Life Insurance is to protect a policy holder's family in the event of an insured person's death. Besides,providing coverage against all forms of risks,it offers possibilities to develop your savings.
Life insurance is an arrangement between the insurer which assures of compensation for loss of life in return for the payment of a pre-determined premium.
Insurance plans benefits extend beyond just life cover, especially when it comes to the tax advantages they offer. There are quite a few tax benefits of having life insurance. The premiums paid for life insurance plan are eligible for tax deductions under Section 80(C) of the Income Tax Act, 1961. Tax benefits are according to your tax slab. However, this is not all. If one opts for health riders such as a critical illness cover along with their term plan, tax benefits under Section 80(D) of the Income Tax Act will apply to the rider premiums paid towards the rider. Additionally, the lumpsum sum assured paid out as a death benefit in a term insurance plan is exempted from taxes under Section 10(10D) of the Income Tax Act. This also applies to the sum assured paid out on the riders added to an insurance plan. All these are the tax advantages of an insurance plan.
Term insurance plan is the simplest form of insurance, which in case
of a policy holder’s demise, ensures that the family gets the sum assured. It offers
risk coverage for the duration of the policy term. The Sum Assured is paid to the
beneficiary who is nominated by a policy holder. This is paid out as a lumpsum amount,
or a combination of lump sum and monthly amount based on the plan chosen.
In general term insurance cover should take care of your family living expenses in your
absence after clearing all the debts / loans. Ideal way to invest the money coming out of
term insurance is to invest in Annuity plan either immediate or deferred option depending
on cash flow at the time of demise. Annuity plans are the only products that provide
lifetime guaranteed returns. Payouts either monthly, quarterly, half-yearly or yearly
with or without Return of Purchase Plan.
Important riders to consider are Double Accidental Death Benefits, Income on Permanent Disability, Critical Illness Cover, Waiver of premium.
Another important aspect is payment options are:
a) Regular Pay: Choose to pay till end of the term also called as Regular premium.
b) Limited Pay: Choose to pay in single, premium, or limited premiums or till you turn
60 years of age.
Example: if you are taking term insurance cover up to 75 years of age and your retirement
age is 60 years, it is difficult to pay the premium after retirement, in these scenarios
you can choose to pay using limited premium payment options.
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Whole life insurance is a life insurance policy which is guaranteed to remain in force for the insured's entire lifetime provided, required premiums are paid till the premium payment term.
An endowment policy is a life insurance contract designed to pay a lumpsum after a specific term (on its maturity) or on death. Some riders like Double Accident Benefit, Critical Illness and Waiver of Premium are also applicable depending on product offering.
Under this plan, the insured gets a percentage of sum assured at regular intervals, instead of getting the lump sum amount at the end of the term. It is an endowment plan with the benefit of liquidity.
In return for a lump sum, an insurance company gives you an annual income for the rest of your life. This is great if you live to a ripe old age and can take advantage of the income. Annuity plan either immediate or deferred option depending on cash flow at the time of investing. Annuity plans are the only products that provide lifetime guaranteed returns. Payouts either monthly, quarterly, half-yearly or yearly with or without Return of Purchase Plan. You can choose to have your spouse or kids as joint life to get the pension. After the demise of 1st annuitant, 2nd annuitant will start getting the pension. You can choose to give the initial invested money to 3rd person (nominee) after the demise of 2nd person. This is possible only if you choose Return of Purchase Plan option. Different companies have different entry age to invest in Annuity plan. Returns out of Annuity plans are taxable unless specified.
Unit Linked Insurance Plans (ULIPs) is a life insurance product, which provides risk cover for the policy holder along with investment options to invest in any number of qualified investments such as equity based mutual funds, hybrid mutual funds, or debt mutual funds.
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