Important Features of Life Insurance
You may find the characteristics of life insurance plans very simple to understand. Here are its prominent features:
1. Issued in the name of the policyholder
A policyholder may be considered an individual or an entity that purchases a life insurance plan. A policyholder may be an individual, a family, or even a business, depending on the type of policy purchased.
2. Premium Payment Options
One of the main components of life insurance plan is the premium payable to the insurer. You may choose the premium cycle and payment method from the available options, based on your convenience. You can choose from several payment options to pay premiums to your insurance provider.
3. Selecting the Suitable Sum Assured
A sum assured can be considered to be the amount the nominee receives in case the life assured loses their life during the policy term. The life insurance company pays the sum assured to the nominee in the event of the passing away of the life assured during the policy term, as per the terms and conditions of the plan. The sum assured needs to be selected carefully, since it is one of the important factors of life insurance. You may need to consider the financial needs of your loved ones and any liabilities that they may have while choosing the amount of sum assured.
4. Option of Choosing the Tenure
The policy term is the duration for which the policy remains active. The policy term may range from a few years to several decades. You may choose your plan’s duration based on your financial goals and family needs. The policy term needs to be selected suitably, since it may be directly linked to your family's financial security. You may consider your remaining employment years, debts or liabilities, if any, the financial status of dependents, etc. while determining the tenure.
5. Selecting a Nominee of Choice
A nominee is a person who may receive the policy benefits in case the life assured loses their life during the policy tenure. The policyholder may nominate one or more nominees, in accordance with Section 39 of the Insurance Act, 1938 to receive the underlying benefits of the life insurance policy , in the event of your untimely demise within the policy tenure. Hence, it is one of the essential features of life insurance that needs to be selected carefully.
6. Maturity Benefits
The maturity benefit is the amount the policyholder draws at the time of policy maturity. This amount may be predetermined at the time of purchasing the life insurance plan (as per the product type) or it may vary based on the investment value (in case of ULIPs). Also depending on the type of the policy, it may consist of bonus (if any) declared by the insurer.
7. Claim settlement
The nominee can initiate the claim settlement process to receive the sum assured from the life insurance provider if the life assured loses their life during the policy term. The claim process requires the nominee to submit all the required documents to receive the benefit under the policy.
8. Optional Riders
Some life insurance plans come with add-on riders that offer financial benefits over and above those offered under the base plan. These riders can be opted for by paying a nominal additional premium.
Why Having a Life Insurance Policy Is Important?
Once you are aware of some important features of life insurance, you may wonder whether you need to buy one.
Read on to understand why life insurance may be important for you:
1. Financial Security of Your Loved Ones
Having a life insurance plan may ensure that, in your absence, your family may not have to struggle financially. In case of your sudden demise, your dependents may find themselves in a vulnerable place. During this time, the death benefit that they receive may be crucial in ensuring that they are financially covered.
2. Protection Against Critical Illnesses
As healthcare costs may continue to skyrocket, it may be important to have a plan in place to cover critical illnesses such as heart attacks, cancer, etc. These types of illnesses may cause a significant financial burden and may prevent you from earning income while you recover. Life insurance with a critical illness rider may help you during such difficult times.
3. Achievement of Your Child's Goals
As a parent, you may want to plan ahead for your child’s future needs, including providing for their education, marriage or other goals. In case you lose your life, your life insurance plan may help in offering a sufficient corpus to take care of your child's financial needs.
4. Secure Retirement
Retirement might be a major milestone for some and may require careful financial planning to ensure a comfortable and stress-free life post-retirement. After you stop working, it might be crucial to accumulate enough funds to support your lifestyle. Having a life insurance plan with an investment or saving component may allow you to build a retirement corpus while securing your family financially.
Factors to consider before buying a Life Insurance Policy
When buying a life insurance policy, you should consider all relevant features to know which type of policy would suit your needs. These factors include the following –
1. Financial goals
Firstly, consider your financial goals for which you are buying the policy. Your goals would help you pick the suitable type of plan. For instance,
- If you need to create a corpus for your children’s future, a child insurance plan may be considered
- If you want financial security for your family in your absence, a term plan may be suitable
- For creating a retirement corpus, pension plans may be a suitable choice
- For investment-oriented market-linked returns, you may consider Unit Linked Insurance Plans (ULIPs)
So, assess your needs, and coverage requirements and then pick the suitable plan.
2. Investment horizon
Next, consider your investment horizon, i.e., for how long you can invest for your goals. This helps in choosing the suitable policy tenure. For instance, if you want to create an education corpus for your child who is just a year old, you may choose a policy tenure of 15 to 20 years.
3. Risk appetite
Risk appetite means your ability to take risks. Life insurance plans are available both as traditional plans which offer guaranteed* returns, some like ULIP s where the returns are linked to the market performance, etc. Depending on your risk appetite, you can choose a suitable policy. For instance, if you don’t want to take risks, endowment or money-back plans would be a better choice but if you don’t mind risks, you may consider buying ULIPs.
