Life Insurance is a contract between an insurance policyholder and an insurance company, where the insurer promises to pay a sum of money in exchange for a premium after a set period or upon the death of an insured person
What is Life Insurance?
Life Insurance acts as financial protection for your family in case of your death or a payment made to you on surviving the policy term. In return for this payment, you make periodic fixed payments to the life insurance company. In certain types of policies, there is an option to get critical illness benefits or create additional protection for your family if you pass away from an accident. You can read about these features and types of life insurance policies below.
Why do I need Life Insurance?
- Savings Growth: In your early years of working, some life insurance plans can be useful way to save and invest your money. ULIPs or Unit Linked Life Insurance Policies allow you to invest in equity and debt markets. Under current tax laws (which are subject to future amendment), you also get tax deductions for investment in life insurance policies and on the maturity amounts of such policies.
- Family Support: If you have a spouse and kids, the need to build a safety net for them becomes important. You would want to protect them from financial hardship in case of your untimely demise. You can also get good returns with life insurance by investing in some policies.
- Debt: We often take large loans in our working life, especially when it comes to buying a house. An untimely death while the loan is still due can have grave economic consequences for our families. In such a scenario, life insurance money can be used to pay off the loan. Policies taken under the Married Women’s Property Act, 1874* are also immune from attachment by creditors.
- Illness Protection: As you head towards retirement, life insurance policies which cover critical illnesses become important. Some life insurance policies offer you features that cover you from severe ailments like heart attacks and cancer. Buying these types of policies can protect you from some of the world’s most deadly diseases.
Important life insurance terms you should know
1. Who is a policyholder?
A policyholder is a person who owns the life insurance policy. Usually, they are the one insured under the policy. However, sometimes, the policyholder may be a relative of the insured, a corporation or a partnership. The policyholder has the right to exercise all privileges that are provided in the life insurance contract.
2. What is Sum Assured?
Sum assured is a predetermined fixed amount that policyholder’s family receives in case of policyholder’s death. It is basically the total sum policyholder is covered for. Sum assured is chosen by the policyholder and is always mentioned by the company in the policy details.
3. Who is a nominee?
In life insurance parlance, a nominee is a person who receives the sum assured and other benefits in case of an insured person’s death. The choice of nominee depends totally on the policyholder and the name is usually mentioned while buying the life insurance policy. In most cases, the nominee is someone from the family.
4. What is the difference between a policy term and premium payment term?
A policy term is the time period for which you are covered. A premium paying term is the duration for which you have to pay the premium of the policy. For instance, the policy term as a whole can be of 50 years but the premium paying term can be of 25 years. This means that you need to pay a premium for 25 years but you are covered for 25 additional years.
How does Life Insurance work?
Let’s say Mr X has a 1 crore ICICI Pru iProtect Smart life insurance policy in place. He has paid insurance premiums for three years. In this example, we will take the premium as ₹ 490^^ per month which comes to ₹ 17,640 in total premiums paid. Now if he passes away in the third year, his family will get an insurance payout of ₹ 1 crore. In other words, the insurance payout will be as per the policy cover regardless of when the insured passes away in the period covered.
Tax Benefits of Life Insurance (Section 80C and Section 10D)
If you buy life insurance, you qualify for a tax deduction up to ₹ 1.5 lakh annually under section 80C of the Income Tax Act, 1961. -The payout received at the time of maturity will be tax free subject to the conditions given in Section 10(10D) of the Income Tax Act, 1961. Tax laws are subject to amendment from time to time.
Types of Life Insurance
|Types of Life Insurance||Coverage|
|Term Insurance Policy||Pure Risk Cover|
|Endowment Policies||Insurance Cover + Saving|
|Non-Linked Participating Endowment Plan||Insurance cover + Sum Assured|
|Unit Linked Insurance Plans (ULIP)||Insurance + Investment Benefits|
|Non-participating Non-linked endowment plan||Fixed Insurance Cover|
1. Term Insurance Policy
This is the simplest type of life insurance policy. It pays your family a sum of money in case of your death, during the policy term. It does not pay anything if you survive the policy term. However the premiums on this type of policy tend to be low. For instance a monthly premium of just ₹ 1,000 can get you a life insurance cover of close to 1 crore rupees (for a 30 year old, non-smoker) for 40 years.
2. Endowment Policies
Policies other than term life insurance, are called endowment policies. These can in turn be divided into participating, non-participating and unit-linked.
