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Life Insurance

Approximately 22,500 people lose their lives each day in India. This essentially means that 940 people die each hour. While Life and Death are a parcel of life, the loss of a loved one can leave a void which might never be filled. A life insurance policy helps fill certain aspects of this void, ensuring that the financial health of the insured’s family is taken care of.

Life Insurance in India has yet to become popular among the masses, with the total insurance penetration in India being just 3.44%, with life insurance accounting for 2.72%. Non-life insurance accounts for 0.72%. Given these numbers it is easy to understand that a majority of our population is not covered, leaving millions of Indians unprotected.

What is Life Insurance?

Life Insurance, in simple terms, is a contract which is signed between an individual and an insurance provider, wherein the insurance provider guarantees to pay a certain sum of money (sum assured) in case of the insured individual’s death. In order to avail this protection, the insured pays a certain amount as premium towards maintaining the policy.

It is nothing but a safety net which provides financial security/protection against loss of life. The primary purpose of a life insurance policy is to protect the financial interests of the insured’s family.

While one might think that this is a recent concept, studies have shown that it has been around for centuries, with different variations of insurance dating back to 1750 BC.

There are 3 basic aspects related to life insurance, namely:

  • Premium – An individual is accorded cover only if he/she pays a certain sum of money towards the policy. This is termed the premium. One can consider it to be the initial investment which offers returns in the future.
  • Death Benefit/Sum Assured – This is the money which the insurer assures to pay to the nominee/beneficiary of the policyholder after his/her demise. This varies based on a number of parameters.
  • Term – An insurance policy provides protection for a certain period of time. This is called the term, and it could vary based on the type of policy chosen.

Types of Life Insurance Policies available in India

Insurance in India is monitored by the Insurance Regulatory and Development Authority of India (IRDAI). As of March 2016, the country had 54 insurers, with 24 of these offering life insurance products. These insurers offer a diverse range of products, which can be categorised into six broad types, namely:

Term Insurance Plans:

These are plans which provide life cover for a fixed period of time. They can be either long-term or short-term plans, with the term ranging from a minimum of 5 years to a maximum of 60 years (or more) in certain cases. The insured individual is protected during this term, with the insurance company paying his/her nominee the sum assured on his/her death during the policy term. No protection is provided if the insured dies after the term.

These can be considered as the simplest insurance plans available. While they are affordable, they might not be the ideal option, for there is no protection after the said period of time. These plans do not provide a maturity benefit in almost all cases. One should consider these plans if he/she foresees their demise within a specific period (though it would be close to impossible to predict the accuracy). This could be viewed as ‘temporary insurance’, and is also referred to as pure life plans by certain insurers.

Life Insurance Plans
Life Insurance Plans

Unit Linked Insurance Policies (ULIPs):

Individuals looking for protection plus returns can consider unit linked insurance plans. These policies are ‘linked’ to market products like mutual funds, bonds, stocks, etc. There is a certain amount of risk associated with ULIPs, with this risk falling on the policyholder.

Most insurers invest a certain portion of the premium into market units, keeping the remaining portion aside for the base sum assured. It is important to keep an eye on the performance of the funds, for the returns could be negligible if there is a market crash. As such, the choice of insurance company is critical. ULIPs can be a smart option for the savvy investor who wishes to invest in a life insurance policy. Insurance companies have dedicated fund managers who oversee the investment.

Endowment Policies:

An endowment plan serves a dual purpose, offering not just life cover, but also doubling as a savings instrument to cater to any future needs. Under these plans, the policyholder is rest assured of an amount, even on maturity of the policy.

Individuals who are looking to protect themselves financially during the future can opt for such plans. These are ideal for people who might encounter expenses after a specified period of time. These plans attract a higher premium when compared to regular term plans. The premium is split into two major portions, with one of it going towards the basic sum assured and the other portion utilised as an investment tool to offer returns on maturity.

While it is possible to have unit linked endowment policies, most insurers in India offer non-linked endowment plans.

Whole Life Policies:

A whole life policy, as the name implies, offers protection for the entire lifetime of an individual. Certain insurers can have an upper age limit for maturity of policy. These can be in the form of insurance plus investment plans, wherein a death benefit is provided to the nominee on demise of the policyholder. If there is a maturity benefit associated with the plan, a maturity amount will be paid when the policyholder attains the upper age limit associated with the scheme.

While one might consider a whole life plan to be similar to a term plan, there are a few subtle differences. The premium for a whole life plan is typically higher, but these plans also offer a maturity benefit, which is not assured in case of a term plan.

Annuity/Pension Plans:

Retiring from work can often be hard, given the fact that money might become a constraint. Retirement plans, also known as annuity/pension plans can be used by individuals looking to financially secure their retired life. These are mostly single premium policies, wherein a lump sum amount is paid to the insurer.

One can choose the frequency of payouts they wish to receive, with the insurer paying them an amount after they retire. This amount is paid throughout their lifetime, guaranteeing financial security even when one doesn’t work. Certain annuity plans are unit linked, offering market based returns to policyholders.

Money Back Plans:

Money back policies are a subset of endowment plans which provide a survival benefit to the policyholder. These take multiple contingencies into account. While a death benefit is payable on the demise on the policyholder, the survival benefit will be paid if he/she survives for a certain period of time.

Insurers pay a certain percentage of the sum assured at regular intervals, with this plan offering an additional source of income to policyholders. These plans are ideal for individuals who want a regular source of income, but are not keen to take risks associated with market instruments. The survival benefit is paid until maturity of the policy. These plans are known for the liquidity they offer, making them a popular option in the country.

Differences between the different types of Life Insurance Policies

A life insurance policy isn’t a one size fit all. These policies should meet individual requirements, and given the various options available it is possible to get confused. The table below showcases the basic differences between the six insurance policy types.

Insurance type Premium Cover duration Maturity Benefit Death Benefit Ideal for
Term Insurance Cheapest Entire term chosen Not applicable Paid if death occurs during policy term Individuals looking for protection for specified period of time only
ULIPs Amount varies based on sum assured – More expensive than Term Insurance Equivalent to policy term Payable (depends on policy chosen) Paid if death occurs during policy term Individuals looking to get a return on their investment. Serves as investment plus insurance
Endowment High Equivalent to policy term Paid on completion of policy term Paid if death occurs during policy term Individuals looking to get a lump sum amount at a future date. Serves as insurance plus savings
Whole Life The premium is higher than other plans Entire lifetime of individual/specified period Payable Paid when death occurs Individuals looking to protect the well-being of their loved ones
Annuity/Pension Single premium Till demise of policyholder NA Payable on death Individuals looking for a regular source of income after retirement
Money Back Varies based on sum assured Policy period Regular amount is paid until maturity Payable on death Individuals looking for liquidity

Basic Life Insurance terms you should know

A number of us are overwhelmed by the terms associated with insurance. Failing to understand these terms can dilute the value of a policy, often leading to confusion during crucial moments. While we might not think of them as important, getting acquainted with commonly used terms can help us enjoy all the benefits provided by a policy. Additionally, one can also be rest assured that they will not be taken for a ride by the insurance provider.

  • Annuity – This is a policy wherein an income is provided at regular intervals throughout the lifetime of the individual.
  • Age limit – Every individual is expected to satisfy certain age-based criteria. Insurance providers will not offer a policy to people who do not fall within the minimum and maximum age limit bracket.
  • Assignment – This is the transfer of the ownership of the insurance policy from the original policyholder to another individual.
  • Proposal/Application form – This is a form which has to filled by the individual looking to purchase an insurance policy.
  • Claim – This is a notice sent to the insurer informing them about a situation wherein they are expected to pay the nominee/beneficiary, as the case may be.
  • Beneficiary – This is the individual who is entitled to receive any benefit from the policy after the demise of the policyholder. A policyholder can choose said person.
  • Coverage – This is nothing but the protection provided by the policy. Each policy accords different cover.
  • Grace period – Policyholders who fail to pay the premium amount on the due date are provided an additional period of time within which they can make the payment. This is termed the grace period. This period varies based on the premium payment mode chosen by the policyholder.
  • Premium – Each individual is expected to pay a certain amount to avail cover under a policy. This is termed the premium. One can view it as the investment one makes to buy the policy.
  • Premium payment modes/frequencies – These are the different options available when it comes to paying the premium. In essence, they refer to the frequency of premium payments. The mode options include: monthly, quarterly, half-yearly, or yearly.
  • Exclusions – An insurance policy does not provide cover in all cases. Insurers cannot be held liable for payment if demise occurs due to certain incidents. These are termed the exclusions.
  • Fiduciary – A beneficiary can choose an individual who can act on his/her behalf. This person is termed the fiduciary.
  • Free-look period – Individuals who do not agree with the terms and conditions of a policy can choose to return it within a specified period of time. This period is termed the free-look period.
  • Participating policy – A participating policy is one which participates in the profits of the insurance company. Such policies earn a bonus when the company registers profits. The quantum of bonus is decided by the Board of Directors.
  • Non-participating policy – This is a policy which does not earn any bonus/partake in the profits of the insurance company.
  • Policyholder – This is the individual who owns the policy. He/she might not be actual individual insured under the plan.
  • Life assured – The life assured individual is the person whose life is insured under the policy. He/she might not be the policyholder, for an individual can purchase a policy in the name of a different person.
  • Paid-up insurance – A paid-up policy is one wherein the death benefit is payable even if future premiums are not paid.
  • Lapse – A policy can be terminated if the premium is not paid. Such policies become lapsed.
  • Maturity Benefit – This is the benefit the insurer pays to the policyholder on completion of the policy term. Not all policies offer this benefit.
  • Death Benefit – This is the amount paid by the insurer to the nominee/beneficiary if the policyholder passes away while the plan is in force.
  • Survival Benefit – This is a benefit paid by the insurer to the policyholder after the completion of a specified period of time. The amount is paid while the policy is active.
  • Surrender – An individual who does not wish to continue with the policy can choose to surrender/terminate it. This can be done only when premiums for a specified period are paid. The insurer might pay a certain surrender benefit based on the premium paid until date of surrender.
  • Maturity date – This is the date on which the policy expires. The maturity amount, if payable, will be paid on said date.
  • Moral Hazards – These are certain conditions which the insurance company takes into consideration before providing a policy. These are related to the personal habits/lifestyle of the individual.
  • Nomination – The process of authorising an individual to receive the financial benefits of a policy is termed nomination.
  • Nominee – The individual who has been nominated to receive the benefits is termed the nominee.
  • Reinstatement – A lapsed policy can be reconverted into a regular policy. This process is called reinstatement. This can be done only if certain terms and conditions are met.
  • Renewal – This is the process whereby the policy continues to be in force after the premium is paid.
  • Rider- A rider is an add-on which can enhance the benefits provided by a base policy.
  • Vesting age – This is the age from which the pension is paid to the policyholder in case of a pension plan.
  • Underwriting – Each insurer evaluates applications based on certain established guidelines. This is called underwriting.

