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Features
Ref. No. KLI/22-23/E-BB/492
Life is valuable, and unpredictable at the same time. You cannot predict what the next step of your life will be. When one reflects on life and the various stages that it has, the one desire that all of you want is a stable future for themselves and their loved ones. Life insurance is a financial product that offers protection to you and your family when an unforeseen circumstance occurs or the loss of a provider. It serves as a form of security against uncertainties that may present themselves in life and allows your family to continue their same standard of living.
Life insurance policy is an agreement between a person and an insurance firm where the insurance firm undertakes to give a specified beneficiary a lump sum of money in the event of the death of the policyholder.
The individual agrees to pay a given amount of money on a regular basis, which is referred to as the premium. In its place, the insurance firm promises to pay a significantly higher amount of money, referred to as the sum assured (or death benefit), to the specified nominee chosen by the policyholder.
Although its main purpose is to provide this death benefit, it is important to note that some forms of life insurance also contain a savings or investment aspect and present a maturity benefit to the policyholder in the event they survive the duration of the policy.
The significance of a life insurance meaning and importance can be found in one powerful word: protection. It is a tool that is meant to supersede the economic worth of an individual, ensuring the financial well-being of their family is maintained, even in their absence, in terms of goal fulfillment, dreams, and prosperity.
When you purchase a life insurance policy, you have to undergo the application process and underwriting. The insurance company evaluates your health, lifestyle, and other considerations in an attempt to determine the insurability and the rates. On its approval, you begin paying premiums as per an agreed-upon term and condition.
Following your unfortunate death, the beneficiaries have to make a claim to the insurance company, submitting the documents required, including the death certificate. When verification is done, the insurance company will pay the death benefit to the beneficiaries. They are then able to use this money to pay a range of expenses such as funeral costs, mortgage costs, school fees, and an assortment of other financial debts.
Even though death is a very uncomfortable issue, having life insurance is very important in such situations. It provides a payout as a death benefit to the beneficiary chosen by policyholder at their demise. Having understood what is life insurance, let us explore who should get a life insurance policy:
Being a family breadwinner or provider, one must be aware about life insurance. Your salary supports your loved ones’ financial well‑being. During your absence due to an accident or any other unexpected event, they will be placed in a difficult position. Life insurance can provide cover whereby family members are allowed to continue living their usual lives. It can assist in the settling of debts, day-to-day expenses, and have funds to invest comfortably in retirement.
Parents, and in particular those having children, should get life insurance. It ensures that your children will have financial resources that will take care of them, educate them, and take care of their other needs in the event of your untimely demise. This cover helps to alleviate the burden on the surviving parent or guardian, and at other times allows the family life to remain financially stable even in a difficult situation.
In case you have a mortgage on the house, life insurance can save your loved ones from debt. When death occurs, the death benefit may be transferred to eliminate the mortgage so your family can comfortably live in the house without the worry of having to make 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 the 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.
We now know what is life insurance and its role in any comprehensive financial plan. It provides much-needed security for loved ones in the event of an unexpected loss, along with an array of other benefits, such as:
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 met 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 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 is a mixture of life insurance protection and an investment. It is more flexible than whole life insurance in allowing the policyholder to negotiate their premium payments and their death benefits during the entire term of the policy. The premiums paid on a universal life insurance policy are split between the cost of insurance and the cash value account, which earns interest at current market rates. Policy owners are allowed to borrow against the cash value or to use it to pay premiums. Universal life insurance is suitable for people who need the freedom in their coverage and investments.
Variable life insurance is a type of permanent life insurance where the owner is permitted to invest their premium into a number of investment options, such as stocks, bonds, or mutual funds. The cash value of a variable life insurance policy varies according to how the underlying investments work.
Although variable life insurance also has the potential of generating higher returns, it has increased risks as well. Policyholders have the investment risk and must closely pay attention to and deal with investment options. Such characteristics of variable life make it appropriate in the case of individuals willing to take the risk of investing.
Retirement or pension plans are long-term insurance products especially designed to help you create a financial corpus that you can use after you retire. They do so on the twin premise of investment and insurance. All your life, you put regular contributions into the plan and have your money accumulate and multiply with the force of compound interest.
When you reach your retirement age, these savings are invested so as to give you a periodical pay or pension, or in other words, an annuity, thus making you financially independent. The plans also have a life insurance cover, so in the event of your unfortunate death during the policy maturity, the nominee receives a death benefit.
A child insurance plan promises to cover some of the prominent achievements in the life of your child, including college fees and weddings. This is done through the strategy of insurance and investment combined. You make consistent investment over an informed time frame to create a pool of money that will be accessible to your child when he needs it.
This category of life insurance has twofold objectives of offering life insurance protection along with implementing the process of disciplined wealth creation. When you become a policyholder, you pay a set amount of premiums on a regular basis, part of which will cover your life insurance, and the other part is used to make investments to give returns.
Investment plans are set up to give a lump sum upon maturity in the event that the policyholder has survived the term. This qualifies them as an ideal tool in meeting targeted long-term financial objectives, including saving capital toward paying a down payment on a house or other significant life event.
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 how does life insurance work and the steps involved in claiming life insurance can make the process less overwhelming.
