years and a maximum of up to 20 years, depending on the insurer.
3. Endowment insurance plans
Endowment plans offer both risk protection and saving benefits. With an endowment plan, you receive a maturity benefit on completion of the policy term along with the death benefit paid to your nominee in the event of your demise. Certain endowment plans may also offer additional bonuses over and above the sum assured at the time of maturity, subject to the terms and conditions of the individual policy.
Key factors to consider while buying a life insurance policy
Sum assured
The sum assured under the life insurance policy should be large enough to cover the financial needs and liabilities of the policyholder’s dependants after the policyholder’s death.
Mode of premium payment
Depending on the life insurance plan chosen, the policyholder should decide on the method and frequency of premium payments. The life insurance plan should be chosen considering the monthly income and expenses of the policyholder.
Policy term
The policy term depends on the financial liabilities and the income needs of the dependants. The term should be chosen considering the coverage provided by the life insurance plan.
Some life insurance policies offer riders, and the policyholder should choose the appropriate rider based on his/her financial protection needs and the additional premium. The rider provisions should also be carefully reviewed before making a choice.
Insurance plays an important role in securing the finances of a person. Life insurance policies help to reduce the financial risks in case of the untimely death of the insured person. Term life insurance is a pure risk protection plan, whereas endowment, money-back and other life insurance products offer an additional savings component and investment-linked options, i.e., ULIPs.
Thus, the life insurance plan to be purchased should be decided depending on the coverage, the premium, the length of the policy term, benefits, exclusions, riders and other aspects, including the tax benefits offered by the life insurance plan.