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Features
Ref. No. KLI/22-23/E-BB/492
A life insurance policy is a contract between an individual and an insurance company, where the insurer promises to pay a designated beneficiary a sum of money upon the insured person's death in exchange for regular premium payments.
Life is precious but uncertain at the same time. It is impossible to predict what the next step of your life will be. When you think about life and its numerous phases, all you want for yourself and your loved ones is a secure future.
Life insurance is a financial tool designed to provide financial security to you and your loved ones in the face of unforeseen events or the loss of a breadwinner. It serves as a safeguard against the uncertainties of life by offering financial assistance to beneficiaries upon the policyholder’s death.
A life insurance policy is a contract between an individual and an insurance company in which the insurer agrees to pay a designated beneficiary a sum of money upon the death of the insured person. In exchange for this promise, the policyholder pays regular premiums to the insurer. Life insurance policies are designed to provide financial protection and peace of mind to policyholders and their families by ensuring that beneficiaries receive financial support in the event of the policyholder’s death.
When you purchase a life insurance policy, you go through an application and underwriting process. The insurance company assesses your health, lifestyle, and other factors to determine your insurability and premium rates. Once approved, you start paying premiums based on the agreed-upon terms.
After your unfortunate demise, the beneficiaries must file a claim with the insurance company, providing necessary documents such as the death certificate. Upon verification, the insurance company pays out the death benefit to the beneficiaries. They can then use this money to cover various expenses, including funeral costs, mortgage payments, education expenses, and other financial obligations.
While nobody likes to dwell on death, life insurance is essential for individuals in various situations. Life insurance offers a payout, the death benefit, to the beneficiaries designated by the policyholder upon their passing. Let us explore who needs life insurance and why it is important.
If you are your family’s primary breadwinner or provider, leaning about life insurance is crucial. Your income supports your loved one’s financial well-being, and if something were to happen to you, it could leave them in a difficult position. Life insurance ensures your family can maintain their lifestyle, pay off debts, cover everyday expenses, and even fund long-term goals like education or retirement.
For parents, especially those with young children, life insurance is vital. As a parent, you want to ensure that your children are cared for during your untimely passing. Life insurance provides the financial resources for your children’s upbringing, education, and other needs. It can alleviate the burden on the surviving parent or guardian and help maintain stability during a difficult time.
If you own a home with a mortgage, life insurance can be instrumental in protecting your loved ones from the burden of debt. The death benefit from a life insurance policy can be used to pay off the mortgage after your passing, allowing your family to remain in the home without the financial strain of monthly payments.
Life insurance is often a critical component of a business succession plan. If you are a business owner or partner, life insurance can provide business continuity funds, cover expenses, pay off debts, and ensure a smooth ownership transition. It can also compensate for losing a key employee, providing financial stability during adjustment.
If you have co-signed debts, such as loans or credit cards, life insurance can protect your co-signers from being burdened with the full responsibility of repayment. The death benefit can be used to settle these debts, relieving your loved ones from potential financial strain.
Life insurance can play a vital role in estate planning by providing liquidity to cover estate taxes, legal fees, and other expenses. It ensures that your assets can be transferred smoothly to your heirs without them selling off valuable assets to cover these costs.
Life insurance can still be beneficial even if you do not have dependents or substantial financial obligations. It can help cover your funeral and burial expenses, relieving your loved ones from the financial burden during a challenging time.
Life insurance is a crucial component of any comprehensive financial plan, as it provides much-needed security for loved ones in the event of an unexpected loss.
Applying for life insurance can help you save on taxes. The premiums paid towards insurance can be claimed for income tax deductions under Section 80C of the Income Tax Act, 1961. This reduces your taxable income and aids you in obtaining a life cover instead.
The claim amount received against the life insurance policy is exempted under Section 10 (10D).