What are the principles behind Life Insurance?

Life insurance, in its current avatar is based on a number of principles. These are modified and adapted to the market, ensuring that insurance companies make a profit, while offering security to insured individuals.

One can say that there are four major principles applied in India, with these being:

  • Insurable Interest – This basically pertains to the interest an individual is expected to have in a policy. An individual who is looking to purchase a policy for someone else should have a connection with him/her. This could be a family bond, personal relationship, etc. An insurance company can choose to reject an application if there is no insurable interest involved. This is done in order to protect against the misuse of a policy.

For example, Mr. Jay decides to purchase a policy for his mother. The life assured in this case is his mother, while the policyholder is Jay. In case Jay decided to purchase a policy for his neighbour’s mother the insurance company would deny it as there is no insurable interest in this case.

  • Law of large numbers – It is next to impossible to predict the death of an individual. Insurance companies utilise the law of large numbers to generate a death rate which can be applied to a particular sample size. This probability is used by insurers while offering a policy. This law is used to minimise losses and provide a certain level of stability.
  • Good faith – Purchasing an insurance in bad faith is something which is bound to dilute the value of the policy. Insurance, being a contract, should be entered into in good faith, with all details provided honestly. Hiding information can result in consequences in the future. While the buyer is expected to be honest while providing personal information (ailments, lifestyle, etc.), the insurer should explain all aspects related to the policy, ensuring that there are no hidden clauses and that the applicant is made aware of all terms and conditions.
  • Risk/Minimal loss – Insurance companies are legitimate businesses who aim to make profits. This can be extremely hard to do if there is a high risk factor. The principle of minimal risk states that the insured individual is expected to take necessary measures in order to limit damage to self. This could include following a healthy lifestyle, eating light, exercising, quitting smoking, etc.

Best Life Insurance Companies in India

India is home to a total of 54 insurance companies (as of March 2016), with 24 of them offering life insurance products. Both public sector and private sector companies have noticed the huge potential for insurance in the country. Among the 24 life insurance companies operating here, only 1 is in the public sector. The presence of international giants who have teamed up with local companies has resulted in improved quality of service and attractive products on offer.

The table below lists the top 10 insurance companies in India based on the premiums collected by them.

Insurer name Premium amount
Life Insurance Corporation of India Rs.2,66,444.20 crore
ICICI Pru Life Rs.19,164.39 crore
HDFC Standard Life Rs.16,312.98 crore
SBI Life Rs.15,825.36 crore
Max Life Rs.9,216.16 crore
Bajaj Allianz Rs.5,897.31 crore
Birla Sun Life Rs.5,579.71 crore
Reliance Life Rs.4,398.12 crore
Kotak Mahindra Rs.3,971.68 crore
PNB MetLife Rs.2,827.83 crore

The data listed above is as per the report released by IRDA (2015-16).

Statistics of Life Insurance companies (2015-16)

LIC continues to be the dominant name in the Indian insurance industry, with private players lagging behind in terms of premiums collected and lives covered. This, however, is changing, with a number of individuals opting for private insurers on account of their improved services and cheaper products.

The table below highlights the various aspects related to life insurance companies in India during 2015-16.

Insurer Name Claim settlement ratio (%) Percentage of grievances solved Solvency ratio (as of 31/3/2016) Assets under management (Funds) Rs. crore (as of 31/3/2016)
LIC 98.33 100 1.55 82,671.10
Aegon Life Insurance 95.31 98.39 2.20 1,784.94
Aviva Life Insurance 81.97 100 3.84 8,752.03
Bajaj Life Insurance 91.30 99.90 7.93 43,884.98
Bharti AXA Life Insurance 80.02 100 2.19 3,076.58
Birla Sun Life Insurance 88.45% 99.99 2.11 30,742.94
Canara HSBC Oriental Bank of Commerce Life Insurance 92.99 99.60 4.11 9,785.65
DHFL Pramerica Life Insurance 83.64 99.65 10.31 2,027.80
Edelweiss Tokio Life Insurance 85.11 99.09 2.64 1,397.55
Exide Life Insurance 89.36 99.59 2.65 9,445.99
Future Generali India Life Insurance 90.26 99.31 2.03 2,662.05
HDFC Standard Life Insurance 95.02 99.38 1.98 74,249.11
ICICI Prudential Life Insurance 96.20 99.87 3.20 1,01,790.47
IDBI Federal Life Insurance 84.79 100 4.06 4,738.47
IndiaFirst Life Insurance 71.87 98.82 2.17 8,897.05
Kotak Mahindra Life Insurance 89.09 93.11 3.11 16,776.68
Max Life Insurance 96.95 100 3.43 35,804.99
PNB Met Life Insurance 85.36 99.55 2.11 13,475.40
Reliance Nippon Life Insurance 93.82 98.84 3.04 15,935.74
Sahara India Life Insurance 90.30 97.14 8.04 1,142.48
SBI Life Insurance 93.39 99.97 2.12 79,455.72
Shriram Life Insurance 60.24 96.70 2.43 2,539.40
Star Union Dai-ichi Life Insurance 80.73 95.42 1.86 5,595.65
Tata AIA Life Insurance 96.80 100 3.48 18,987.69

Claim settlement ratio (CSR) – This is the ratio of the number of claims settled by the insurer to the number of claims it receives in a particular year. It highlights what percentage of claims have been paid. A high claim settlement ratio indicates that the insurer is more likely to settle a legitimate claim.

CSR = No. of claims approved/No. of claims received

It is a smart option to choose an insurer with a high CSR. As per the data released by IRDA for 2015-16, LIC has the best claim settlement ratio in the country, followed by Max Life, Tata AIA, and ICICI Prudential Life respectively.

Choosing an insurer with a low CSR could jeopardise the chances of a claim being honoured, resulting in trauma for the family of the insured.

Grievances solved ratio (GSR) – This is the ratio of the number of grievances solved by an insurer to the number of grievances received by it in a particular year. This reflects the service provided by the company, with it offering a peek into the how efficient the insurer is when it comes to sorting any problems. A number of insurance companies have a 100% GSR, highlighting their attention to customer issues.

Solvency ratio – There have been instances in the past where insurance companies went bankrupt, leaving thousands of customers in a bind. Governments have had to bail out such insurers, resulting in losses to the tune of billions to the exchequer.

In a bid to ensure that this doesn’t repeat, insurance companies are monitored regularly, with the IRDA checking their solvency ratio. This is nothing but the ratio of the assets of an insurance company with respect to its liabilities. It highlights the ability of an insurer to pay long-term debt.

Insurers with a solvency ratio of under 1.50 are closely monitored, with a high solvency ratio preferred. DHFL Pramerica has the highest solvency ratio amongst Indian insurance companies during 2015-16, with LIC having the lowest.

Why is Life Insurance important?

The average life expectancy in India is around 68 years, but we all know people who passed away before they reached this age. The unpredictability of life can cause irreversible damage to our loved ones. A good life insurance policy can help minimise the financial burden associated with the loss of a dear one.

Given the stress associated with our daily life, we often come across cases of people meeting an untimely end, often leaving entire families shattered after their demise. Here are three main reasons why one must consider investing in a life insurance policy.

  1. Peace of Mind – Peace is something we all run after, with only a few people succeeding in ever finding it. Purchasing an insurance policy can provide a certain amount of peace, knowing that the welfare of your loved ones is taken care of in case of any unfortunate event. This enables one to continue with life, providing an opportunity to live to the fullest without worrying about what the future holds.
  2. Financial security – An insurance policy takes care of any financial requirements the nominee/beneficiary could have. One can customise a policy to meet individual expectations. Additionally, a number of us take loans to meet certain expenses. This loan amount needs to be paid back, even if the borrower passes away. The burden of repayment falls onto the family members in such cases. A life insurance policy can provide sufficient funds to repay any amount, ensuring that there are no additional liabilities to take care of.
  3. Additional income – Certain life insurance policies are designed to offer an additional source of income to the insured during his/her lifetime. These keep pace with inflation, providing decent returns on the initial investment. One can plan for the future by investing in a life insurance policy today.

Understanding how Life Insurance works

It isn’t hard to understand how life insurance works, with insurers aiming to simplify the entire process to generate more interest in this product. The steps below elucidate how exactly life insurance works.

  • Determining one’s need – Before one decides to buy a life insurance policy it is imperative to understand his/her needs. This includes computing the sum assured amount, the type of policy, the premium payment capacity, the term, etc. Once this is determined one needs to decide on the beneficiary who will receive the amount in case of loss of life.
  • Choose the insurer and policy – The next step involves choosing a policy based on one’s needs.
  • Pay the premium – Once the policy is chosen the individual is expected to pay the premium amount. In case of regular premium payment policies, the premium should be paid at the agreed upon frequency.
  • Avail the cover – The insured individual is covered for the period chosen by him/her, subject to payment of the premium.
  • On death – In case of demise of the policyholder/life insured during the policy period, the insurer will pay the sum assured. This amount is paid to the nominee.
  • On survival/maturity – On survival of the life insured until maturity, a maturity benefit might be payable to him/her. This depends on the policy chosen and whether or not it has a maturity benefit under it.

The policy will cease to exist when the death benefit is paid. Note that certain policies provide an option of cover to the spouse of the insured, wherein the policy will cease after the death of the spouse.

Benefits of buying a Life Insurance Policy

Purchasing a life insurance policy comes with a range of benefits, with the primary ones highlighted here.

  • Peace of mind – Most of us live in stressful environments, with our lifestyle and health taking a beating due to this. The added burden of what the future might hold is bound to increase this stress, which could lead to illnesses and/or breakdowns. Purchasing an insurance policy provides peace of mind, enabling us to continue with our lives without having to think about what could happen in the future.
  • Protects interests of family – A number of us work to provide the best for our families. A good life insurance policy ensures that the family of an insured individual is financially taken care of even after his/her death. One can purchase a policy to fund the education of a child, provide money for the wedding of a loved one, etc.
  • Savings – While a life insurance policy might not be intended towards inculcating the habit of saving, it can help one save money for the future. Certain policies offer returns which are linked to the market, while other offer bonuses on maturity.
  • Tax benefits – Investing in a life insurance policy helps one save tax. Individuals can avail tax benefits under various sections of the Income Tax Act. While there is a limit on the deductions permitted on premiums paid, the amount received as a death benefit does not attract any tax.
  • Added income – Insurers offer additional benefits to individuals looking to purchase a life insurance policy. A pension plan helps one get regular income after retirement. Similarly, there are other plans which offer periodic payouts.
  • Loan – One can avail a loan against a life insurance policy. This depends on the policy in force and could vary from insurer to insurer.
  • Planning – A life insurance policy helps one plan for the future. One should take various scenarios into account before buying the policy.
  • Offsets liabilities – Any liability which an insured individual has is likely to be transferred to his/her family after his/her death. A life insurance policy offsets these liabilities, providing funds to repay any outstanding debt, ensuring that the family is not plunged into further darkness.