3. Non-Linked Participating Endowment Plan
This type of policy lets you ‘participate’ in the profits of the life insurance company and get a share of them. It pays your family a sum of money on your death but it also pays you an accumulated sum, if you survive the policy term. The survival payment or benefit is linked to the profits of the life insurance company.
4. Unit Linked Life Insurance Policy (ULIP)
This policy pays an amount on your death and a maturity amount if you survive the term. However unlike a traditional participating policy, the maturity amount is more dependent on your investment choices than the profits of the life insurance company. Your policy is invested in funds and divided into ‘units’ similar to the units of a mutual fund. You typically get a lot of freedom to choose the type of fund your money will be invested in.
5. Non-participating Non-linked endowment plan
A non-participating policy defines exactly how much your family will get on your death and how much you will get on the maturity of the policy. There is no variable or investment linked component. You know before-hand exactly how much you will get, in each scenario.
How to pick the best life insurance plan?
You can keep in mind these points while choosing a life insurance plan for yourself
- Arrive at an adequate sum assured. Ideally, it should be at least 15-20% of your current annual income
- Buy suitable additional benefits, as per your requirement like an accident coverage and critical illness coverage
- Choose a plan that provides regular income to your family after your death
- Remember, low premiums do not mean the best policy. Look for other factors such as the claim settlement ratio of the insurer, the ease of buying the policy, etc.
Which is the Best Life Insurance?
Well, different types of policies suit different types of people. Someone who is willing to take some risk and knows a little about investment may go in for a ULIP. Someone who only wants the protection aspect of life insurance may prefer a term insurance policy.
You can find some nifty optional features offered by ICICI Prudential iProtect Smart Term Insurance:
- Critical Illness Benefit**: This feature pays you a certain sum of money on the diagnosis of a critical illness like heart attacks and cancer. With providers such as ICICI Prudential, a defined amount is paid regardless of your actual medical expenses. This saves you the hassle of showing bills and getting reimbursed, as with medical insurance. The amount will not be demanded back from you, if you survive the illness. If your life cover exceeds the critical illness amount, the balance cover will remain intact.
- Personal Accident Benefit+: Accidents are all too common in India with our unruly traffic and tough driving conditions. This feature pays your family an additional amount if your death is due to an accident.
- Steady Income after death: Many families have a tough time managing monthly expenses after death. Hence, companies like ICICI Prudential Life Insurance give you the option of giving your family a steady income after your death rather than a lump sum which they may have difficulty managing.
You can choose all or any of these options depending on what is offered to you by the life insurance company.
How much Life Insurance cover do I need?
This depends on individual circumstances. However, as a rule of the thumb, the life insurance cover should be at least 10 times annual income. For example, if your annual income is ₹ 8 lakh, your life insurance cover should be at least ₹ 80 lakh. Although 80 lakh - 1 crore can seem like a huge sum, you can get it for a monthly premium as low as ₹ 1000 (for a 30 year old, non-smoker). Medical bills also increase with time and so a large amount is needed to cover future medical costs.
Factors that affect life insurance premium
Your life insurance premium depends on several factors. The main factors contributing towards the calculation of life insurance premium include your age, the type of coverage you are opting for, the amount of coverage, and personal factors such as smoking status, occupational status, etc.
What are the advantages of buying a life insurance plan online vs. offline?
When you buy life insurance online, you get the following advantages:
1. Cost efficiency: You may get online discount when you buy online.
2. Convenience: You can buy insurance from the comfort of your house.
3. Customization: With several optional benefits available, you can customize your insurance policy as per your needs
4. Customer support: When you buy a policy online, you have access to the customer support round the clock
What are the payout options available for ICICI Pru Life Insurance Plans?
ICICI Pru Life Insurance Plans like ICICI Pru iProtect Smart offer flexible payout options that cater to every type of policyholder. You can choose from 4 payout options. These are:
Lump-sum:The agreed life cover is paid as a fixed amount to the nominee in case of policyholder’s unfortunate death.
Income: This option provides claim payout in equal monthly installments so that family’s monthly financial needs are taken care.
Increasing income: Your nominee will receive monthly installments for 10 years. Income amount will increase by 10% per annum simple interest every year. This option provides a 45% additional life cover.
Lump-sum plus income: The life cover gets paid in two parts as you mention during policy inception. You can choose to receive half of the amount in a lump sum manner and the rest as equal monthly installments.