Certain types of life insurance policies, like whole life and unit-linked insurance plans (ULIPs), provide life coverage and serve as instruments for wealth creation. These policies have an investment component that grows over time, offering potential returns. The accumulated cash value or the returns from investments can be substantial, contributing to long-term wealth accumulation.
Life insurance can also be used as a tool to supplement retirement income. Certain types of life insurance, such as permanent or whole life insurance, accumulate a cash value over time. This cash value grows tax-deferred and can be accessed through policy loans or withdrawals during your lifetime. These funds can supplement your retirement income, cover unexpected medical expenses, or fulfill any other financial needs that may arise during your retirement years.
Many life insurance policies offer riders or add-ons that provide coverage for critical illnesses. Upon diagnosis of a covered critical illness, these riders pay out a lump sum amount, helping policyholders manage the high costs of treatment and recovery. This benefit ensures that your financial planning is not derailed by unexpected health issues.
After your demise, the policy beneficiary will receive a lump sum to secure their future, thereby eliminating the need to be dependent on someone else. By enrolling in this policy, the risk to the family members will be covered, which would otherwise occur if the family breadwinner meets with an unexpected death.
Insurance companies allow you to get a loan against a life insurance policy if needed. It has lower interest rates when compared to a personal loan and is much quicker in processing. However, the option is available on selected policies. You can use your life insurance policy details as collateral if you need a loan.
For business owners, life insurance is an essential component of business continuity and succession planning. It provides a safety net to ensure the seamless continuation of business operations even after the demise of an important stakeholder, such as a business partner or a key employee. Life insurance proceeds can be used to buy out the deceased partner’s shares, facilitate a smooth ownership transfer, or provide financial support during a difficult period. This protection helps safeguard the business’s value and ensures its long-term viability.
The primary purpose of life insurance is to provide financial security for your loved ones after your untimely demise. When you have life insurance, your beneficiaries will receive a lump sum payment, known as the death benefit, which can cover funeral expenses, outstanding debts, mortgage payments, and other ongoing living expenses. This financial cushion ensures that your family can maintain their standard of living even after you are gone, reducing the burden of financial hardship during a difficult time.
Various types of life insurance policies are available in the market, each designed to meet the policyholder’s specific needs. These policies differ in coverage, premium rates, and other key features. Below mentioned are some of the life insurance policies that are available in the market:
Term insurance provides life cover after your demise and does not have any maturity benefits. It is the simplest form of insurance and is cheaper than most available options in the market. However, no claim can be made if the insured person survives until the end of the policy period.
An endowment plan is similar to term insurance, but the only difference is that the lump sum amount is paid even if you survive the maturity period. The policy offers insurance benefits along with saving benefits. In case of the sudden demise of the policyholder, the endowment policy guarantees that a participation profit will also be paid along with the sum.
ULIPs or Unit Linked Insurance Plans invest some part of your premium towards life insurance and the rest into a financial instrument. The policy has a lock-in period of 5 years and can be continued even after the lock-in ends. You can also choose where to invest according to your risk appetite.
The whole life insurance plan covers you throughout your life, where you pay the premiums for a stipulated period. The corpus is paid out to your family in case of death and has no fixed validity. This plan is perfect if you have financial dependents. The overall process is simple and can be done online.
A money-back policy provides life coverage throughout the policy term and also provides regular payments for survival. The payment is a percentage of the sum assured, which is given during the plan tenure; the rest of the sum assured is paid out at the policy’s maturity.
If you pass away during the tenure, the sum assured is paid regardless of the previous payments made to you. Unlike other life insurance policies, this policy offers you money during the policy period and is quite expensive.
A pension plan involves paying a lump sum amount to the insurance company, where the payments are sent out immediately regularly or in a lump sum form. The wealth can also be left to accumulate according to your risk appetite.
