Features of Life Insurance Policy

Features of Life Insurance Policy

Features of life insurance policy are mentioned here in this article. “Live everyday like it’s your last” is what many people say. It keeps you motivated to try your best, to take risks and to achieve better results. You must strive to do all the things that you’ve always wanted, things you don’t want to regret not doing while you lie on your death bed. But what if it is really the last day before you die? Are you truly going to be alive the next day? No one knows the answer to that.

There many uncertainties in life, we don’t whether we’ll be doing the same job the next day or not, whether we’ll have the same friends next year or not, whether Lasagna will still be your favourite dish or not. These are however things that make life worth living, the unpredictability of life lets us enjoy it at the same time. The biggest uncertainty however in life is life itself, what a paradox. 

Every person who is born has to die, that is the rule of nature. But Life Insurance helps you come out of that fear. It provides you with a sense of security.

Top 10 features of Life Insurance Policy

Life Insurance is when you receive a sum of money after the death of the insured person or after a certain time. Here are 10 features of Life Insurance Policy discussed below:

1. Periodicity of premium

Banks and financial organisations work by taking and then lending money. The amount that is deposited is further used to give loans to people who pay an interest rate along with it. Thus the periodicity of premium paid for the insurance policy also determines the cost of servicing. While laying your premium amount, a person can pay annually, half yearly, quarterly and even monthly. However higher the frequency (number of times you pay), higher will be the cost of servicing, which is, collection, processing and adminstration cost. This happens because the company has the flexibility of lending more money and gaining more benefits out of it if the money is deposited in lump-sum instead of many parts.

2. Tax benefits

In India, under the section 80C of the Income Tax Act, any amount paid by a policyholder for the life insurance premium for his self, his spouse or his children is deducted from the taxable income. This benefit is however under the income tax act not applicable incase the policy is under the name of a third party. This tax benefit is applicable on all premiums, even if there are more than one. There is also no difference whether the Policyholder has applied for a private or public company insurance company.

Just like any other benefit however it has its own terms and conditions. Under the section 80C(5) if the insurance holder terminates or surrenders his policy then before 2 years from commencement of the policy then the insured will not get any tax benefit on the premium that has been payed. For the policies insured after 1st April 2012, the tax deductions are available only on 10% of the sum assured in one financial year.

Read Also: Difference between whole life insurance policy and term life insurance policy

3. Bonuses

This is the additional amount which is incurred to the life insurance policy on an annual basis. This amount is paid to the policy holder at the time of maturity or sudden demise provided the policy holder has paid all premium amounts due for a specified number of years. The bonus amount is determined by various factors such as the bonus announced in the previous year, return on fundamental assets. The bonuses offered are clearly mentioned in the policy document and it is wise to check these beforehand.

4. Loans against policy

In a time where even the prices of onions and vegetables are skyrocketing, the price of oil is extremely high and so are costs for other services, taking a loan is a very ordinary thing. Getting money in the form of loans used to be a very tough process which was equally time taking. Using jewellery or land as collateral was the only way to obtain a loan. Now there are more options, one being life insurance.

Your life insurance policy can be used as collateral for a loan. In order to this avail a loan, the policy is required to have a surrender value, where in the loan is granted is 85 to 90% of the policy’s surrender value. Thus your life insurance policy acts as an asset for you where you can borrow even more money using it as security. Getting a loan against your life insurance policy gives you added benefits such as a low interest rate. They also provide you with a high loan value than other options. This process takes much less time and the loan is granted more easily.

Read Also: Different types of life insurance policy

5. Term Insurance

This policy is only valid for a certain period of time or a certain “term” of years. If a person dies during the specified term being active then a death benefit is paid. This type of policy is cheaper than a permanent life policy. However you don’t get any cash benefit on this policy, that is, you will only get the death benefit. The insurance company in this case assesses the premium on basis of the policy holder’s health, age and life expectancy. If the person doesn’t die during the term then there will be no coverage. The term, however, can be renewed or extended.

6. Beneficiary

We go through life in different forms, at times we’re playing the role of a mother, at times a sister and even a lover. Each person is dependent on someone, children on their parents, wives on their husbands. But what if something were to happen to that person, if a parent were to pass away who would take care of their children and cover their life expenses? The answer is simple, life insurance does that. A beneficiary in other words is someone who receives the benefit of the policy in case the policyholder dies. A person may name a primary as well as contingent (secondary) beneficiary. In case something were to happen to the primary beneficiary then the amount of benefit is given to the secondary beneficiary.

Read Also: Advantages of life insurance policy

7. Endowment plans

For people who love to spend and enjoy more time near shops and restaurants, this plan is an option. It helps you save money despite your spending habits. This policy helps you save over a period of time so that they can you get a lump sum amount on the policy maturity incase the policyholder survives the policy term. The maturity amount can be used according to the wish of the policy holder, it can be used for their children’s education, making a house, etc. The policy pays the complete sum to the beneficiary incase the policyholder dies during the policy term or before the maturity of the policy.

8. Money back plans

A money back plan gives you the same maturity benefits however they do so in the form of survival benefits. These benefits are given incase the policyholder survives the policy term. These benefits are given laid out evenly throughout the term of the policy. Instead of getting a lump sum amount this policy helps you use your insurance as an income. This makes it possible for the policyholder to use the money according to their need during different stages of their life. This type of policy provides a low risk.

Read also: Benefits of life insurance policy

9. Personal accidental insurance

Does your work require you to travel extensively? Do you own a cab? Are you an ardent traveler who can’t stay at one place for a long duration of time? Then this policy might be the one for you. This type of policy only provides compensation if the policyholder were to sustain injuries, disability or death caused only by violent, extreme, accidental and visible events. You can take this policy for yourself or for a family member and it provides you with a 24 hour coverage. This policy is applicable anywhere in the world and at any time of the day.

10. Child insurance plan

Once we become parents life takes on a very different path, it is a completely different responsibility. You are responsible for another human, from feeding them to teaching them the ways of living life. Thus, with the uncertainty of life, we still want our children to have a bright future. This insurance plan ensures the safety of our children’s future needs and education. Think about it, what can be a better gift that an hassle free education and a secured life? No worldy possession, no toy, no car, no doll house can out weigh this gift. These were some features of life insurance policy.

Life insurance ensures you life a good life. Whether it is to help you pass your last days of life or the remaining years of your spouse or even the growing years of your children. This type of investment saves you from a bundle of stress and provides you with a mountain of security. All of this depends on the type of insurance you avail. It is important to choose the type of policy only after going through each one thoroughly.

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