Points to remember before buying a Life Insurance Policy

A life insurance policy can be a great asset if chosen wisely. With hundreds of options in the market today, it is possible for one to buy a policy which does not do justice to their needs. Keeping these simple points in mind before purchasing the policy can ensure that one gets the best out of it.

  • Assess your needs – A life insurance policy is unlike other purchases, for it has the power to change the outcome of our lives in certain scenarios. The first thing one needs to do is assess his/her needs. Questions like ‘How many people depend on my earnings?’, ‘What sum of money might be required to fund the education of my children?’, ‘Can I survive on my current income in the future?’, ‘Have I borrowed money which needs to be repaid?’, etc. should be asked in order to determine the purpose of a life insurance policy. Failing to do this could result in one buying a policy which does not cater to his/her needs.

One should remember that a life insurance policy is not a ‘one size fit all’ product. It needs to be customised to meet personal requirements.

  • Check your finances – How many times have we ended up buying things we do not use, paying an amount for them and compromising on other important items? It is imperative that we check our finances before buying a life insurance policy, especially if the policy involves payment of premiums at regular intervals. A policy for which the premium hasn’t been paid could lapse, reducing the benefits. Always ensure to choose a policy which is affordable.
  • Choose the right cover amount– The cover amount we choose should match the monetary requirements of our loved ones. Opting for a limited cover could result in hardships for them. Inflation is one parameter which should always be kept in mind before choosing the sum assured. An amount which seems sufficient now might not be sufficient a few years later. Any changes in our lifestyle should reflect in the sum assured to ensure that the quality one is used to remains the same even after the demise of a loved one.
  • Research and compare – Gone are the days when there were one or two insurers offering a limited number of products. Today, India is home to 24 life insurance companies, with each offering multiple plans. It is imperative that we research these plans, finding one which matches our expectations. Research not only helps narrow down the options, but can also help us land a great deal, for certain insurers could offer a plan at extremely affordable rates.

Another critical aspect which should be researched is the history of the insurer. Insurers with a bad track record should be avoided, for they could create issues when it comes to claim settlement. The IRDA provides statistics related to all the insurers operating in India, one should check these before making any decision.

  • Select an insurer to match your needs – The performance of an insurance company is not sufficient when it comes to choosing an insurance partner. The services offered by them are also important. Select an insurer who has a ‘human touch’ associated with them. This can be useful at the time of a claim. Insurers nowadays not only pay the claim amount, but also provide counselling to help loved ones handle the loss.
  • Choose and understand the policy – Once a policy has been chosen, it is important to understand it thoroughly. A number of us merely go by the word of our agent, buying a policy without truly understanding it. Make sure to go through all the benefits offered, the premium expectation, etc. A policy could lose its value if it is purchased without understanding.
  • Get a second opinion – Getting a second opinion is always a good idea, especially when the purchase can be a life- changing one. The second opinion should be taken from people who are aware of how insurance works. This could be a family member who has previously invested in a life insurance policy, a friend, a colleague, or even neutral websites which compare various products and provide reviews.
  • Understand all terms and conditions – How many of us actually take the time to read the terms and conditions associated with a product we buy? Most of us tend to skip this part, ignoring points which could be critical to avail the benefits associated with the item. Doing the same when it comes to buying an insurance policy can come back to haunt us. An insurance company can deny a claim for various reasons, which could result in our investment becoming null and void. Never sign off on a policy without reading these minute details.
  • Continue paying premiums – Once a policy is purchased it is imperative to maintain it. This means that premiums should be paid regularly. Failing to do so will result in the lapse of the policy, with the insurer not offering a cover/providing limited cover in such cases. It is a good idea to constantly check the policy to ensure that it is active at all times.

How much should I insure myself for?

This is a question most of us end up asking. The insurance cover one needs depends on a number of factors and the answer to this question might not be universal. However, there are a few basic aspects which should be taken into account while choosing the insured amount.

  • Current income – The premium payments begin immediately after the policy is purchased. This implies that the current income should be sufficient to handle the onus of these payments. Experts state that the insured amount should be anywhere between 10 to 12 times the gross annual income of an individual. So if your gross annual income is around Rs.5 lakh, a good sum insured could range from Rs.50 to Rs.60 lakh.
  • Age – The age of a policyholder/insured plays a key role in determining the sum insured which might be required. An individual in the higher age bracket (50+ years) might have different commitments compared to an individual who is in his/her thirties. The more the responsibilities one has the more the cover should be. Additionally, an individual with a number of years of work experience might be in a position to afford a higher premium, which results in an increased sum assured.
  • Current expenses – The expenses should be taken into consideration before buying the policy. There is no point of purchasing a plan if one finds it hard to pay the premiums on account of existing financial obligations. Deduct the expenses from the annual income in order to determine the actual budget for an insurance policy. One should choose a sum assured which is around 5 to 6 times the total income plus all miscellaneous expenses.

For example, an individual who earns Rs.10 lakh per year has annual expenses to the tune of Rs.5 lakh. These include the car loan EMI, home loan repayment, school fees, etc. The cover in this case should ideally be around Rs.75 lakh.

  • Inflation – Inflation is a reality we cannot ignore. We see the price of basic essentials going up each year, with these likely to increase in the future as well. Make sure that the insured amount factors inflation as well. Choosing a sum assured based on the current costs might result in the amount being inadequate in the future. Ensure that inflation at the rate of 5-6% per year is adjusted while the sum assured is being decided.
  • Family requirements – Securing the future of our family is one of the main reasons why most of us buy an insurance policy. One should always keep the requirements of the family in mind while choosing the sum assured. The number of children one has, their age, their future educational needs, the income of a spouse, needs of parents, etc. should all be taken into account. For example, an individual with children aged 6 and 8 years might think of taking a sum assured which can cater to their educational needs in the future. Similarly, if one has a working spouse/an additional source of income, he/she can choose a relatively lower amount when compared to an individual who is the sole breadwinner of the family.
  • Future obligations – These could include repayment of loans, cost of medical treatments for parents, etc. The insured amount should be sufficient to take care of any expense which might arise in the future.
  • Other savings/investments – An insurance policy, though designed only to provide security, can also offer decent returns in some cases. Individuals who have other modes of investment can choose a policy which offers pure insurance, whereas those without any other investment might be forced to choose an investment cum insurance scheme. This has a bearing on the premium one pays, for a pure insurance plan can be purchased at a lower premium when compared to other plans.

In case there are other investments/savings, one can choose a lower sum assured. If there is no other investment, the cover taken should be on the higher side.

Individuals who are unsure of the cover they require can approach agents/use online calculators to determine an amount which might be sufficient for them.

Is there a right time to buy Life Insurance?

The answer to this question goes beyond a yes or no, for there is no set age bracket which is considered the best period to invest in life insurance. However, there are a few key parameters which can help one determine the right time to buy it.

  • Age – The younger an individual is, the cheaper an insurance policy will be. Most youngsters refrain from purchasing a policy, thinking that they do not require it immediately. This, however, might not be the smartest move, for the cost of a life insurance policy increases each year. Statistically speaking, there is an 8-10% rise in the premium amount every year. Simply put, delaying the purchase of a life insurance policy can become an expensive proposition.

We can take the example of Jay to understand how this works. Jay, currently aged 30 years checks the cost of an insurance policy for Rs.10 lakh. The premium works up to around Rs.27,000 per year. He chooses to forego this purchase, deciding to wait instead. At age 50, he considers the same policy. The premium at this age is more than double the premium he was expected to pay when he was 30 years old.

Insurers charge a higher amount with increasing age. A smart option is to buy the policy at a young age. This enables one to enjoy the benefits of the policy without having to pay an exorbitant amount.

  • Health – The healthier an individual is the less likely it is for him/her to fall ill. A healthy lifestyle is known to increase the longevity of people, with insurers looking at this before providing a policy. Individuals with medical issues might be expected to undergo tests, with insurance providers having the right to deny an application based on the outcome of these tests. The healthier an individual is, the better are his/her chances of getting a good deal on the premium amount.
  • Finances – Individuals with an alternate source of income might think that a life insurance policy is not needed for them. One should consider the current financial situation and future obligations to make sure that a life insurance policy is utilised effectively. As one ages, there are chances for debt to increase, which might prevent one from spending on a life insurance policy. On the other hand, buying a policy when there is no debt can help one utilise resources more effectively.

Given these points, it is safe to say that the best time to purchase a life insurance policy is NOW. Delaying a purchase provides no added benefits. Irrespective of the position one is in currently, investing in a good policy can offer security and stability, in addition to savings.

With it close to impossible to predict life, it would be a smart option to consider the option of a life insurance policy immediately.

Life cycle of Life Insurance

Understanding the life cycle of life insurance is not complicated, for it is visible around us. One can essentially break this cycle into four different stages, corresponding to different stages in an individual’s life.

  • Early age/No insurance- The first stage corresponds to the early lifetime of an individual. This phase can be considered to be from the time of birth till the time one reaches an age of 18/19 years. Here, there are no responsibilities/liabilities one has to deal with. On the contrary, this is the period when someone else is spending money on the individual. One can typically say that there is no need for life insurance during this period.
  • Youth/limited insurance – This is the age when most individuals begin to venture out. They complete their education, get their first job, stepping into a new phase of life. The liabilities and responsibilities in this phase are limited, meaning that only a limited minority of people in this age bracket opt for life insurance. One could assume this bracket to be in the range of 20 to 25 years.
  • Middle age/High insurance – This is the phase when life truly begins to change. Responsibilities increase for most people during this period. One might get married, have children, purchase a home, etc. These mean that there are people dependant on him/her. A life insurance policy becomes essential during this stage of life, with most people buying it as and when their responsibilities towards others increase. This period typically lasts for around 20-25 years.
  • Old age/limited insurance – This is a period when responsibilities reduce. Their children are grown up and are capable of handling themselves, most loans are cleared, and the expenses have reduced. The need for insurance comes down, but this does not mean that it can be avoided. There are still a few requirements which need to be met, which can be done by the policy.

