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Life insurance is a financial contract that is signed between the insurer and the policyholder. Under these plans, the insurer promises to cover the life assured for the designated period in exchange for regularly paid premiums. If the policyholder suffers an untimely demise during the policy term, the insurer will financially secure the nominees by offering them the sum assured as a death benefit. To help you understand the nature and scope of life insurance, let us take a look at the individual benefits of both.
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To understand the nature of life insurance in a better way, let us first know the different types of life insurance plans available in the insurance industry:
Term Insurance Plan
Term insurance plans offer the base sum assured to the policyholder's family members if in case the policyholder passes away during the policy term. If the policyholder survives till the end of the policy term, no maturity benefit is provided. This plan remains active for a pre-specified period and is one of the most cost-effective plans available.
Term Insurance with Return of Premium
With term return of premium plans, the insurer pays out the life cover amount in case the policyholder suffers an untimely death during the policy period, but in case the policyholder outlives the policy tenure, all the premiums paid throughout the policy are returned at the end of the policy. The returned amount is subject to nominal deductions like
100% Refund of Premium at No-cost Term Plans
The 100% refund of premium plans provides the policyholders with the option of exiting the plan early and receiving all the premiums paid at the end of the policy. These plans also payout the base sum assured to the nominee if the policyholder passes away during the term.
Whole Life Insurance
Whole Life Insurance plans provide coverage for the policyholder’s whole life i.e., till 99 or 100 years of age. The nature of life insurance for a whole life is to provide lifelong protection and secure a large sum assured for the future generation as a legacy to leave behind. These plans also provide loan facilities to the life assured, and the overall purchasing procedure is simple online.
Child Insurance Plans
The child insurance plans secure your child's financial future by paying the sum assured to ensure your child’s dreams and aspirations are fulfilled in your absence. These plans also provide a waiver of premium options within the plan, through which the child can stay covered under the plan’s benefit even if the parent is no longer around to pay the premiums.
ULIP Plans
ULIP or unit-linked insurance plans combine the benefits of insurance and investment by investing a portion of the premium in market-linked funds for wealth creation and securing the other portion for life protection. The scope of these life insurance plans provides a wide range of market fund options through which you can select the fund you want to invest in as per your risk appetite.
Money Back Plans
Apart from the death and maturity benefits, the nature of life insurance money-back plans provides different survival benefits to the policyholder who is associated with the policy term and gives money during the policy term. Irrespective of all the paid instalments, if the policyholder passes away, the family receives the whole sum. These plans are expensive compared to other products.
Endowment Plans
In Endowment Plans, the policyholder receives a lump sum amount of money if he/she survives the policy term till the maturity date. The plan offers insurance along with savings simultaneously. They come along with rider – add-ons that enhance the coverage of the plan. The endowment plan guarantees.
Retirement Plans
Retirement plans are plans that guarantee a fixed income after your retirement and help in building a retirement corpus. The nature of life insurance for retirement is that the amount is invested in producing after-retirement money flow, therefore forming a financial shield and helping in risk mitigation.
Term Plans
While discussing the nature and scope of life insurance, it is important to know the benefits of life insurance as they can help the policyholder secure their loved ones in their absence and secure a large amount to fulfill their lifelong dreams. Here is a list of all the benefits that can help explain the scope of insurance in India:
Protect your family’s financial future: In the absence of the main income earner, the death benefit payout of your life insurance plan can help your family stabilise themselves financially and take care of their monthly expenses and other financial obligations like rent, fees, and other bills.
Secure your kid’s future: The scope of life insurance for your kids is that they can use the payout amount to fulfill their financial goals like paying for their higher education, funding their business or career, or paying for their marriage.
Pay off any remaining liabilities: In case you took out a loan for your studies or house, your family might be burdened with the stress of trying to pay off the loan amount. The payout from life insurance can help your family take care of any existing loans.
Fulfill lifelong dreams: If you outlive the policy term, most life insurance plans provide a maturity benefit which can help you fulfill any lifelong goals like securing your post-retirement life or building wealth to beat inflation.
Life insurance tax benefits: The nature and scope of life insurance plans in India offer life insurance tax benefits as per the prevailing laws under sections 80C and 10(10D) of the Income Tax Act of 1961.
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Now that you know the nature of life insurance as well as the scope of life insurance plans, let’s find out the factors that can affect the premium rates of life insurance:
Factor Affecting Life Insurance Premium Rates Factor Affecting Life Insurance Premium Rates
Age: As per the nature of life insurance, the premium rates are lower for younger individuals and progressively increase with age.
Gender: Various research has shown that women live longer than men. Thus, the life insurance premium rate is lower for women compared to men.
Medical Conditions: In case you have any pre-existing ailments or previously have suffered from an ailment that might affect your current medical condition, you would be charged a higher amount of premium.
Family History: If the probability of suffering from an illness is considerably high or any hereditary illnesses run in your family, you may have to pay a higher premium.
Coverage Amount: The nature and scope of life insurance is that the higher the sum assured amount would be, the higher the premium amount and vice versa.
Lifestyle Habits: Lifestyle practices such as drinking alcohol and smoking can affect your health and result in numerous health problems. Thus, insurers charge a high amount of premium for people who drink alcohol or smoke.
Occupation: The scope of life insurance is that if your job profile has a high risk, the premium for your policy would be higher than others. For instance, if you are working on a construction site or if your job is putting you at any kind of risk, like exposure to chemicals regularly, the insurer will charge a higher amount of premium.
*Note: In case you have any questions or doubts regarding your life insurance plan, you can contact the insurance advisor to solve all your queries.
Considering the difficult times we are living in today, it is always a good idea to secure the lives of your family members with a life insurance plan. You should always ensure you understand life insurance's nature before buying a life insurance policy. The scope of life insurance is that it can be bought by anyone regardless of their income. Low-income individuals can opt for a lower sum assured amount that fits within the budget.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
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