First, you need the right paperwork. The insurance company will require specific documents. This always includes the policyholder’s death certificate and a claim form. The company may specify other documents as well. Get multiple copies of the death certificate. You will need them for other tasks, like closing bank accounts.
Next, call the insurance company to start the claim process. The insurer will assign a claim adjuster to your case. This person is your guide. You may need to provide more documents or answer questions about the policyholder’s health and the cause of death.
After gathering all the paperwork and speaking with the insurer, you must fill out and submit a claim form. This form asks for information about the policyholder, the beneficiary, and the cause of death. Complete it accurately as errors or omissions will delay the claim.
Once you submit everything, you have to wait for the insurance company to process the claim. This can take several weeks. Complex claims or large benefits can take several months.
After the claim is approved, the insurance company will issue the benefit payment. This might be a check or an electronic transfer. The beneficiary can usually choose between receiving the full benefit as a lump sum or in periodic payments.
Life can seem simple when you are young, but future health problems might require expensive medical care. Nobody knows their lifespan. If something were to happen, your family could be left paying your loans and clearing debt.
Life insurance is for your family. It secures their future. It helps them get through tough times and leaves them with the resources to be independent.
Choosing the right policy demands understanding life insurance definition and a clear look at your finances and your goals. What is your primary objective? If you are looking for pure protection for your family, you should consider a term plan. If you want wealth creation, look at a ULIP. If your goal is a combination of savings and protection, your choice should be an endowment plan.
You must factor in your age, your income, the number of people who depend on you, and your outstanding loans. A policy’s benefits should align with these specific needs. This is how you select the most effective plan.
Dealing with a loss is emotionally hard. The life insurance claim process, however, is structured to provide financial relief without extra confusion. The steps are clear and designed for a timely settlement.
A life insurance plan is a cornerstone of sound financial planning. Its main job is to provide a financial safety net. It allows your family to maintain and fulfill their plans even when you are gone. It is also a disciplined method of achieving long-term goals like paying to educate a child or a retirement fund. It also offers significant tax advantages, providing real security and peace of mind.
One of the best guidelines to follow to get adequate life insurance is 10 to 15 times your current annual income. In order to streamline that number, include any debts owed, such as loans. Also, estimate future expenses, such as your child’s college tuition.
The most effective method is using a Human Life Value (HLV) calculator. This tool determines an adequate coverage amount specifically for your family’s needs.
The sum assured is the guaranteed money the insurance company will pay your nominee. It is the single most critical part of your policy. This money is a financial substitute for your future income. Selecting the correct sum assured is vital. It must be enough to clear your debts, cover your family’s living expenses, and fund their major future goals. An inadequate sum assured defeats the purpose of the insurance.
Life insurance in India offers a financial safety net. It is also a powerful tax-saving instrument. This dual benefit makes it a valuable part of any financial plan. The tax advantages are built around three key sections of the Income Tax Act.
The premiums paid for your life insurance qualify for a tax deduction under Section 80C. This lets you reduce your taxable income by up to ₹1.5 lakh every year. The benefit applies to policies for yourself, your spouse, and your children.
One of the best advantages is that the proceeds are usually tax-exempt. The money your nominee receives from a death claim, or the maturity benefit you receive at the end of the term, is tax-free under Section 10(10D). There is one condition. The annual premium cannot be more than 10% of the policy’s sum assured. This protects the full benefit from any tax hit.
You can enhance your policy with health-related riders. A critical illness or hospital cash rider are common examples. The premium paid for these add-ons can be claimed as a deduction under Section 80D. This provides another layer of tax savings separate from the Section 80C limit.
The cost of life insurance, called the premium, is not the same for everyone. It is based on your individual risk profile. Key factors that influence the premium include your age, your health, and your lifestyle choices, like smoking.
Other factors are the policy type (term plans are the cheapest), the sum assured, and the policy term. A young, healthy person can get a higher cover for a much lower premium.
Life insurance is not just a financial product, but it is an assertive promise to your family. It is critical to perceive its worth in an uncertain world. You should thoroughly understand what is life insurance and get it in order to protect the people you love. There are many life insurance policies. Choosing the suitable one should be based on your situation, goals, and budget. It is important to read all policy terms before making a determination. Life insurance provides the real security of yourself and your loved ones, hence you should choose it wisely.
1
If you miss a premium payment, most insurers offer a grace period. This is typically 30 days. You can pay within this window without a penalty. If you do not make the payment in time, the policy may lapse, and you will lose coverage. Some policies do offer options for reinstatement.
2
Yes, many policies let you change the coverage amount. Increasing the coverage usually means additional underwriting and a higher premium. Decreasing the coverage may lower your premium payments.
3
Yes, you can change your beneficiary whenever needed. You must submit a request to your insurer, which will help keep your policy aligned with life changes.
4
The majority of the death benefits are not subject to income for the beneficiaries. Taxes on estate could still be imposed in the event that the policy forms a big taxable estate.
5
Yes, you can take a loan against a life insurance policy that has a cash value, such as a whole life or universal life policy. These loans typically have lower interest rates than traditional loans. Any outstanding loan balance and accrued 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.
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