We could take the example of Rakesh to understand the life cycle of life insurance. Born into a middle-class family, Rakesh had a good upbringing. At age 21, he completes his formal education and begins work. Until now he had no life insurance policy. Given the fact that he is independent, he chooses not to buy a policy immediately.

At age 25, he decides to get married. At age 27, he takes a home loan to buy a house. His responsibilities have now increased and he chooses to invest in a term insurance plan with a tenure of 25 years. Within the next few years he becomes a father, with added financial obligations. He increases the cover under his plan to meet them.

At age 52, his children are grown up and are on the verge of completing their education. His home loan is cleared and his financial obligations have reduced. The term plan is about to expire but he still feels the need to provide for his wife. He now chooses to invest in a whole life policy, ensuring that he is protected for as long as he lives.

Which documents should I submit in order to buy Life Insurance?

Insurance providers require a few basic documents in order to process an application. These include:

  • ID proof – Most insurers insist on a government approved photo ID proof as part of their KYC process. This could be a passport, driving license, Aadhar, etc.
  • Address proof – This could be a rental agreement, utility bill, voter ID card, etc. The insurance company will use this address for all communication associated to the policy.
  • Age proof – An individual is expected to provide proof of his/her age. As stated earlier, the age of an applicant has a huge bearing on the premium. Accepted documents include PAN card, Aadhar, driving license, Voter ID, etc.
  • Proof of income – The proof of income is required to check whether an individual can afford the premium for a particular sum assured. One could submit either their payslip, bank account summary, Form 16, or their IT return as proof.
  • Recent photograph – A recent passport size photograph is needed in some cases.
  • Medical certificate – Individuals over a certain age might be asked to undergo medical tests. A medical certificate will be needed in such cases. The certificate should be issued by competent doctors. Each applicant might not be asked to undergo medical tests, with this varying from case to case.

Note that an insurer could ask for other documents in order to process an application. These could be related to the nominee/beneficiary.

Is it important to compare Life Insurance Plans online?

Yes, it is extremely important to compare the different life insurance policies offered before one decides to buy them online. Comparison becomes even more important when everything is being done online, for one might not have the help of experts.

Traditionally, insurance agents would explain a plan before the purchase was completed. The virtual world, however, might not always come with assistance.

With hundreds of plans available it is imperative that one searches and compares the different features of each plan, ensuring that the selected plan suits the personal requirements of the individual. There have been instances of people purchasing a policy without comparing them which have resulted in problems during the claims process.

Almost all insurers have a presence online, with it easy to find details about their products. Not only does this help save time and effort (when compared to offline comparison), it can also help one get a better deal on the premium amount.

Reviews of products and services by people who have invested in them can be an added bonus, offering an insight into what one could expect.

While one can go ahead and purchase a policy without comparing it, a smarter option would be to check all other alternatives, enabling one to get the best product in the market.

Popular Life Insurance Riders offered in India

A basic life insurance policy might not be perfectly suited to the requirements of an individual. Some of us might be looking for additions to the policy in order for it to match our needs and expectations. Insurers offer an option to do the same, providing riders which can be added to a base policy to enhance the protection.

The riders available in India can be broadly categorised under 8 subheadings, with these being:

  1. Critical Illness Rider – This rider is a smart option for those looking to protect themselves against critical illnesses. India witnesses a number of deaths due to critical illnesses like cancer, kidney failure, heart attack, brain tumour, paralysis, etc. The number of critical illnesses covered by these riders can vary from 15 to 34. Insurers will pay an amount if the insured is diagnosed with any of the mentioned critical illnesses, ensuring that out-of-pocket expenses to treat them are reduced.
  2. Different insurers offer different versions of this rider, which can be purchased at an additional cost. Some of the popular critical illness riders available in India include the BSLI Critical Illness Rider, Exide Life Critical Illness Rider, HDFC Life Critical Illness Plus Rider, and the LIC New Critical Illness Benefit Rider.

  3. Accidental Death/Permanent Disability Benefit Rider – Thousands of accidents occur across India each day, with hundreds of lives lost due to them. Under this rider, an additional sum assured is paid if the insured passes away/is rendered permanently disabled due to an accident. Some insurers also refer to these riders as Double Indemnity Riders.
  4. Almost all life insurers provide this rider as an add-on, with the popular ones being the BSLI Accidental Death and Disability Rider, the Max Life Accidental Death and Dismemberment Rider, and the ICICI Pru Unit Linked Accidental Death Rider.

  5. Waiver of Premium Rider – While this might not be a very popular rider in India, it can be a smart investment. This rider limits the financial burden of an individual in case of certain hardships. Future premiums are waived off in case of events like accidents which render an insured disabled, loss of job, etc. The policy continues to be in force thanks to this rider.
  6. Popular options include the BSLI Waiver of Premium Rider, LIC Waiver of Premium Rider, Tata AIA Life Insurance Waiver of Premium Plus Rider, etc.

  7. Term Insurance Rider – Insurance policies are often associated with a certain term, with the cover provided only for this period. A term insurance rider can be viewed as a top-up, increasing the period for which the policy is in force. For example, a policy could have a term of 15 years. Purchasing a term insurance rider with a tenure of 5 years essentially increases the overall cover, making it 20 years.

The death benefit will be paid if demise occurs during the extended term. Popular options include the Term Rider by PNB MetLife, the Term Assurance Rider by LIC, the Exide Life Term Rider, etc.

  1. Guaranteed Insurability Rider – There could be instances where an insured individual feels the need to increase the original cover provided by a life insurance plan. This could be on account of changes in his/her personal life. This rider enables one to increase the initial cover amount without having to undergo any medical examinations. Almost all insurers in India offer this rider option.
  2. Spouse Insurance Rider – This rider, as the name suggests, covers the spouse of the insured under the same plan. It enables one to protect his/her partner without buying a new policy, saving time, effort, and money in the process. The rider would enable a policy to continue for the entire period even if the original policyholder passes away.
  3. Major Surgical Assistance Benefit Rider – This is similar to the Critical Illness Benefit Rider, but is limited to providing financial cover in case of a major surgery. This basically caters only to emergency surgical requirements, with no cover provided for any existing illness/injury.
  4. Family Income Benefit Rider – This rider can be taken by individuals who wish to protect the financial well-being of their family in case of any untoward incident. The rider pays a certain sum of money every month for a specified time duration if the policyholder passes away while the plan is active. This income can be used by the family to meet their generic expenses.

Popular Family Income Riders include the ones offered by Shriram Life, Reliance Life, Star Union Dai-ichi Life, and Bajaj Allianz Life.

Note that different insurers might offer variations of these riders. There could be cases where riders are not offered for certain life insurance policies.

How do I calculate the Premium for my Life Insurance Policy?

Insurance companies charge a certain amount as premium to provide cover under a policy. This premium is computed after taking a number of factors into consideration. Probability plays a big role in determining the premium amount, with insurers looking at the lifestyle, medical history, and age of the applicant before deciding the premium.

While insurance companies hire expert statisticians to look into the process and come up with the premium, a regular individual can check the premium amount by using different online tools.

Most insurers have a premium calculator which showcases the premium amount for different permutations and combinations. Alternately, one can also use third-party website tools to compute the premium. One will have to enter details like their age, the term of the plan, the sum assured they wish to avail, the premium payment frequency, add-ons, etc. Once they enter these values into the premium calculator they will be provided the premium amount for the chosen variables.

Higher the chances of a claim being made higher is the premium amount.

Can I cancel my Life Insurance Policy?

Yes, it is possible to cancel a life insurance policy, subject to certain restrictions. As per IRDA regulations, an individual who has purchased a policy can return it within the free-look period if he/she does not agree with the specified terms and conditions of the policy. This period typically ranges between 15-30 days, depending on the mode of purchase.

This can be done by providing reasons for the same. The insurance company is bound to return the premium after deducting the expenses incurred by them while providing the policy. These could include costs associated with the stamp duty, medical check-up, etc.

Once this period has passed, there are other possibilities when it comes to policy cancellation. In certain cases the policy lapses if premiums are not paid. Alternately, a policyholder can choose to surrender the policy or turn it into a paid-up policy. These options are available only if the policy in question has been in force for a specified minimum period of time.

If one opts for conversion of the policy into a paid-up policy, the policy will remain, albeit with a reduced sum assured. Such policies are not entitled to earn any bonuses.

In case of surrender of policy, the insurer will pay a surrender amount to the individual (if the policy has acquired a surrender value). The policy will cease to exist once this amount is paid.

It is important to consider all possibilities before one decides to cancel a policy, for doing so lifts the protection provided by the plan.

What are the do’s and Don’ts when it comes to Life Insurance?

Investing in a life insurance policy results in a partnership between the insurer and the insured. Doing justice to both can be hard, but keeping these do’s and don’ts in mind can help one enjoy all benefits to the max.

Do’s Don’ts
While buying the policy
  • Provide accurate information
  • Fill all columns
  • Clear all doubts with the insurer. Take help if needed
  • Select the policy term, policy type, premium payment mode, etc.
  • Provide information pertaining to the nominee
  • Do not hide any information. This includes past medical history, current ailments, etc.
  • Sign blank proposal forms
  • Ignore any doubts
After buying the policy
  • Follow-up with the insurer
  • In case there is no communication from the insurer it is important to write to them about the same
  • Provide any additional documents, if asked by the insurer
  • Check the policy bond and understand all conditions associated with it
  • Wait beyond two weeks to receive communication from the insurer
  • Ignore to read the terms and conditions
Policy maintenance
  • Pay all premiums on time
  • Ensure payment reaches the insurer
  • Intimate the insurer if there is a change in communication address
  • Miss payments
  • Wait for the insurer to send a notice for missed premiums
In case of loss of policy
  • Contact the insurer immediately
  • Apply for a duplicate policy
  • Ensure that the duplicate copy has the same rights/features as the original
  • Ignore the loss
In case of a claim
  • Inform the insurer
  • Provide all documents to the insurer
  • Assist the insurer in the process
  • Wait for a certain period to inform the insurer
  • Provide fake documents

Impact of GST on Life Insurance

The Goods and Services Tax has changed the way India does business. Effective from the first of July 2017, it has had an impact on the price of multiple products and services. The insurance industry also falls under the ambit of GST, with several changes implemented by insurers across the country. Purchasing and maintaining an insurance policy has now become costlier, with the table below highlighting the changes post GST implementation.

Product/Service Old service tax rate New rate post GST implementation
Term Insurance 15% 18%
ULIPs 15% 18%
NB Premium 3.75% 4.50%
Renewal Premium 1.85% 2.25%
Premium for Annuity Plans (single premium) 1.50% 1.80%

In addition to the aforementioned changes, insurers will also charge GST on the interest which is typically charged when premiums are delayed.

