Life insurance is a contract between an insurance company and the person who needs protection, called the policyholder. In this contract, if someone dies during a specific time period, the insurer will pay a sum of money to those people who are named as beneficiaries in the contract. Life Insurance may be used for many reasons such as financial security for dependants, inflation protection, wealth accumulation, etc.
is life insurance taxable?
Yes! Life Insurance is always taxed on maturity or during claim settlement under Section I of the Income Tax Act. Generally, premiums paid are deductible from your total income and hence you can save tax up to some extent. However, there are many provisions in the tax law that impact the taxation on Life Insurance. You should consult a financial planner or tax advisor to understand how it is taxed and if you can save any taxes from it.
Who are Covered?
The policy may cover all family members including spouses, children, parents, etc. There are also individual life insurance policies that cover an individual person only.
What are the different types of Life Insurance Policies?
Life insurance can be divided into two broad - Term insurance and Whole life insurance, which is also known as permanent insurance. The major differences between them are below :
1)Term Insurance covers you for a fixed period of time. You have to renew the term insurance policy at the end of each term. Whole life insurance is lifelong, with no need to renew or re-quote.
2)Term Insurance covers you for a fixed period only, while whole life policies are designed to be in force till your death. A level premium payable throughout the life of the insured person ensures protection without any additional fees.
3)Premiums in the case of a term insurance policy are high when compared to a whole life policy. This is because the chances of claim settlement under a whole life insurance policy is almost nil. You can additionally select level premium payment for whole-life policies which brings down the cost significantly, making it more affordable than term insurances.
What are the different types of Life Insurance policies?
There are 2 broad categories of life insurance policies.
1) Term Policies - If you need cover for a fixed number of years, then term polices is what you should choose. It is the cheapest plan available as compared to other plans. Your premiums are low because chances of claim are very less.
2) Whole Life Plans - If you need cover for your whole life, then this policy is what you should choose. Your premiums remain the same throughout the period of the plan's tenure.
What are the different types of Term Insurance Policies?
There are 3 forms of term insurance policies currently available in India.
1) Renewable term insurance policy - It is a simple pure term plan where you need to renew the policy after fixed tenure.
2) Level Term Insurance Policy - Equivalent premium payment throughout the period of the plan's tenure.
3) Decreasing term insurance policy - Equivalent premium payment throughout the period of plan's tenure but with decreasing sum assured.
Which term plan is best?
All three plans are same in terms of cost and coverage provided. The option you choose purely depends on your needs. Renewable plans are more suited for people who can commit to a fixed tenure plan. Decreasing policies make sense when sum assured reduces with time, usually, it is given if you have a growing family. Level term policies are suitable for people without an immediate need but want to ensure their family is protected as and when the need arises.
What are the different types of Whole Life Insurance Plans?
These plans provide life-long protection, covering you till your death. There are 3 forms of whole life plans currently available.
1) Single Premium Whole Life Insurance plan - One time premium payment for whole life cover.
2) Regular Premium Whole Life Insurance Plan - Level premium payment throughout the tenure of policy, making it more affordable than single premium policy.
3) Flexible Premium Whole Life Insurance Plan- You can choose to pay either level or increasing premiums throughout the tenure of policy. Some people prefer increasing premiums as they do not have a fixed income throughout their life, while some others prefer level premiums.
What is a single premium whole life insurance plan?
It is a basic form of a whole life insurance plan where one time premium payment secures you for your entire lifetime. This kind of plan is only suited for people who have a lump sum amount at one go.
What are the different types of Flexible Whole Life Insurance Plans?
These plans also provide life-long protection, covering you till your death. These plans contain 2 sub-types - Incremental Premium Plan and Fixed-Payout Plan.
1) Incremental Premium Plan - The premium amount you pay every year increases as years go on. This makes the plan more affordable in initial years and becomes difficult to afford in last few policy years.
2) Fixed Payout Plan - The annual premium payment remains constant throughout the tenure of the policy, making it a better option for people with a fixed income throughout their life.
What is a Regular Premium Whole Life Insurance Plan?
It is a form of whole life insurance policy where level premium payment secures you for your entire lifetime. This kind of plan is suitable for people with regular and fixed income. While the insurance cost comes down in initial years, it becomes expensive to maintain later. Some insurers also cap the maximum amount of cover under regular plans.
What is the difference between a single premium whole life insurance plan and a level term insurance policy?
Both policies provide life-long protection, covering you till your death.
1) Single Premium Whole Life Insurance Plan - One time premium payment ensures lifelong protection, but it is costly compared to Level Term Insurance Policy.
2) Level Term Insurance Policy - It is a simple pure term plan where you need to renew the policy after fixed tenure, and the cost is affordable in initial years but becomes expensive in later years.
Which type of whole life insurance policy should I choose?
The best option for you depends on your budget and needs. Do not opt for single premium plans if you have a tight budget. If your income increases with time, it is better to go for an Incremental Premium plan. If your income is more or less constant throughout your life, then Fixed Payout policy would be suitable for you.
The benefits of life insurance include:
The insured person can borrow money from the policy or get an advance on it for any purpose, including their education. The loan does not have to be repaid until the insured dies.
The family receives guaranteed death benefit coverage at low cost, even if the insured person's health changes.
A lump-sum cash settlement is paid on the death of the insured person. This can be used to pay off a mortgage loan or other debts or provide immediate income to the family.
life insurance payout calculator; The amount payable under certain circumstances may exceed that which has been contributed by an individual, making the policy a means of saving.
In some cases, an additional benefit, such as a guaranteed period of income or a reduced cost of insurance, may be offered by the insurer in return for regular premium payments.
The most common benefit of life insurance cover
The most common benefit of life insurance cover is a guaranteed lump sum payment upon the death of the insured. The amount paid out will depend on a number of factors including:
The size and type of policy taken out. This is normally expressed as a face value, which usually represents the lump sum payable at maturity (a date determined by the insurer), rather than at death.
The amount of the premiums paid and the length of time over which they have been paid. Although insurers may take a wider period into account when calculating how much to pay out, they usually only assess whether the most recent premium has been paid up to the date of death.
life insurance is taxable; Whether any bonus is payable at the time of death.
Whether the policy is participating or non-participating. A non-participating policy will pay out less than a participating one, because dividends are not paid on cash values in this type of policy.
life insurance cash value; The payment options selected by the insured person when they took out the policy.
Life Insurance Portability Act 2006; The Life Insurance Portability Act 2006 is designed to help individuals move their life insurance from one company to another without losing their no-claims bonus and save costs by avoiding the need to take a new health check.
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