Universal life insurance combines the protection of life insurance with an investment component. It offers more flexibility than whole life insurance, allowing policyholders to adjust their premium payments and death benefits throughout the policy’s duration. The premiums paid into a universal life insurance policy are divided between the insurance cost and the cash value account, which earns interest based on prevailing market rates. Policyholders can borrow against the cash value or use it to cover premium payments. Universal life insurance suits individuals who want flexibility in their coverage and investment opportunities.
Variable life insurance is a form of permanent life insurance that allows policyholders to invest their premiums into various investment options such as stocks, bonds, or mutual funds. The cash value of a variable life insurance policy fluctuates based on the performance of the underlying investments. While variable life insurance offers the potential for higher returns, it also carries higher risks. Policyholders assume the investment risk and must carefully monitor and manage their investment choices. Variable life insurance is suitable for individuals who are comfortable with investment risk and seek the potential for greater long-term growth.
The death of a loved one is always a difficult and emotional time, and dealing with the logistics of claiming life insurance can add another layer of stress. However, knowing the process and steps involved in claiming life insurance can make the process less overwhelming.
To claim life insurance, you must provide specific documentation to the insurance company. This documentation typically includes the policyholder’s death certificate, a claim form, and any other documents the insurance company specifies. Requesting multiple copies of the death certificate is important, as you may need them for other purposes, such as closing bank accounts or filing for probate.
The next step is to contact the insurance company to initiate the claims process. The insurance company will assign a claims adjuster to your case to guide you through the process. You may need to provide additional documentation or answer questions about the policyholder’s health history and cause of death.
Once you have gathered all necessary documentation and contacted the insurance company, you must complete and submit a claim form. The claim form will require you to provide information about the policyholder, the beneficiary, and the cause of death. Complete the form accurately and thoroughly, as any errors or omissions can delay the claims process.
After submitting the claim form and all necessary documentation, you must wait for the insurance company to process the claim. Depending on the complexity of the claim and the amount of the benefit, this can take several weeks to several months.
Once the claim has been processed and approved, the insurance company will issue a check or electronic transfer of the benefit amount to the beneficiary. The beneficiary will typically have the option to receive the benefit in a lump sum or through periodic payments.
Though life may seem smooth when you are younger, some health issues in the future might require medical aid. Also, no one can predict their life span and how long they will live with their loved ones. If something were to happen, you wouldn’t want your family to wind up paying your loans and clearing the debt.
Life insurance secures your family’s future and helps them survive tough times. It leaves them with enough wealth to be independent and comfortable.
Life insurance is not just a mere financial product but a powerful tool for your love and commitment to your family. So, as you explore the uncertainties of life, embrace the profound significance of life insurance and make a choice to protect those you hold dear.
Different types of life insurance policies are available, and choosing the right one depends on your circumstances, goals, and budget. It is essential to review and understand the terms and conditions of the policy before making any decisions. Life insurance can provide assurance to both policyholders and their loved ones.
1
If you miss a premium payment on your life insurance policy, most policies offer a grace period (typically 30 days) during which you can pay without penalty. If the payment is not made within the grace period, the policy may lapse, meaning you lose coverage. Some policies may also offer reinstatement options.
2
Yes, many life insurance policies allow you to increase or decrease the coverage amount after purchase, subject to certain conditions. Increasing coverage usually requires additional underwriting and may lead to higher premiums, while decreasing coverage might reduce your premium payments.
3
Yes, you can change the beneficiaries of your life insurance policy at any time by submitting a request to your insurance company. This flexibility allows you to update your beneficiaries as your circumstances change.
4
Generally, the death benefit received by beneficiaries of a life insurance policy is not subject to income tax. However, if the policy is part of a taxable estate, estate taxes may apply depending on the size of the estate and applicable laws.
5
Yes, if you have a life insurance policy with a cash value component, such as whole life or universal life insurance, you can take out a loan against the accumulated cash value. This loan typically has a lower interest rate than traditional loans, but unpaid loans and interest will reduce the death benefit.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
Features
Ref. No. KLI/22-23/E-BB/2435
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