Service tax exemptions which were previously accorded to certain plans/schemes will continue to be effective even after GST, with these provided in the case of the following plans:

  • Pradhan Mantri Jeevan Bima Yojana
  • Pradhan Mantri Jan Dhan Yojana
  • Pradhan Mantri Vaya Vandana Yojana
  • Insurance schemes notified by state governments/central government
  • Aam Aadmi Bima Yojana
  • Janashree Bima Yojana

How much does it cost to buy and maintain a Life Insurance policy?

A study done by the Environmental Protection Agency in the USA estimated the value of each life to be around $9.1 million, or just around Rs.57 crore. This, however, might not be the actual amount each individual is worth, for there are a number of factors which can change this value.

Similar studies done in the United States have estimated the cost of a life insurance policy for a healthy 30 year old male to be around $150 for a cover of $250,000, with the policy period being 20 years.

This amount, however, is not universal, for an insurance policy is designed to cater to an individual, with personal traits and habits influencing the premium.

In India, insurance companies determine the premium for a particular policy based on four main criteria:

  • Age – The lower the age of an individual the cheaper the premium. Each additional year can increase the premium amount. Buying a policy at a younger age can help one enjoy the cover without spending more.
  • Sum assured – The premium amount has a direct correlation to the cover chosen by an individual. The higher the sum assured, the higher the premium.
  • Habits – The personal habits of an individual can either increase or decrease the premium. For example, non-smokers are eligible for discounts which is bound to reduce their costs, whereas those who smoke on a regular basis will end up paying more. Similarly, the nature on one’s job can also have an impact on the premium. Individuals in risky fields will be required to pay more compared to those who work regular jobs.
  • Policy type – The premium for different policies can vary. An individual who wishes to purchase a whole-life policy would end up paying a lot more than he/she might have to pay for a limited term policy. Similarly, if one is purchasing a ULIP he/she might pay a differential amount compared to a pure protection plan.

We can understand how these parameters work by using the example of Mr. Jay.

Jay, who is currently aged 35 years invests in a term life insurance plan. He chooses a 30 year term and opts for a sum assured of Rs.50 lakh. As a smoker his premium amount comes up to around Rs.14,000 per year. If he were a non-smoker he would have to pay an annual premium of around Rs.8,600 for the same term and sum assured.

Now, if he had chosen to purchase the same policy when he was 25 years old, the annual premium amount would be around Rs.7,500 (if he was a smoker at that age). If he refrained from smoking the premium would be just around Rs.5,000 per year.

From this, we can see how the lifestyle and age can impact the premium amount.

Similarly, if he opted for a sum assured of Rs.1 crore the premium would increase.

The table below highlights how the premium amount varies under different conditions:

Age Smoker (Y/N) Sum Assured Annual Premium
25 years Yes Rs.50 lakh Rs.7,500 for male Rs.6,900 for female
25 years No Rs.50 lakh Rs.5,000 for male Rs.4,800 for female
40 years Yes Rs.50 lakh Rs.20,500 for male Rs.17,500 for female
40 years No Rs.50 lakh Rs.13,000 for male Rs.11,000 for female

The gender of the individual also has a bearing on the sum assured, with females paying a lower amount compared to males.

Note: The premium amounts mentioned in the example are indicative. Different insurers could charge a different amount.

How do insurers compute the premium for Life Insurance policies?

Insurers compute the premium for a life insurance policy by analysing the probability of a payout on death. The higher the probability of a payout, the higher the premium amount will be. It is for this reason that individuals with an unhealthy lifestyle are charged a higher premium compared to those who look after their health.

In addition to the factors which are used to determine the premium, insurance companies also charge money under the following categories:

  • Rider premium – This is the amount a policyholder is expected to pay to avail a rider. This sum varies based on the rider chosen, and is closely linked to the premium for the main policy.
  • Administration fee – Almost all insurers levy an administration fee for providing the policy. This could be a certain percentage of the premium amount a policyholder pays. Alternately, a few insurers have a fixed fee for their services.
  • Premium allocation fee – Associated with ULIPs, this charge is levied before the insurer invests the premium into units. A certain percentage of the premium is deducted for this. The units allotted are adjusted accordingly.
  • Fund management charge – This amount is charged by the insurer for managing the fund of a policyholder. This is computed on the basis of the assets under management and can range between 1 and 1.5% of the investment.
  • Fund switching fee – Policyholders have to option to switch between funds when they choose a ULIP. Insurers accommodate this transfer but charge a fee for the same. This amount differs for different insurers and can range between Rs.100 to Rs.500.
  • Mortality charge – This is an amount charged for offering death benefits to the insured.

Note that the charges mentioned above could vary based on the type of policy chosen by an individual. It is advisable to check these charges before purchasing the policy.

How can you save on Life Insurance Premium?

A life insurance policy can be an expensive proposition, especially when one opts for it at a later stage in life. Paying a sum regularly can be draining on one’s finances. While there are no alternatives when it comes to paying the amount, insurers do offer discounts in certain cases.

  • High sum assured rebate – Almost all insurance companies provide a rebate for high sum assured. The higher the sum assured the higher the rebate. This rebate is offered primarily due to the reason that an increase in the sum assured results in reduced servicing costs associated with each unit of this amount, helping the insurer earn more profit.
  • Online payment rebate – Paying the premium online reduces the physical paperwork, helping a company save money. Certain insurers provide incentives for online payment, saving effort when it comes to physical collection of cash.
  • Rebates on premium payment frequency – Individuals who choose to consolidate their premium payments are likely to receive a rebate on the sum they pay. This is on account of reduced costs associated with processing the premium. For example, the insurance company will have limited processing costs for an individual who pays the policy annually when compared to someone who pays the premium each month. One can also choose to pay a single premium and get a higher rebate.
  • Pay premium on time – Delaying a premium payment can result in the policy getting lapsed. Reinstating/renewing such policies comes at a cost, for insurance companies charge an interest on the premium amount. Paying the premium on time can help one avoid this additional expense.

Note: The rebate offered can vary and is at the discretion of the insurer.

Payment of Life Insurance Premium online

Paying the premium for a life insurance policy is no longer a hassle, for insurers provide an option to pay this amount online. Almost all insurance companies in India are equipped to handle online payments, with a few even providing incentives to pay the sum virtually.

Doing this is advantageous not only to the insurer, but also helps the policyholder save time and effort. Typically, this is a five-step process, which takes no more than a few minutes.

  1. Log on to the official website of the insurance company from whom the policy was purchased.
  2. Navigate to the online premium payment section and enter the policy number.
  3. Mention personal details like the date of birth, name, or contact number (as applicable) for identification.
  4. Choose the mode of payment. Insurers accept online payment via credit cards, debit cards, net banking, or digital wallets.
  5. Confirm amount and complete payment. Once done, a message is sent out confirming the same.

Are there any differences between Life Insurance and General Insurance?

Yes, there are a few key differences between life insurance and general insurance. Before we highlight these, it is important to understand what general insurance exactly means. General insurance is typically defined as any contract which does not cover the life of the individual. It is a non-life policy which can be used to protect any material belonging of an individual. Health insurance also falls under general insurance.

The table below highlights the major differences between Life Insurance and General Insurance:

Parameter Life Insurance General Insurance
Definition A contract under which the life of the person is covered/protected A contract which does not cover the life of the person. Eg: Fire insurance, car insurance, home insurance, etc.
Duration Typically long-term (there is an option for short-term cover as well) Short-term in almost all cases
Premium Typically paid over the premium payment term –spread over the years Typically paid as a single amount at the start of the policy
Purpose Serves as an investment cum savings option Serves as protection against loss/damage
Insurable interest criteria The insured individual should be present (alive) while the contract is being drafted. The person/object being insured needs to be present when the contract is being drafted as well as when the loss occurs.
Savings component Present No scope for savings
Insured amount An individual can choose the amount he/she wishes to be insured for The insured amount is determined based on the actual value of the loss/liability

While both these products might have differences, it is a smart option to purchase a good insurance policy. Staying covered can offset liabilities and help one get the most out of their belongings.

Who is a Contingent Beneficiary?

A policyholder can choose a beneficiary who will receive the assured amount in case of his/her death. This individual is termed the primary beneficiary. However, there could be certain cases where the primary beneficiary passes away along with the insured individual. This is where the need for a contingent beneficiary arises.

A contingent beneficiary is an individual who will receive the sum assured if the primary beneficiary passes away. He/she is the second-in-line with respect to the amount. A policyholder can choose a contingent beneficiary at the time of purchasing the policy.

It is possible to choose more than 1 contingent beneficiary, dividing the amount proportionally between all said beneficiaries.

A contingent beneficiary needn’t be a person, for one can choose a trust/charity/organisation as the beneficiary.

What is the procedure to file a Life Insurance Claim?

Filing a life insurance claim is a simple process. The need for a claim can arise in two circumstances, namely on death of insured or on maturity of the policy.

  1. On demise of life assured – It is imperative to initiate the claims process in order to avail the benefits provided by a policy. This can be done by following a few simple steps:
      1. Intimate the insurance provider immediately after the policyholder’s death. Intimation could be done by either the nominee, a relative, or the agent from whom the policy was purchased.
      2. Fill and submit the claim form. This form can be downloaded from the official website of the insurer/could be availed by contacting them for the same.
      3. Provide relevant details pertaining to the policyholder and the policy. These include the policy documents, the death certificate, assignment/reassignment deeds (if applicable), details of the nominee, discharge form, etc.
      4. Select the mode of payment.

    An insurer can ask for additional details in certain cases. These could include a request for the certificate from the hospital, a medical certificate, a letter from the employer, etc.

  2. On maturity – In cases where a policy offers a maturity benefit it is important to submit a claim for the same. This can be done by following a few basic steps:
    • Each insurer informs the policyholder before the policy maturity date. A discharge voucher is provided to the insured.
    • This discharge voucher needs to be signed by the policyholder. Before signing, one should check and confirm the maturity amount which is being offered.
    • The signed discharge voucher needs to be sent to the insurer. In addition to this, the original policy document should also be submitted.

The insurer will pay the amount to the policyholder once the policy matures. In cases where the policy is assigned to a third person or an organisation, the amount will be paid directly to said assignee.

Life Insurance FAQs

1. How do I choose the best life insurance policy?

A. Choosing the right insurance policy boils down to a few simple points. The first step involves determining your individual needs. Ask yourself how much cover you need, the duration you wish to be protected for, the returns on an investment, etc. Once these questions are answered you can choose the type of plan which suits your needs. If you are looking for income post retirement choose a pension plan, if you wish to protect yourself against all odds choose a whole life plan.

