One can define life insurance as a binding contract between the insurance buyer and the insurance provider. In such a contract the insurer pays a fixed sum of money at predefined intervals as premiums to avail of financial coverage from the insurer. The insurance offers a sum of money to the insured or the beneficiary when an incident covered under the policy takes place such as an accident, death, or disability.
The life cover offers financial security to the beneficiary and the loved ones of the insured by paying them a lump sum amount in the event of an unforeseen event. Notably, some insurance policies may pay a maturity benefit at the end of the policy term if the insured outlives the policy. In this regard, individuals should note that there are two types of life insurance policies – pure protection and protection with savings.
After finding out what is life insurance individuals should check the types and their key features in detail to understand which one suits them the most.
What is a Pure Protection Insurance Plan?
A Pure Protection insurance plan is carefully designed to help the insured secure their family’s financial future by providing the beneficiary of the policy a lump sum amount, in their absence.
What is a Protection and Savings Insurance Plan?
A Protection and Savings insurance plan is essentially a financial tool designed to help individuals plan their long-term financial goals such as purchasing a house, funding their kid’s higher education, and repaying long-term loans while extending the perks of a comprehensive Life Cover.
What are the Key Factors that can affect your life insurance premium?
After finding out what life insurance is, individuals need to check the factors that tend to affect the premium.
Here are some of the most common factors that influence the insurance premium significantly –
Age: This one is among the primary factors affecting the life insurance premium of the applicant. The standard is that the life insurance premium amount is relatively lower for younger applicants and tends to increase gradually with age. This is because insurers deem aging applicants more risky and likely to raise a claim during the early years of the policy.
Gender: Based on many studies, it was found that women tend to outlive men. For the same fact, insurers deem women less risky than men applicants. So, the life insurance premium amount is set lower for women applicants than for men applicants.
Health conditions: Individuals’ past and current medical history tends to impact the insurance premium significantly. Individuals who have pre-existing illnesses or have a record of an illness in their past that is likely to resurface in their present health would be asked to pay a higher premium for the coverage.
Family medical history: It is believed that an individual’s chances of suffering from a disorder that runs in the family are quite high. This is why if an applicant has a hereditary illness in their family they would be required to pay a much higher premium than those without such a history.
Unhealthy lifestyle habits: Individuals with ill habits such as consumption of alcohol or smoking are likely to hamper their health and develop multiple complications. This is the primary reason why insurance companies charge a higher premium on those individuals who have the habit of smoking and consuming alcohol.
Type of coverage: The kind of insurance coverage one picks also tends to influence the insurance premium. For instance, if an individual decides to add one more rider to their existing insurance plan their premium will significantly increase. Similarly, choosing a longer policy term is also another key reason that increases the premium amount compared to policies with shorter tenure. Additionally, opting for an insurance plan that an individual selects tends to impact the policy premium. Typically, selecting term insurance will attract a lower premium as the policy type is considered to be the most affordable life insurance plan. In the same way, opting for an insurance plan with a higher sun insurer would inflate the premium. To further understand how insurance type and coverage affect premiums, individuals can use an online premium calculator and gain more insight.
Occupation: The applicants’ occupation is another crucial factor that influences the insurance premium. This is because individuals in high-risk jobs are deemed to have a higher risk quotient. This is why insurance companies charge them a higher insurance premium compared to others. For instance, individuals working in a chemical factory or construction business are more likely to pay a higher premium than a receptionist at a restaurant or a teacher. In other words, any job that puts the insured life at risk will also inflate the insurance premium.
Key benefits of having a Life Insurance
In this age, having life insurance can extend several benefits to the insured and their loved ones. With more awareness around insurance, individuals are using it as a means to enhance their financial planning and secure their financial future.
Typically, the best term insurance plan for 2 crore offers these benefits –
- Financial Security
When an individual buys a life insurance plan, the insurance provider usually charges a predefined premium amount in exchange for extending financial security to the insured’s beneficiaries in case they meet an unforeseen situation that is covered under the plan. The policy nominee can utilize the proceeds from the insurance plan as a replacement for the insured’s income to help them cover day-to-day expenses and account for current or immediate obligations.
- Wealth Creation
Besides extending life protection, some insurance policies also offer individuals the option to accumulate wealth and build a corpus. Such an arrangement allows individuals to prepare better for their future financial needs and helps them focus more on enhancing their quality of life.
- Tax benefits on insurance
Life insurance policies also extend several tax benefits to individuals. Typically, the premium paid toward an insurance is eligible for tax deduction. The insured can claim up to Rs. 1.5 lakhs as a deduction per annum under Section 80C. Additionally, the maturity benefits from insurance plans are also tax-free as per the norms of Section 10(10D) of the e Income Tax Act of India, 1961.
Hence, individuals must check these aspects of life insurance to understand its meaning and scope better. They should also compare different plans and their scope to check which one meets their requirements the best.