Important documents to get your Life Insurance claim amount easily
⭐ What are the benefits of Life Insurance?
- Financial safety for family and loved ones
- High life cover at affordable premiums
- Tax benefits^ under section 80C and section 10(10D) of Income tax act, 1961
- Tax free payout subject to condition mentioned under section 10(10D) of Income Tax Act, 1961.
- Assured income through Annuity plans
⭐ What is the Life Insurance term that I should choose?
⭐ What Life Insurance plan should I buy?
⭐ Is proceeds from Life Insurance taxable^?
i. Sum paid on Death except in case of a keyman policy
ii. Sum paid other than in case of Death (i.e., surrender/partial withdrawal/maturity), if
- For policy issued between April 1, 2003 to March 31, 2012: if Premium does not exceed 20% of Sum Assured (SA to premium is 5 times or more)
- For policy issued post March 31, 2012: if Premium does not exceed 10% of Sum Assured (SA to premium is 10 times or more)
⭐ Should I buy Life Insurance?
- Have financial dependents
- Are beginning a family
- Have a mortgage or other significant debt/loan
- Are part of a non-child working couple family structure
- Have children
- Have specific long-term financial goals
What customers say about our Life Insurance Plans?
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* Nothing herein contained shall operate to destroy or impede the right of any creditor to be paid out of the proceeds of any policy of assurance, which may have been effected with intent to defraud creditors. In case of any third party claim in the Courts of India with regards to the insurance proceeds, the amount shall be subject to the judiciary directions. Please seek professional legal advice for the applicability of this provision.
** Critical Illness Benefit is optional and available under Life and Health and All in One options. This benefit is payable, on first occurrence of any of the 34 illnesses covered. The CI Benefit, is accelerated and not an additional benefit which means the policy will continue with the Death Benefit reduced by the extent of the CI Benefit paid. The future premiums payable under the policy will reduce proportionately. If CI Benefit paid is equal to the Death Benefit, the policy will terminate on payment of the CI Benefit. To know more in detail about CI Benefit, terms & conditions governing it, kindly refer to sales brochure. Critical Illness benefit is available till age of 75.
1Tax benefit of ₹ 54,600 (₹ 46,800 u/s 80C & ₹ 7,800 u/s 80D) is calculated at highest tax slab rate of 31.2% (including Cess excluding surcharge) on life insurance premium u/s 80C of ₹ 1,50,000 and health premium u/s 80D of ₹ 25,000. Tax benefits under the policy are subject to conditions under Section 80C, 80D, 10(10D) and other provisions of the Income Tax Act, 1961. Goods and Services Tax and Cesses, if any, will be charged extra as per prevailing rates. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for details, before acting on above.
2Tax benefit of ₹ 7,800 is calculated at highest tax slab rate of 31.2% (including Cess excluding surcharge) on health premium u/s 80D of ₹ 25,000. Tax benefits under the policy are subject to conditions under Section 80D, 10(10D) and other provisions of the Income Tax Act, 1961. Goods and Services Tax and Cesses, if any, will be charged extra as per prevailing rates. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for details, before acting on above.
^Tax benefits under the policy are subject to conditions under Section 80C, 80D, 80CCC, 80CCE, 80G, 80GG, 80E,10(10D), 10(10A), 10(13A) and other provisions of the Income Tax Act, 1961. Goods and Services Tax and Cesses, if any, will be charged extra as per prevailing rates. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for details, before acting on above.
3Tax benefit of ₹ 46,800 is calculated at highest tax slab rate of 31.2% (including Cess excluding surcharge) on life insurance premium u/s 80C of ₹ 1,50,000. Tax benefits under the policy are subject to conditions under Section 80C, 80D, 10(10D) and other provisions of the Income Tax Act, 1961. Goods and Services Tax and Cesses, if any, will be charged extra as per prevailing rates. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for details, before acting on above.
+ Accidental Death benefit is up to ₹ 2 Crores. Accidental Death Benefit is optional and available in Life Plus and All in One options. Accidental Death Benefit cover is available upto age 80.
^^ The premium rate is of life option, regular pay and Income Payout option of ICICI Pru iProtect Smart for 25 year healthy male for policy term of 15 years and inclusive of tax. Yearly premium will be ₹ 5,444. You can choose to purchase other variants of the product as per your needs. For more details, please refer the product brochure.
ADVT NO. W/II/0926/2019-20