Once the kind of plan is selected it is important to compare the different options available in the market. Select an insurance company with a good track record. The IRDA provides information pertaining to how all insurers in the country have performed. Check the claim settlement ratio, the assets under management, the grievances solved ratio, the network a particular insurer offers, etc. Select an insurer who you think will be the right partner.

Choosing the best insurance policy takes time and research. In case of doubts it is always a good idea to consult experts who can guide you.

2. Why do term insurance policies offer higher life coverage compared to other types of life insurance policies?

A. Insurance policies can be customised according to the need of an individual. As such, it is possible to choose a high cover under any plan option. The major difference lies with respect to the premium. While it is possible to opt for a high sum assured under other plans as well, the premium for such sum assured is much higher than the premium for the same sum assured under a term insurance plan.

The main reason for this is the fact that a term insurance policy does not offer additional features which other plans come equipped with. For example, most such policies do not provide a loan option. Similarly, these plans do not meet any financial needs while the insured is alive. Most plans do not even offer a maturity benefit if the policyholder survives until the end of the term.

Given these facts, insurers have to price term insurance policies lower in order to generate interest and increase sales.

3. Is it safe to buy a life insurance policy online?

A. Yes, it is absolutely safe to purchase an insurance policy online. However, one should always double check the website from where the policy is being purchased. There are no risks involved when the plan is purchased from the official website of the insurer. There are a few websites which have been given permission by the IRDA to sell insurance policies. In case one is using such websites it is mandatory to check the IRDAI web aggregator licence before deciding to pay for it online.

Never purchase a policy from websites which are not authorised to sell insurance policies.

4. When does my cover begin?

A. The cover under a life insurance policy begins from the Effective Date. This is typically mentioned in the policy document. The effective date can vary from insurer to insurer, with the cover beginning after the premium has been paid in most instances. In certain cases the cover begins only after the policyholder accepts the policy .

5. Are there any tax benefits offered on life insurance policies?

A. Yes, life insurance policies not only provide financial assistance in case of any unfortunate event, they also help one save money on tax. Under Section 80C of the Income Tax Act, one can avail a deduction on the premium amount paid by them towards maintaining a life insurance policy. This benefit is also applicable if an individual pays the premium for his/her spouse or child. Both individuals and Hindu Undivided Families are eligible to enjoy tax benefits under this section.

The maximum permitted deduction under Section 80C is Rs.1.5 lakh. This amount is decided by the government and can change yearly.

Similarly Section 10 (10)D of the same act provides a provision for tax benefits on the amount received at death of the policyholder, or maturity/surrender of the policy. The amount received does not attract tax, subject to certain conditions. The Income Tax Department will levy a tax if the premium amount exceeds the limits specified by them.

It is a smart option to consult a tax expert to utilise all the tax benefits provided by a life insurance policy.

6. How do I choose the tenure and sum assured for my life insurance policy?

A. The tenure and sum assured should be chosen after looking at your current life stage and link this to future expectations. Individuals who might encounter expenses in the future should opt for a high sum assured, ensuring that inflation is accounted for. Similarly, those who have opted for pension plans should ensure that the amount chosen is sufficient to help them continue with their existing lifestyle.

There is no ‘one size fits all’ rule under life insurance. It is imperative to assess future requirements while choosing the sum assured. Similarly, the term should be long enough to cover any eventuality. There is no harm in choosing a longer term. On the other hand, if a short term is chosen, the benefits received might not match the expectations, especially in case of a term plan.

While selecting the term and sum assured it is suggested that you visualise the future and base the decision on this.

7. What are premiums?

A. The premium is the amount each policyholder is expected to pay in order to enjoy the benefits provided by the policy. One can view it as the investment amount. The sum assured is determined on the basis of the premium, with it possible to increase this sum by increasing the premium amount.

8. Can I pay the premium for my policy in instalments or am I expected to pay a single amount?

A. The premium payment depends on the type of policy one buys. While certain policies like annuity plans require the premium to be paid as a single amount up front, other plans offer flexibility in terms of premium payment.

One can choose to pay the premium either annually, semi-annually, quarterly, or monthly, if the plan provides this option. Certain plans permit only annual payment of premium whereas others provide different alternatives, offering more flexibility to the policyholder.

In cases where one chooses to pay the premium at regular intervals, the entire premium amount is split into the number of terms for which it is expected to be paid. One should check all the premium payment options before deciding to purchase the policy.

9. What is a ‘bonus’ in life insurance?

A. Certain life insurance policies mention the term ‘bonus’ in their brochures. A bonus is nothing but an additional amount which the insurer pays over and above the sum assured. This is similar to bonuses in other products.

The bonus is the profit made by the insurer, with this profit shared among policyholders. The bonus amount is determined by the insurance company and might vary from year to year. Insurance companies are not obligated to offer a bonus, with this decision depending on the Board of Directors.

10. How do I know if my insurance policy is eligible for a bonus?

A. Not all life insurance policies are eligible for a bonus. One can check whether their policy qualifies to partake in the profit by going through the product brochure. Policies which fall under the ‘with-profit/participating’ category are entitled to receive a bonus if the company makes a profit. On the other hand, policies which fall under ‘non-participatory/without-profit’ are not eligible for bonuses.

One should check whether their policy qualifies for a bonus before they purchase the policy.

11. What are the different kinds of bonuses provided by life insurance companies?

A. There are three major categories of bonuses offered by insurance companies, with these being Terminal Bonuses, Interim Bonuses, and Reversionary Bonuses. Reversionary bonuses are further classified into simple reversionary bonuses and compound reversionary bonuses.

12. What is the difference between terminal, interim, and reversionary bonus?

A. A terminal bonus is provided only when the policy terminates, i.e., either on maturity of the policy or on the death of the insured. This is a one-time bonus.

A reversionary bonus is a bonus component which is added at regular intervals. This can be yearly or after completion of a few years.

An interim bonus is provided if the policy terminates before the completion of a financial year. Other bonuses are declared keeping the financial year into account, but this one provides a solution in cases where the financial year is not completed.

13. What are the differences between a participating and nonparticipating policy?

A. The primary difference between a participating and nonparticipating policy is that a participating policy partakes in the profits of the insurer whereas a non-participating policy does not partake in any of the profits. In simple words, a participating policy can qualify for bonuses whereas a non-participating policy will not earn any additional bonus.

14. How do insurance companies compute the bonus amount?

A. The sum assured is used to determine the bonus a policy is eligible for. Most insurers offer a bonus per Rs.1,000 sum assured (or any other fixed value). The bonus is a fixed amount per the selected unit.

For example, if the company decides to give a bonus of Rs.30 per Rs.1,000 sum assured, the total bonus for a sum assured equivalent to Rs.10 lakh becomes Rs.30,000. If the period is 10 years, the overall bonus amount becomes Rs.3 lakh, subject to the same bonus being offered each year.

15. What are riders and how can I purchase them?

A. A basic life insurance policy might not be sufficient to meet all the requirements of an individual. Instead of purchasing a new policy, one can purchase a rider instead. A rider is nothing but an add-on which offers certain additional features and benefits, thereby enhancing the policy.

You can purchase a rider by contacting the insurance provider and paying the amount for the rider. There is also an option to purchase a rider at the time of buying the policy.

16. My policy mentions a free-look period. What exactly does this mean?

A. There are numerous instances of individuals purchasing a policy and then realising that it doesn’t meet their requirements. Returning such policies is an option provided by IRDAI. This return is possible only within a specified period of time, termed the free-look period. A policyholder can return the policy to the insurer within this timeframe, subject to certain terms and conditions. The insurer will refund the premium after deducting their administration charges.

17. What happens if I cancel my policy during the free-look period?

A. If you choose to cancel your policy within the free-look period the insurance company will refund the premium amount paid by you. They will deduct all expenses borne by them to complete the formalities associated with issuing the policy and then cancelling it.

18. What happens if the premiums are not paid during the grace period?

A. If one fails to pay the premium amount within the grace period the policy either lapses or turns into a paid-up policy. The benefits and protection accorded by the policy automatically change in such circumstances.

The policy will continue to be active during the grace period. It is therefore important to pay all dues before the grace period ends.

19. What is the surrender value of a life insurance policy?

A. There could be instances where a policyholder does not wish to continue with the policy. He/she can choose to surrender it under favourable circumstances. If the policy has been active for a specified period of time it is eligible to receive the surrender value.

This is nothing but the amount paid by the insurer to the policyholder if he/she terminates (surrenders) the policy before its maturity date.

20. How do insurance companies calculate the surrender value of an insurance policy?

A. Companies compute the surrender value after taking the original term of the policy, the premium amount, and the period for which the premium was paid into account. Typically, premiums for a minimum of three years should be paid in order for a policy to be eligible for a surrender value.

There are two types of surrender values, the guaranteed surrender value and the special surrender value.

The guaranteed surrender value (GSV) is a certain percentage of the premium amount paid during the term of the policy. The premium for the first year is excluded while computing this sum. A certain percentage of the premium amount is paid to the policyholder as the guaranteed surrender value. For example, an insurer provides GSV of 30% of the premium. An individual who pays Rs.50,000 per year for a period of three years would be entitled to a GSV of:

(1,50,000 – 50,000) x 30/100 =Rs.30,000

The special surrender value (SSV) is computed by taking the surrender value factor into account. This factor is a certain percentage of the paid-up value acquired by the policy. This factor increases with each active policy year.

In essence, the longer the policy was active the higher the surrender value will be.

21. My policy states something called assignment. What exactly does this mean?

A. Assignment refers to the process of transferring the ownership of a life insurance policy to someone else. All rights associated with the policy would move on to the new owner. The assignor is the individual who chooses to transfer all rights, with the assignee being the individual to whom such rights are transferred.

For example, an individual who avails a loan against a policy could be expected to assign the policy to the bank/lender. If the assignor were to pass away during the policy term the sum assured would be paid to the bank/lender.

22. What are the important points I should consider before buying a life insurance policy?

A. Purchasing a life insurance policy isn’t like other regular purchases we make. It can be extremely useful in the future, having the power to financially support our loved ones. As such, it is imperative to thoroughly assess one’s needs, research for the right product, determine the cover amount, calculate the effect of the regular premium payment on our budget and then take a step.

Also, one must ensure that they don’t over-insure themselves, for an exorbitant cover essentially boils down to a high premium, which could strain the finances of the person. It is better to choose a sum assured which is affordable rather than choosing a high sum assured and miss payments, for this could result in the policy getting lapsed, thereby making the policy pretty much useless.

23. I have been asked to undergo a medical test before I can purchase the policy. What medical reports should I submit to avail a life insurance policy?

