On one hand, it safeguards your money and on the other, ensures its growth, thus providing you with complete financial well being. Life Insurance can be termed as an agreement between the policy owner and the insurer, where the insurer for a consideration agrees to pay a sum of money upon the occurrence of the insured individual's or individuals' death or other event, such as terminal illness, cri
tical illness or maturity of the policy. Life insurance plans, unlike mutual funds, are beneficial when you look at them as a long term avenue of investment which also offers protection through life cover. Life insurance policies are broadly categorized into 2 types; Traditional Plans and Unit Linked Insurance Plans (ULIPs). Traditional policies offer in-built guarantees and define maturity benefits through variety of products such as guaranteed maturity value. The investment risk in traditional life insurance policies is borne by life insurance companies. Additionally, the investment decisions are regulated to a large extent by IRDA rules and regulations, ensuring stable returns with minimal risk. Investment income is distributed amongst the policy holders through annual bonus. These policies are ideal for policy holders who are not market savvy and do not wish to take investment risks. ULIPs, on the other hand provide a combination of risk cover and investment. More importantly they offer a flexibility to decide your risk taking profile. Why is Insurance Required?
&
what are the Benefits in Investing in Insurance Policy? Child Education & Marriage Planning. Tax Saving U/S 80C & 10(10D)
Retirement. Speculative Risk (Based on Imagination)
Advantages of Life Insurance
Life Insurance provides the dual benefits of savings and security. The following benefits explain why this investment tool should be an integral part of your financial plans. Risk Cover - Life today is full of uncertainties; in this scenario Life Insurance ensures that your loved ones continue to enjoy a good quality of life against any unforeseen event.
• Planning for life stage needs - Life Insurance not only provides for financial support in the event of untimely death but also acts as a long term investment. You can meet your goals, be it your children's education, their marriage, building your dream home or planning a relaxed retired life, according to your life stage and risk appetite. Traditional life insurance policies i.e. traditional endowment plans, offer in-built guarantees and defined maturity benefits through variety of product options such as Money Back, Guaranteed Cash Values, Guaranteed Maturity Values.
• Protection against rising health expenses - Life Insurers through riders or stand alone health insurance plans offer the benefits of protection against critical diseases and hospitalization expenses. This benefit has assumed critical importance given the increasing incidence of lifestyle diseases and escalating medical costs.
• Builds the habit of thrift - Life Insurance is a long-term contract where as policyholder, you have to pay a fixed amount at a defined periodicity. This builds the habit of long-term savings. Regular savings over a long period ensures that a decent corpus is built to meet financial needs at various life stages.
• Safe and profitable long-term investment - Life Insurance is a highly regulated sector. IRDA, the regulatory body, through various rules and regulations ensures that the safety of the policyholder's money is the primary responsibility of all stakeholders. Life Insurance being a long-term savings instrument, also ensures that the life insurers focus on returns over a long-term and do not take risky investment decisions for short term gains.
• Assured income through annuities - Life Insurance is one of the best instruments for retirement planning. The money saved during the earning life span is utilized to provide a steady source of income during the retired phase of life.
• Protection plus savings over a long term - Since traditional policies are viewed both by the distributors as well as the customers as a long term commitment; these policies help the policyholders meet the dual need of protection and long term wealth creation efficiently.
• Growth through dividends - Traditional policies offer an opportunity to participate in the economic growth without taking the investment risk. The investment income is distributed among the policyholders through annual announcement of dividends/bonus.
• Facility of loans without affecting the policy benefits - Policyholders have the option of taking loan against the policy. This helps you meet your unplanned life stage needs without adversely affecting the benefits of the policy they have bought.
• Tax Benefits-Insurance plans provide attractive tax-benefits for both at the time of entry and exit under most of the plans.
• Mortgage Redemption- Insurance acts as an effective tool to cover mortgages and loans taken by the policyholders so that, in case of any unforeseen event, the burden of repayment does not fall on the bereaved family. How to Plan
Don't buy insurance just because your neighbor bought it. Buy insurance because you need it. Here are a few points to ponder about, whilst going about fulfilling your needs.
• What kind of insurance do I need? Understand your financial goals. Once you know what your aim is, you will be in a better position to choose the type of insurance you need - protection, savings, investment or retirement.
• What will my insurance policy cover? Different insurance policies have different covers. Make sure your financial advisor presents you with a list of recommendations, including the types of policies and benefits. Read them thoroughly to be aware of what your policy covers.
• How much insurance coverage do I need? The amount of insurance coverage you need depends on factors such as the number of dependants, debts or mortgages, lifestyle and investment needs. Insurance cover should be to such an extent that in case of one's demise, his / her dependents are able to maintain the same lifestyle as they used to have before the unfortunate event occurred.
• How much will I be paying for my insurance cover and will I be able to afford the premiums over the long term? The amount of premium paid depends on the insurance cover you buy. Look at the current benefits your insurance policy provides and opt for a rider accordingly. With some riders, you may stop paying premiums for your policy if you become disabled, but will still be able to enjoy the benefits of life insurance protection.