4. Corpus needed
Assess the corpus needed for the financial goal for which you are buying the life insurance policy. This would help you choose a suitable sum assured or the premium payable (in the case of ULIPs). Choose a plan that will help you create an optimal corpus so that your financial goals can be met.
5. Benefit structure
Understand the benefit structure of the policy that you are buying to know what to expect from the policy. For instance, know the death benefit, maturity benefit, money-back benefit, bonus, guaranteed additions, etc. which the plan might offer.
6. Coverage and exclusions
Lastly, understand what is covered under the life insurance plan and what is not. This would inform you about the claims that the policy would pay and the ones it would not.
Assess these factors and then choose the most suitable life insurance policy for your coverage needs.
How to Buy the suitable Life Insurance Plan?
Buying life insurance may be an important decision that requires careful consideration. Here is a step-by-step guide that may help you purchase the suitable life insurance policy:
1. Assess your Needs
You may start by assessing your financial goals and needs. You may consider factors such as your age, income, liabilities, and dependents. Being aware of your needs may help you determine life cover you require. You may also use tools like a life insurance calculator to get a better estimate of your coverage needs.
2. Research Thoroughly
Since there are several types of life insurance plans catering to different needs, you may want to explore different options before narrowing down your choice. You may also consider the premium amount, policy features, riders, and the insurance company’s goodwill before going ahead with the purchase.
3. Compare Different Plans
After doing your research, you may have shortlisted a few plans that you are considering buying. You can compare different aspects of these plans to find the suitable one for you. You may use online comparison tools or consult an insurance advisor to help you make an informed decision.
4. Apply for The Policy
Once you've selected a policy, you may fill out the application form, also known as proposal form and submit the necessary documents, online or offline. Choose the suitable premium payment term and frequency. The insurance provider will evaluate your application and may ask for additional information, if required.
5. Make premium Payment
The premium amount may be paid annually, bi-annually, quarterly or monthly, depending on the policy type and the insurer.
Choosing a life insurance plan that suits your financial goals and requirements may be important. Ensure that you read the fine print and are aware of the terms and conditions of your life insurance plan before going ahead with the purchase.
Why Should Life Insurance Be Part of Your Financial Planning?
Life insurance provides more than just protection—it’s a smart move for long-term financial security. It ensures your family’s financial well-being in your absence, supports major future goals, covers liabilities, aids retirement planning, and offers tax benefits. It's a crucial tool to strengthen your overall financial roadmap.
Long-Term Financial Goals
Life insurance helps you plan for the long term by combining protection with savings. Policies with cash value such as whole life insurance enable you to grow your savings over time while ensuring financial protection for your family. These funds can be used for future goals like a child’s education, home purchase, or retirement, making life insurance a stable, dual-purpose asset.
Securing Your Child’s Future
Life insurance ensures your child’s dreams are not compromised even in your absence. The payout can help them continue education, meet living expenses, or pursue personal goals. It acts as a financial safety net so they don’t have to depend on others or face disruption in their future plans due to financial constraints.
Current Loans & Liabilities
Outstanding debts can become a burden on your family after your passing. Life insurance helps prevent this by offering your nominee the funds needed to repay loans, credit card bills, or mortgages. It protects your assets from being seized by creditors and ensures your loved ones can maintain financial stability and peace of mind.
Post-Retirement Planning
Certain life insurance plans offer retirement-focused benefits, helping you build a corpus over time. These plans provide a steady income stream in your later years and cover essential needs like housing, healthcare, and daily expenses. With added life cover, they ensure your family is protected financially even after you’re gone.
Tax Benefits
Life insurance offers tax advantages under Section 80C of the Income Tax Act under old tax regime. Premiums paid qualify for deductions, reducing your tax liability. Additionally, the payout your family receives is usually tax-free under Section 10(10D) subject to certain conditions, making life insurance not just a security tool but a tax-efficient financial product as well.
Things to Consider Before Buying a Life Insurance Policy
Before you buy a life insurance policy, it’s important to assess your personal needs, long-term financial goals, and budget. Choosing the right policy involves understanding your family’s future requirements, the time horizon, risk tolerance, and the type of benefits you expect from the plan.
Financial Goals
Start by identifying your family’s current and future financial needs. Evaluate regular household expenses like groceries, utility bills, school fees, and medical costs. Also consider upcoming goals—such as your child’s higher education or marriage, home repairs, or lifestyle upgrades. These will help determine the amount of life cover required.
Think about whether your spouse also needs life insurance and if you want comprehensive protection that supports your family through all life stages. Choose a policy that can offer adequate financial support to meet your family's needs even in your absence.
Investment Time Frame
Your policy’s duration should match your financial goals. For example, if you're planning for your child’s college education in 15 years, choose a policy term that aligns with that milestone. A clear investment horizon ensures you stay committed for the required time and helps you select a plan with appropriate maturity benefits. The right tenure ensures your investment remains purposeful and uninterrupted.