A. A medical report is required only in certain instances. In this case you will be expected to undergo tests specified by the insurer. A full medical test might include a physical exam which checks the height, weight, pulse, and blood pressure of the applicant. In addition to this other tests might be conducted to check the cholesterol, sugar levels, blood count, etc. A urine sample might also be taken.

Insurers do these tests to check the functioning of vital organs, which can help them analyse the individual’s health.

In certain cases one might also be asked to undergo a HIV Test to rule out the possibility of HIV. Additionally, one will have to provide all past medical reports, history of family illnesses, etc.

24. Can I avail a loan through my life insurance policy?

A. Yes, it is possible to avail a loan through a life insurance policy. However, not all policy types come with the feature of a loan. For instance, a loan cannot be availed against a term insurance policy.

The policy brochure typically indicates whether the policy comes with a provision for loan.

25. How can I determine if the agent who is selling the life insurance policy to me is authorised?

A. The IRDAI has made it mandatory for all insurance agents to be registered. Check whether the agent has a licence issued by IRDAI. The licence should state that the said individual is eligible to sell a life insurance policy. There are different licences granted for different insurance products, with a separate licence given to general insurance agents. In certain cases a composite licence is given to an agent, enabling him/her to sell both life insurance and general insurance.

Using references from friends/family members who have purchased a life insurance policy through agents can help alleviate any fear of a fake agent. Always question the agent and check his/her knowledge about the product before committing to a policy.

26. My insurance agent has asked me to pay the premium amount directly to him. Is it safe to do so?

A. Not all agents are authorised to collect premiums on behalf of the insurer. Before paying the sum to the agent, first verify his/her credentials. He/she must be authorised by the insurer to collect premiums. Ask for such authorisation. If all checks out you can pay the premium but make sure to collect a signed receipt for the same.

27. Is it better to purchase a life insurance policy through an agent or should I buy it online?

A. Gone are the days when one depended on an insurance agent to buy the policy. Today, it is possible to purchase a policy online, avoiding all middlemen. Choosing to purchase a life insurance policy online is quicker and transparent, giving one the flexibility to complete the task at one’s own speed.

Additionally, online purchases are safe even if the policy is purchased through an intermediary. There are no risks of the insurance agent absconding in case of online purchases.

People used to rely on insurance agents to give them an overview of the product, but it is now possible to connect and chat with online representatives who can provide the same information.

Additionally, one can also get a better rate on the premium if the policy is purchased online.

Given these features it is a better option to purchase a life insurance policy online.

28. How does an insurance company ascertain individual risks before they sell a policy?

A. Insurance companies use an algorithm which predicts the chance of a payout for each policy they sell. The higher this percentage, the higher the premiums are going to be. The risk is computed by taking factors like the applicant’s age, medical history, current lifestyle, work environment, etc. into consideration. They might also take factors like the average lifespan in a particular region, health issues faced by residents of a particular city, chances of infections leading to death, etc. into account.

29. How often will I have to pay the premium amount?

A. This depends on the type of policy chosen. Certain policies require only a single premium to be paid at the start. Others give an option to pay the premium at regular intervals. The premium amount should be paid for the complete duration of the premium payment term. This term might or might not be equal to the policy term. Most insurers provide an option to pay the premium at regular frequencies, which can be chosen by the policyholder. The available options include paying either yearly, every six months, every three months, or every month.

30. Can I make changes to my insurance policy?

A. Yes, it is possible to make a few changes to your insurance policies. These rights are laid down by the IRDAI. The changes which are permitted include:

    A. Changing the premium payment mode

    B. Changing the policy term

    C. Changing the sum assured (only an increase in this amount is possible)

    D. Switching between funds

    E. Redirecting the premium

Any other change requests can be denied by the insurer. It is important to read the terms and conditions of the policy to comprehend the changes which are permissible under it.

31. What is meant by premium redirection?

A. Premium redirection is a concept which is primarily used in ULIPs. This is the process of redirecting/realigning the premium wherein one can tell the insurer to invest future premiums in specific funds. The current funds are not modified in this case.

This can be understood through the example of Mr. Jay who has invested in a ULIP wherein his premium is split between equity and debt funds in a 50:50 ratio. Now, Mr. Jay senses a new investment opportunity wherein he feels that cash funds will offer better returns. As such he asks his insurer to redirect the future premium into cash funds. This ensures that all future premiums are invested into cash funds, with no changes made to the existing investments.

32. What is a graded premium life insurance policy?

A. There could be instances where an individual wishes for a higher cover but is not in a position to afford the premiums. A graded life insurance policy can come handy during such situations. A graded policy is one where the premium amount increases at regular intervals, stopping at pre-set limit. This enables an individual to avail the benefit of a high cover without having to exhaust all resources initially.

It is a smart option for those who foresee an increase in their income, enabling them to afford a higher premium after a few years.

33. Do life insurance policies cover only natural death or do they also cover death by accidents/illnesses?

A. The cover provided by a life insurance policy can vary from case to case. Most of them cover death due to natural causes as well as accidents. Individuals can choose to add riders to a base policy in case it doesn’t cover death due to certain reasons.

34. How important are proposals and all the disclosures that are made in them?

A. Proposal forms are extremely important in life insurance policies, with insurance companies using them to gauge the eligibility of an individual. The proposal form is similar to KYC documents which banks and other establishments require. The applicant is expected to fill this form truthfully, providing all the information needed.

Typical information requirements relate to the name of the individual, his/her income, lifestyle habits (smoking, drinking, etc.), history of personal illnesses, history of family illnesses, current medical condition, fitness levels, age, height, weight, etc.

The information submitted here is used by underwriters to determine the premium amount. Any false information submitted in the proposal form could be grounds for rejecting a claim in the future. It is therefore critical to be honest and open while filling it.

Insurers also use the information provided to gauge the premium payment capacity of the applicant. The final decision on whether the applicant qualifies for an insurance policy is determined on the basis of what is mentioned in the proposal.

35. What are the formalities involved when submitting a maturity claim?

A. A maturity claim is easy to file. Most insurers inform the insured/policyholder before the maturity date of the policy. This intimation is typically provided a few weeks before the actual maturity date, with companies also informing them about the maturity amount they are entitled to. In addition to this, the insurer will also send a discharge voucher to the policyholder.

This discharge voucher needs to be signed and submitted to the insurer. Additionally, the original policy bond should also be sent over. On verification of the policy and the signature the insurance company will settle the amount on the date of maturity.

A few insurers also ask policyholders to choose how they wish to receive the maturity amount. One is expected to furnish this information so that the amount is transferred accordingly.

36. What are settlement options?

A. Insurance companies provide options when it comes to payment of the sum assured. These options can vary from policy to policy and insurer to insurer but can be typically categorised into five types:

  • Lump sum payment – Under this option the entire amount is paid as a single lump sum. No further amount will be paid after this. Nominees/beneficiaries who have immediate financial responsibilities after the demise of the policyholder can choose this settlement option.
  • Fixed period – Under this amount the sum assured plus any interest accrued is paid at fixed intervals for a specified period of time. The entire amount is paid during this period.
  • Fixed amount – This option involves the payment of a fixed sum of money at periodic intervals. The sum is paid until the entire amount is paid to the beneficiary.
  • Lifetime income – Under this option a beneficiary can choose to receive a certain portion of the accumulated amount for the entire duration of his/her life. Insurance companies typically purchase a pension/annuity plan with the death benefit, with this policy in turn paying the amount.
  • Interest only – Under this option a beneficiary can choose to receive only the interest at intervals chosen by him/her. The principal amount can be withdrawn as per his/her needs.

37. How do I get the tax policy statement?

A. Insurance companies are expected to file taxes based on their income and expenditure. As such they are also required to be transparent when it comes to their taxes. Most insurers send out a tax policy statement to policyholders after the completion of a financial year. This report contains everything associated with the taxes paid by them. This statement can be used by an individual to compute his/her own tax (in certain cases).

38. Why does the premium increase with age?

A. This is primary because the older one is the higher the chances of his/her death. This increases the chance of a payout from the insurer. While it might not be the case in all occasions, it is riskier to insure an older individual compared to a younger one. With insurance companies looking at the probability of a payout in each case, they are prone to charge a higher premium with an increase in this probability.

39. What are the documents my nominee should furnish in case of my death during the policy term?

A. In case the policyholder passes away during the policy term, the nominee can submit a death claim by submitting the following documents:

  • Duly filled claim form which is signed by the nominee. The date, cause, and place of death need to be mentioned in this form
  • Death certificate of the insured
  • Original policy document
  • Legal proof showing that he/she is the legal heir (in cases where the nominee hasn’t been mentioned)

  • Discharge form
  • Any assignment/re-assignment documents associated with the policy
  • Certificate from the hospital
  • Certificate from the employer (in certain cases)
  • Copy of police report (if applicable)

An insurance company can ask for additional documents if required.

40. Can I find a policy that pays me money during the policy term?

A. Yes, it is possible to find life insurance policies which pay money during the policy term. The money is paid as survival benefit, with the payment beginning after the premium payment term. A certain percentage of the maturity sum assured is paid at regular intervals until the policy matures.

A number of Money Back policies come with this option. Individuals looking for such benefits should discuss the same with the insurance provider/agent in order to find a policy which pays them money during the policy term.

41. Is it better to buy a life insurance policy at a young age?

A. Yes, it is a better option to purchase a life insurance policy at a young age. Premiums are cheaper when the policyholder is young. Insurance companies increase the premium amount with the age of the applicant. Additionally, they can also offer rebates on the premium amount in certain cases.

A young policyholder can enjoy a high cover at affordable rates. Opting for a high cover when one gets older results in premiums which are considerably higher.

42. Can I get a life insurance policy through my company?

A. Most companies provide insurance to their employees. The insurance is purchased in the form of group plans. Employees who wish to avail an individual policy could get in touch with the group insurance provider and purchase a new one.

Most group insurance policies provide limited cover and should not be the only source of insurance for an individual.

43. Can I purchase an insurance policy for my parents?

A. Yes, it is possible to purchase a life insurance policy for your parents. Choosing to insure your parents can be a good option, ensuring that they needn’t rely on anyone if one of them passes away. Insurance companies provide options wherein an individual can cover two people in a single policy, making these ideal to insure one’s parents.

44. Is it possible for senior citizens to buy life insurance?

A. Yes, it is possible for senior citizens to purchase life insurance policies in India. A number of insurance companies offer products designed for senior citizens. While it might be hard to purchase a term plan, one can choose to invest in an annuity/whole-life policy.

One major disadvantage of purchasing a policy at an old age is that the premiums are typically higher.

