Know the Life Insurance Policy Features
You must have your personal reasons to buy an insurance policy. Whether it be to ensure the financial security of your family when you will not be around or are looking for ways to diversify your investment and ensure the guaranteed benefits or possibilities are that you want to buy a life insurance policy to save on taxes. There are many reasons, but the main agenda is to ensure financial security and peace of mind during the financial hiccups.
No doubt, there are a bunch of life insurance benefits depending on the type of life insurance policy you choose. But buying a life insurance is not that easy, you need to understand the important terms and features of life insurance policy in detail to help you make better buying decisions.
This article discusses the key features of life insurance policy in easy to understand language to help you buy a life insurance policy.
What is a Life Insurance Policy?
In simple words, life insurance is a financial contract between an individual and a life insurance company. The life insurer provides a pre-defined lump sum amount in exchange for the premium paid towards the life insurance policy. Buying a life insurance policy is one of the best options to gain financial security against life risk and build wealth to complete life goals. Let’s look at the features of life insurance policies in India.
Important Features of Life Insurance Policy
The features of a life insurance policy are the underlying characteristics and components that provide financial protection to the life assured and their beneficiaries. Let’s look into them in detail.
Life Coverage
Life coverage is the primary feature of life insurance policy for which a policy is purchased. When you buy a life insurance plan, the life of the insured is protected against any life risk. In case of death of the insured, the life insurer pays a lump sum amount to the nominee. The life coverage amount is determined by the sum assured and the premium paid towards the policy.
Life Insured
The life insured is an individual whose life is covered/ secured under the life insurance plan. On the death of the life insured, the beneficiary/ nominee gets the defined amount as the death benefit.
Definite Sum Assured
Sum assured is the coverage (pre-defined amount of money) a life insurance company pays to the listed nominee in case of death of the life insured during the policy term. You can select a suitable sum assured amount depending on you and your family members' current and future needs. The company evaluates your risk appetite and issues the policy.
Issued in the Name of Policyholder
A life insurance policy is issued in the name of the policyholder who purchases the policy and pays the premium amount. Depending on the type of life insurance plan, the policyholder can be an individual, family, or a business.
Flexible Premium Payment
The life insurance company offers premium payment options per the financial suitability of the policyholder. They can pay the premium on a regular or one-time payment basis. In the regular premium payment mode, monthly, quarterly, half-yearly, or yearly premium payment options are available. Under a single premium payment mode, all the premium is paid in a single lump sum amount.
Choose the Policy Term
Policy term is the duration of the life insurance policy during which a life insured is covered. The policyholder has the flexibility to choose the policy tenure.
Nominee of Choice
A nominee is a person who is eligible to receive the benefits in case the life assured loses their life during the policy tenure. Under Section 39 of the Insurance Act, 1938, the policyholder may nominate one or more nominees to receive the benefits in his/her absence.
Death Benefit
If the life assured passes away before the policy maturity date or during the policy term, the nominee gets the predefined sum assured as the death benefit on raising a claim. To prevent the claim rejection, ensure that all the policy terms and conditions are satisfied.
Maturity Benefit
The maturity benefit is the amount the policyholder draws when the policy matures. The maturity benefit can fulfil many life goals, like buying an asset, planning your retirement, funding your child higher education, etc. Note that not all the policies offer maturity benefits.
Survival Benefit
Survival benefit is the amount paid to the policyholder if they survived a predefined period during the policy term. The survival benefit can be utilised to fund short-term goals or meet any unexpected obligations.
Saving and Investment Benefits
Many life insurance policies offer a combination of life insurance coverage and investment benefits to protect life and grow wealth. These policies usually have long-term investment benefits and offer market-linked returns.
Claim Settlement
Claim settlement is the process when the nominee or the policyholder wants to avail of the benefits defined under a life insurance policy. To ensure that you will get your claim settled without any hassle, you can check the claim settlement ratio of life insurance companies before purchasing a plan.
Optional Riders
The riders are the add-on benefits a policyholder can avail to enhance the base policy coverage. These add-on riders can be availed at the time of policy inception or anytime during the policy anniversary by paying an extra premium. Some popular riders are Accidental Death Benefit Rider, Accidental and Permanent Disability Rider, Waiver of Benefit Rider, Critical Illness Rider, etc.
Tax Benefits
Under Section 80C of the Income Tax Act, 1961, the policyholder can avail of tax benefits of upto Rs. 1.5 Lakhs on the premium paid towards life insurance policies. Also, the benefits received are tax exempted under Section 10 (10D) and Section 80D of the Income Tax Act.
Loan Facility
A loan facility is one of the essential features of life insurance policies. Some policies allow you to avail of loans against it after completing a specific period. Note that you cannot avail of loans under the term insurance policy.
Surrender Value
The life is uncertain. In any emergency, you can surrender your policy even before the maturity, or the policy term is over. The surrender value depends upon the amount you pay and is decided by the life insurance company.
Cash Value
Cash value is the accumulated amount generated when you pay premiums towards a life insurance policy for a longer period. The cash value offers several features: you can borrow against it, pay regular premiums, etc.
Grace Period
The grace period is an important feature of life insurance policy that allows the policyholder to pay the premium without penalty, even if the premium due date is missed. During the grace period, the policy remains enforced, and all the benefits are active. If the policyholder cannot pay the premium within the grace period, the life insurance policy lapses and all the benefits are ceased.
Policy Revival
Life insurance companies offer the feature of policy revival, during which the lapsed policy can be revived, and all the benefits can be resumed. For life insurance policy revival, the policyholder needs to pay all the outstanding premium amount from the first unpaid premium date with an interest, where the life insurance company defines the interest rate.
Free Look Period
After the life insurance policy purchase, a free look period is offered to the policyholder. The policyholder can review all the terms and conditions during the free look period. If they are not satisfied, they can return the policy and receive the premium amount paid after deducting any charges.
Conclusion
Life insurance policy features are important to consider before purchasing a plan so that you can handle the complexities when you require the defined benefits. To ensure the maximum financial security and savings from the life insurance plan, make sure that life insurance benefits align with the financial needs of you and your loved ones.
The earlier you plan to buy life insurance, the better coverage you can avail at a reasonable cost. We suggest you to take assistance from a professional advisor or life insurance agent. Find an insurance advisor near your location from RenewBuy Advisor Connect.
Frequently Asked Questions
What are the features of life insurance?
- The life insurance policy offers the family financial support in case of the policyholder's uncertain demise during the policy term. Besides the life risk cover, life insurance also provides maturity, survival, and tax benefits, per the selected policy.
What are common types of life insurance plans offered?
- The policyholder can select any of the suitable plans from the following types of life policies:
- Term life insurance
- Whole life insurance
- Endowment Plan
- Unit Linked Insurance Plan
- Retirement plan
- Child plan
Can I buy life insurance rider without buying a base policy?
- Riders are only the add-on benefits and can be availed under the base life insurance policy by paying an additional nominal premium. You buy the life insurance policy first, then choose suitable riders to enhance benefits.
What is the validity of life insurance policy?
- The validity of life insurance policy is defined at the time of policy inception, say 5 to 30 years. The validity of the policy remains until the policyholder outlives the period. If the policyholder dies, the policy ends after paying the eligible benefits to the policyholder.
How does term life insurance work?
- Term life insurance provides financial coverage for a certain period. During this period, in case of the death of the life insured, the nominee gets the benefits.