What is Life Insurance?• It is a contract between the insured person and the company or "carrier" that is providing the insurance.• It offers a way to replace the loss of income that occurs when the insured person dies, usually the person who is the majority income provider of the family.
What is Life Insurance?(Contd.)• If the death of the insured occurs while the contract is in force, the insurance company pays a specified sum of money free of income tax to the person named as beneficiary.• It can also be a form of savings in the long run where there is the option of contributing regularly.
Benefits of Life Insurance• Provides – Continuity of income – Mortgage protection – Protection against disabilities – Children’s education – Marriage expenditure – Retirement fund – Tax relief – “Peace Of Mind”
Types of Life Insurance• Temporary (Term)• Traditional• Unit Linked Insurance Plan
Temporary (Term) Life Insurance• Is a type of life insurance which provides coverage for a limited period of time For a specified premium. After that period the insured can either drop the policy or pay annually increasing premiums to continue the coverage.• If the insured dies during the term, the death benefit will be paid to the beneficiary.
Temporary (Term) Life Insurance (Contd.)• It has the lowest possible premium among all insurance plans.• Defining characteristics of this type of life insurance plan are – Complete absence of survival benefit – On maturity no death benefit money is provided• The death benefit would be paid by the insurance company if the insured died during the term of the policy, while no benefit is paid if the insured dies one day after the last day of the term of the policy.
Term Life Insurance Factors• This type of insurance often makes sense when the need for coverage is till a specific point in time (e.g. coverage required until children graduate from college or a home loan is paid off).• 3 key factors to be considered in term insurance are – – Face amount (protection or death benefit) – Premium to be paid (cost to the insured) – Length of coverage (term)
Types Of Term Life Insurance• Annual Renewable Term• Mortgage Protection Life Insurance
Annual Renewable Term• It is the simplest form of term life insurance for a term of one year.• The death benefit would be paid by the insurance company if the insured died during the one year term, while no benefit is paid if the insured dies.• The premium paid is based on the expected probability of the insured dying in that one year.
Mortgage Protection Life Insurance• It can be a lifesaver—not for the policyholder but for the mortgage protection life insurance policyholder’s family.• Ensures to your family that they will not lose their home in the event of the death of the policy holder before the home mortgage is paid off.• This insurance can also protect your home in the event that the policy holder is diagnosed with a terminal illness (Cancer, brain tumor etc.).• Insurance company will pay off the mortgage even if the mortgage protection life insurance policyholder is still alive.
Traditional Life Insurance• Life insurance that remains in force until the policy matures, or unless the policy lapses.• Such policy is for the life of the insured the payout is assured at the end of the policy.
Types of Traditional Life Insurance• Whole life coverage• Universal life coverage• Endowments
Whole Life Coverage• Life insurance which provides coverage for an individuals whole life. The person starts to save over time & can use it later.• This insurance is for the whole life and not for a specified period.• As there is no fixed end date for the policy, only the death benefit exists and is paid to the named beneficiary.• The policyholder is not entitled to any money during his or her own lifetime. There is no survival benefit wherein the benefit ends.
Universal Life Coverage• Permanent insurance coverage with flexibility in premium payment and the potential for a higher internal rate of return.• It allows the policyholder to break the death benefit and cash value accumulation into separate components.
Endowments• Is a life insurance contract designed to pay a lump sum after a specified term on its maturity or on earlier death.• Endowments can be cashed in early or surrendered and the holder then receives the surrender value which is determined by the insurance company depending on how long the policy has been running and how much has been paid in to it.
Endowments (Contd.)• Endowment policies cover the risk for a specified period at the end of which the sum assured is paid back to the policyholder along with all the bonus accumulated during the term of the policy.• Endowments are more expensive than whole life or universal life because the premium paying period is shorter and the maturity date is earlier• These plans provide the option of paying premiums throughout the policy term, a limited term, or single premium thus it is a good fit for people having short career spans.
Unit Linked Insurance Plans• Risk cover and investment (endowment) where the policyholder bears the investment risk.• The portion of the premiums after deduction of all expenses and the premium for the risk cover is allocated to unit funds.• Your premiums provide not only a life insurance cover, but a part of the premium will also be invested in specific investment funds of your choice.
Tax Rebates in Life Insurance• 80(C) upto Rs. 1 lac in respect of premium paid on life insurance policy.• 10(10D) on the money received from insurance company with accumulated bonus which is tax free.
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