45. Will my family have to pay tax on any life insurance payout?

A. The amount received as payout under a life insurance policy is exempt from tax under Section 10(10D) of the Income Tax Act of 1961. While the death benefit is completely tax-free, there are certain exceptions when it comes to maturity benefit.

  • In case of policies issued from 01/04/2003 onwards the benefit is exempted only if the premium for such policies is less than 20% of the sum assured. This limit is reduced to 10% for policies issued from 01/14/2012 onwards.
  • The sum assured which is exempt from tax does not include the premiums which have been returned to the individual. This also does not include any bonus which exceeds the actual sum assured.

It is advisable to consult a tax expert to utilise all the provisions provided by the government.

46. How long does it take for a policy to build cash value?

A. The cash value is nothing but the money paid by the insurer if the policyholder cancels the policy. It is typically associated with whole life insurance policies. It normally takes anywhere between 12 to 20 years for the cash value to build up, depending on the premium amount paid and the policy type chosen.

47. Who is the claimant with regards to a life insurance policy?

A. The individual who makes a payment claim to the insurance company is called the claimant. With regards to a maturity claim the claimant is typically the insured/policyholder. In case of a death benefit claim the claimant can be the nominee/legal heir.

48. What is modified death benefit?

A. A modified death benefit is associated with Modified Benefit Life Insurance policies. These policies are not common in India, with them being more prevalent in western countries. Under the concept of modified death benefit, the sum assured is not payable in all cases. If the policyholder dies within two years of purchasing the policy the insurer will pay only the premiums plus an additional amount.

The complete death benefit will be paid only if the policyholder dies after a specified minimum period. This is typically three years after the policy is purchased.

49. Will the insurer pay the beneficiaries if the insured dies in an accident which was caused due to him/her being intoxicated/drunk?

A. Yes, insurers will pay the death benefit if the insured dies in an accident which was a result of him/her driving under the influence of alcohol. However, it is possible for insurance companies to contest such claims if the policyholder had not mentioned the fact that he/she used to drink while buying the policy.

Most life insurance policies have only one exclusion – suicide. If the policy mentions accidents caused due to drunk driving as an exclusion no benefit will be paid.

50. Can life insurance payments be released to beneficiaries without going to probate?

A. Yes, if the insured has specified a beneficiary in his/her policy. Probate is a possibility if no beneficiary was chosen/if the beneficiary passes away before the policyholder’s demise (with no other beneficiary selected by the policyholder).

What's next?

News About Life Insurance

  • HDFC Standard Life stocks up by 34% within 3 trading sessions

    HDFC Standard Life Insurance stocks rose over the 400 level within 2 sessions of its market debut, on the NSE and BSE. The insurer’s current market valuation stands at Rs.69,671.19 crore. The company’s IPO, which was open between the 7th and 9th of November, was subscribed 4.90 times. The shares reserved for QIBs (Qualified Institutional Buyers) was oversubscribed by 16.60 times, while shares allotted for non-institutional investors was oversubscribed 2.29 times. Shares for retail investors saw a 94% subscription.

    The insurer fixed a price band between Rs.275 and Rs.290 apiece for the IPO. The offer comprised the sale of a combined 1,91,246,050 shares, with HDFC selling a 9.55% stake in the life insurance firm and Standard Life Mauritius selling a 5.42% stake. The insurance firms has a pan-India reach, with around 414 branches across the country and 16,544 employees.

    22nd November 2017

  • IndiaFirst Life Insurance targets 43% Growth in Net Profit this fiscal

    IndiaFirst Life Insurance is eyeing a growth of 43% in its net profit in the current fiscal. The company’s net profit during 2016-2017 was Rs.35 crore, and they are expecting to achieve a net profit if Rs.50 crore this year. The company is looking to retain their position as the fastest growing private-sector life insurance company by achieving this target.

    The company which launched in the year 2009 attained its break-even in just the 6th year after its inception. The insurer currently offers a total of 35 insurance products, which include 21 individual plan, 8 group plans, 5 combi plans, and one rider. The latest offering from IndiaFirst is a child protection policy called Little Champ.

    20th November 2017

  • HDFC Standard Life’s Shares list at 27% over Issue Price

    HDFC Standard Life Insurance, the third-largest private sector life insurance firm in India, saw a strong market debut with shares trading as high as 27% due to good subscription and positive market conditions. The firm’s shares opened at Rs.313 against the issue price of Rs.290. The shares recorded an intra-day high of Rs.369 and an intra-day low of Rs.303.

    The company’s Rs.8,695 crore IPO was oversubscribed 4.9 times by the last day of the bidding process, which began on 7 November 2017 and ended on 9 November 2017. The issue involved the sale of up to 19,12,46,050 shares by HDFC and 10,85,81,768 shares by Standard Life Mauritius. Currently, HDFC and Standard Life hold a 51.69% and 29.35% stake in the life insurance firm, respectively.

    17th November 2017

  • India Post bets on Postal Life Insurance and Rural PLI domains

    India Post has made a big bet on its Postal Life Insurance (PLI) and Rural PLI businesses. The business turnover in Andhra Pradesh is expected to increase to 20% from the current 10-12%, by the end of this financial year. PLI was originally launched for the Posts and Telegraphs employees, but started to extend to cover Central and State government employees post India’s Independence. Rural PLI was launched in the 1990s in order to make insurance accessible to the rural sector. By way of PLI’s increasing demand, India Post is looking to bring certain sections of society like registered professionals, government school teachers, etc. under their reach.

    16th November 2017

  • Bajaj Allianz launches New Digital Platform – Life Assist

    Life insurance firm Bajaj Allianz has launched a new digital platform called Life Assist, which will provide 24x7 instant life insurance solutions to prospective policy buyers. With the platform providing the experience of a virtual branch, customers can access all services that are available at regular company branches digitally, round-the-clock. With Life Assist, customers can edit their profiles and contact information, modify their KYC details, check their claim status, make top-up premium payments, opt for riders, switch funds, revive policies that are lapsed, etc.

    The company also launched another online initiative called BOING, which is a 24x7 online chat assistant. BOING responds to user queries instantly and assists them with various services. Since its launch, chat assistant BOING has had around 27,000 visits from customers looking to issue account statements.

    15th November 2017

  • HDFC Standard Life IPO subscribed 4.89 times on Day 3

    HDFC Standard Life’s Rs.8,695 crore IPO was subscribed 4.89 times on the last day of the bidding process. The insurer’s IPO received 1,07,50,87,700 bids against an issue of 21,97,59,218 equity shares. The shares that were allotted for institutional buyers and non-institutional buyers were subscribed 16.60 times and 2.29 times, respectively. The shares reserved for retail investors was subscribed 91%.

    Prior to their IPO that launched on 7 November, HDFC Standard Life raised a sum of Rs.2,322 crore from anchor investors. Key stakeholders HDFC Ltd. and Standard Life Mauritius will be selling a 9.55% and 5.42% stake in the life insurance firm, respectively. The promoters are expecting to raise around Rs.7,500 crore from the IPO. It is reported that the shares that were offered in the IPO will be listed on the NSE and the BSE.

    14th November 2017

  • HDFC Standard Life IPO Oversubscribed by 17% on Day 2 of Bidding

    HDFC Standard Life Insurance’s Rs.8,695 crore IPO was oversubscribed by 17% on Day 2 of the company’s bidding process. The company received 25,73,36,050 bids against the issue of 21,97,59,219 equity shares. The shares reserved for institutional buyers saw the highest demand, with the shares reserved for employees next in line. The shares that were allotted for non-institutional investors had a 49% subscription. Equity shares that were reserved for retail investors and shareholders saw a subscription of 36% and 15%, respectively.

    The bidding process which started on 7 November 2017 will close on 9 November 2017. The price band set by the insurer is Rs.275-Rs.290 apiece. By way of the IPO, joint venture partners HDFC and Standard Life will be selling a 9.52% and 5.4% stake in the life insurance firm, respectively. The minimum bid lot per person is fixed at 50 shares, and in multiples of 50 thereafter.

    9th November 2017

  • ICICI Prudential looks to invest in IT and Pharma sectors, after Telecom bet pays off

    Fund managers at ICICI Prudential Life Insurance are looking to invest in the Indian technology and pharmaceutical sectors after their very risky bet on the telecommunications sector paid off. It is reported that ICICI Prudential Life’s Chief Information Officer, Manish Kumar, in a very unorthodox fashion, kept purchasing shares in the telecommunications sector despite plunging profits and a price war which made other investors stop investing in the said sector.

    During that period, ICICI’s Prudential Life’s assets under management (AUM) increased by about 16%, and currently amount to Rs.1.3 trillion or $20 billion. Around 54% of the company’s assets are under debt, as per the requirements of the Insurance Regulatory and Development Authority of India (IRDAI) and the preferences of the company’s unit-linked policyholders.

    8 November 2017

  • HDFC Standard Life’s IPO has a good start – 46% Shares Subscribed on Day 1

    HDFC Standard Life’s Rs.8,695 crore IPO was subscribed 46% on the very first day of bidding. The company is selling their equity shares at a price band of Rs.275-290. Investors are required to purchase a minimum of 50 shares, and in multiples of 50 thereafter. The issue which started on 7 November will close on 9 November. Earlier this week, the life insurance firm raised a sum of Rs.2,322 crore from anchor investors, at the upper end of the established price band.

    HDFC Standard Life is a joint venture between insurance firm Standard Life and HDFC. Before the IPO, HDFC had a 61.53% stake in the insurance firm, while Standard Life had a 34.94% stake. The remaining shares are held by shareholders and the Azim Premji Trust. HDFC Life is currently the third-largest private-sector life insurance firm in the country.

    8 November 2017

  • HDFC Standard Life Insurance next on the Bourses

    HDFC Standard Life Insurance will be the third life insurance firm to get listed on the bourses. It will also be the first IPO (initial public offering) from the HDFC umbrella after the HDFC bank's stock market launch in 1995. HDFC Standard Life Insurance will open its Rs.8,695 crore stock market launch on November 7 of this year for subscription with a price belt of Rs.275 to Rs.290 per stake. The equity shares will be listed on the NSE (National Stock Exchange) and the BSE (Bombay Stock Exchange).

    The IPO is offering 29,98,27,818 equity shares of the firm and will close on November 9. The HDFC has offered to sell 19,12,46,050 of their shares while Standard Life has proposed to sell 10,85,81,768 of their shares.

    The offer includes reserving up to 21,44,520 shares to be purchased by the HDFC Life’s employees, up to 8,05,000 shares have been reserved for HDFC employees who are eligible and up to 2,99,82,781 shares are reserved for HDFC stakeholders.

    7 November 2017