Choosing the right type of life insurance policy is one of the most important requirements for a comfortable, hassle-free life. Not only does a life insurance policy guarantee that one’s dependents will be well looked after even if they are no longer around, but it can also contribute to building a substantial corpus to fulfill their future financial goals.
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.
There are different types of life insurance policies in India. One can choose a life insurance plan based on their unique individual requirements. Read this article to learn about different types of life insurance and their benefits.
Tax Benefits
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.
Different types of life insurance coverage are:
Term Insurance
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 lump-sum 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.
Important riders:
-> Double Accidental Death Benefits
-> Income on Permanent Disability
-> Critical Illness Cover, Waiver of premium.
Payment options
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.
Whole Life Policy
Whole life insurance is a type of life insurance that offers coverage right until the death of the policyholder. In this policy, you can opt for either a participating or non-participating policy, as per your financial needs and risk appetite. Though the premiums for participating whole life insurance are higher in comparison, dividends are paid out at regular intervals to the policyholders. The premium rates for a non-participating policy are lower, but the policyholder generally cannot avail the benefits of regular dividends.
Endowment Policy
Endowment policy is type of life insurance policy which acts as, both, an instrument for insurance and saving. These plans aim to provide maturity benefits to the life insured, in the form of a lump sum payment at the end of the policy tenure, even if a claim hasn’t been made. It is the most suitable types of life insurance for people looking to get maximum coverage alongside having a sizable savings component. They help the policyholder inculcate the habit of savings, even while providing financial security to their family.
Money Back Policy
Being one of the best types of life insurance policies, a money-back policy offers policyholders a percentage of the total sum assured at periodic intervals in the form of Survival Benefits. Once the policy reaches maturity, the remaining amount of the Sum Assured is handed over to the policyholder. However, if the policyholder dies while the term is ongoing, their dependents are given the entire Sum Assured without any deductions.
Annuities and Pension
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.
ULIP
Unit Linked Insurance Plan or ULIP is a type of life insurance product that offers dual benefits of investment and life insurance. Among the different types of life insurance policies available, ULIPs enjoy a high amount of popularity owing to their versatile nature. A portion of the premiums paid is directed towards ensuring insurance coverage, while the rest of the premium is invested into a bouquet of investment instruments, which can include market-backed equity funds, debt funds and other securities.
ULIPs are extremely flexible instruments since investors can easily switch or redirect their premiums between the different funds available. They are also touted as having an edge over other market instruments in terms of tax-saving benefits, since their proceeds are exempted from LTCG (Long Term Capital Gains).
Comentarios