Tolerance for Risk
Risk tolerance helps determine the type of policy you should buy. If you prefer stable returns and low risk, consider traditional endowment or term plans. If you’re open to market-linked volatility for potentially higher returns, ULIPs may suit you better. Always match your comfort level with your financial strategy. Understanding your risk profile will ensure that your insurance plan complements your financial behavior and long-term objectives.
Amount Needed
Your life cover should be sufficient to replace your income and support your family. A good rule of thumb is 10 times your annual income. However, you should use a life insurance calculator for a personalized estimate. Ensure the sum assured can handle key expenses like education, and daily needs etc. Striking this balance is essential for sustainable financial planning.
Benefit Structure
Understand the policy’s benefit structure before buying. Know what payouts you or your family will receive—maturity benefits, death benefits, money-back options, or bonuses. Some plans offer guaranteed returns, while others are performance-based. Choose a plan with a structure that supports your goals and life stage. Carefully read the terms to avoid surprises later and ensure that the policy delivers value for your investment.
What’s Covered and What’s Not
Every policy comes with inclusions and exclusions. Go through the fine print to know which events are covered (like death due to illness or accident) and which are not (like suicide within a specific period or death due to risky activities). This clarity helps prevent claim rejection and ensures your loved ones aren’t caught off-guard. Choosing a transparent and well-documented plan ensures peace of mind.
How to Choose the Right Life Insurance Plan
Choosing the right life insurance plan requires a clear understanding of your goals, policy features, and premium affordability amongst other things. Evaluate your needs, research thoroughly, compare options, and follow a step-by-step process to select a policy that offers both security and value for your money.
Evaluate Your Needs
Begin by identifying why you need life insurance—whether it’s income replacement, loan protection, or long-term wealth creation. Think about your family’s needs, your age, income, future expenses, and dependents. Speak with a financial advisor to align your goals with suitable policy types.
Research Carefully
Once you know what you need, research available options. Visit insurers’ websites, download brochures, and understand key features like policy term, sum assured, riders, and claim process. Don’t skip the fine print—check exclusions and benefit conditions.
Focus on the claim settlement ratio and customer reviews to gauge reliability. Also, check if the insurer offers digital services and easy policy servicing. A well-informed decision will protect you from future surprises and ensure your policy performs as expected.
Compare Various Plans
Shortlist a few plans based on your research. Now, compare them side by side for coverage, premium, riders, returns (if applicable), and flexibility in premium payment options.
Online aggregators or insurance portals make this process easier by offering filters for comparison. Buying directly from the insurer’s website can also be cost-effective, with no intermediary charges. Choose the plan that offers the most value, not just the lowest premium. Convenience, trust, and comprehensive benefits are equally important in making the final decision.
Get Your Policy
Once you've selected the plan, complete the application process online or offline. Provide all necessary documents such as ID proof, address proof, income proof, and any additional document required by the Insurer. Choose the premium payment frequency that suits you—monthly, quarterly, half-yearly, or yearly.
Some insurers may request a medical examination or additional details before approving your application. Stay responsive and transparent during the process to avoid delays. After approval, you will receive a policy document, which should be stored securely. Review it carefully to verify all terms and personal information.
Pay Your Premium
Your premium is determined by factors such as age, health, policy type, and coverage. Choose a payment frequency that fits your cash flow—monthly, quarterly, half-yearly or yearly options are commonly available.
Set up auto-debit or standing instructions to avoid missing due dates, which may lead to policy lapse. Always check grace period and revival terms in case of missed payments. Paying your premium on time ensures uninterrupted coverage.
Frequently Asked Questions about Life Insurance and its features
1. What are some of the common types of life insurance?
Term insurance, whole life insurance, money-back insurance, Unit Linked Insurance Plan (ULIP), endowment plan, retirement plan, and child insurance plan are some of the common types of life insurance plans.
2. Can I buy life insurance riders without buying a base policy?
Riders are the additional benefits that you may be able to add to your base life insurance plan by paying an additional nominal premium. Thus, you may need to purchase a basic life insurance policy in the first place to add a rider. After you purchase a life insurance policy, you may get to choose the riders you wish to purchase. They may be considered add-on benefits to your base plan.
3. Will I get a return when my life insurance policy matures?
The benefits received on maturity of a life insurance policy if the life assured survives the policy term, are considered as maturity benefits. The feature of maturity benefit may depend on the type of policy you have purchased. For example, a pure term insurance plan may not have maturity benefits, while ULIP may have them.
4. How long does my life insurance plan last?
A life insurance plan lasts for the tenure you select while buying the plan. The policy will stay in force, as long as you pay all due premiums on time.
5. How many riders can I add to my life insurance policy?
You may add one or all the riders from those offered by your life insurance provider under the particular product. However, note that for each rider that you add to your plan, you may have to pay an additional nominal premium.
Generic References:
1. https://www.forbes.com/advisor/in/life-insurance/why-is-life-insurance-important/
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