• Frequency of Premium Payment:-
Choice of Frequency of premium payment period - Single premium, Yearly, Half yearly, quarterly and monthly should be carefully exercised. However, if your policy does not have this benefit and you are finding it difficult to continue meeting the premium payments, consult your financial advisor. Modes of payment: - Payment ECS, Credit card, Internet payment, Cash, Cheque
• What happens if I fail to make the required premium payments? Typically there is a grace period (15 to 30 days) during which you can pay the premium with no interest charged. If you do not pay your premium within this grace period, your policy lapses as a matter of general rule. However the discontinuation of policy is governed by the policy conditions which may differ from insurer to insurer and plan to plan.
• Should I replace an existing insurance policy? An insurance policy is a long-term commitment and any decision to cancel a policy should only be taken after careful consideration. Early cancellation of a policy may incur additional fees and charges. More importantly, you could lose out on valuable benefits. If you are unable to continue paying premiums on your current policy, you should consult your financial advisor on the options that are available. If you decide to replace your current policy with a new one, we would recommend that you do not cancel your original policy until you receive confirmation that your new policy is in force. This will ensure that you are not left without coverage during the interim period. Benefits
Are you aware that Life insurance policies are not attachable under certain circumstances?
• As per section 60 (kb) of The Code of Civil Procedure, all money payable under a policy of insurance on the life of the judgment debtor, are not attachable.
• Section 6 of the MWP Act states that the benefits under a Life Insurance Policy taken by a Married man, under MWP Act for the benefit of the married man's wife, or children or any of them, shall be payable only to the wife or children according to the ratio decided by the Life Assured. Further it states that the said Policy does not form part of the estate (property) of the deceased Husband. Hence the husband does not have any control over the Policy and is not his asset. Therefore the said Policy cannot be attached by the Creditors of other Legal Heirs of the deceased husband. It is to be noted that unlike in the case of other Life Insurance Policies which can be claimed by other Legal Heirs also (even though may not be attachable), MWP Act Policies can neither be claimed by the other Legal Heirs nor by the Husband's Creditors. Even the husband cannot claim any benefit. Therefore, an absolute estate is created in favour of the wife or children. This is a special privilege given by Law only to a Life Insurance Policy taken by a married man. This benefit is not available for any other asset. This benefit is not available for any other asset.
• Life Insurance also offers you tax benefits. Check the chart below for benefits on life insurance, pension plans and health insurance. Tax Benefits Section Permitted deduction Exceptions
Premium paid for life insurance 80C INR 100,000 Amount of premium paid in a financial year for policy in excess of 20% of the actual capital sum assured, then deduction will be allowed only for premiums up to 20% of the sum assured. Premium paid for pension plans 80CCC INR 100,000 Benefit reversed if policy lapses; amount received on surrender (whole/part) of annuity plan and amount received as pension is taxed as income. Premium paid for medical insurance 80D INR 15,000 for self, spouse and dependent children + INR 15,000 for parents; INR 20,000 for individuals above 65
Benefits under insurance 10 (10D) Sum received under a life insurance policy, including the sum allotted by way of bonus on such policy is exempt of tax Any sum received under a Keyman Insurance Policy, or any sum received other than as death benefit under an insurance policy that has been issued on or after April 2003 and if the premium paid in any of the years during the term of the policy is more than 20% of the sum assured. Investing in insurance companies
Every life insurer is required to maintain a Required Solvency Margin as per Section 64VA of the Insurance Act 1938. As prescribed by the IRDA, Required Solvency Margin is the amount by which an insurance company's capital exceeds its projected liabilities; effectively a measure of its financial health. The IRDA (Assets, Liabilities and Solvency Margin of Insurers) Regulations, 2000 describes in detail the method of computation of the Required Solvency Margin. In case of Life Insurers, the Required Solvency Margin is the higher of an amount of Rs.50 crore (Rs. 100 crore in case of Re-insurers) or a sum which is based on a formula given in the Act / Regulation. IRDA has set a working Solvency Margin Ratio (Ratio of Actual Solvency Margin to the Required Solvency Margin) of 1.5 for all insurers. During 2007-08, IRDA has introduced the quarterly reporting of Solvency Status for all the Insurers. Accordingly, all the insurers are now required to file their Solvency Status as on June 30, September 30, December 31 and March 31. One of the important factors that influence insurance pe*******on is the capital requirement under solvency margin. The pure term products provide simple life cover and it is believed that companies could design products, which could reach various segments of the population in meeting their insurance needs thereby enhancing insurance pe*******on. In line with this objective, the Authority has decided to allow the life insurers to reduce the capital requirement in the case of pure term products without changing the factor loadings in the case of the remaining products. It is expected that the lower level of solvency for pure term products would provide significant relief to the life insurers both under individual products and under group products. This will also help the insurers in launching more pure term products for sufficiently longer periods and at affordable rates. As linked products are assuming significant share in the total premium collected by the insurance companies, and as the investors in these products are bearing the investment risk, it is necessary that more information is disseminated to the prospects / policyholder so that he / she can take informed decisions. In this regard, the Authority has asked the life insurers to be more transparent in the policy wordings of the ULIP products and mandated the insurers to submit to the Authority details on guaranteed benefits and non-guaranteed benefits for each policy year. A format has also been introduced for this purpose and the Authority instructed that when the prospects/policyholder proposes to take a ULIP policy he/she should sign on both the formats in the proposal form itself. This will benefit the policyholders in knowing about the terms/benefits of the policy and also reduce mis-selling by the agents in quoting abnormal investment returns.
