Life Insurance: Premium calculation, nominations, Term policy, Tax benefits - All your questions answered

Here are a few important things you should know before buying a life insurance policy. As Benjamin Franklin said, nothing is certain except death and taxes. Life insurance helps you to address both to an extent. You can protect the finances of your loved ones through your life insurance policy and save some tax along the way. A life insurance policy is the stepping stone of a person’s financial planning, and here are a few things you may want to know before buying one.

Life Insurance_FAQs

What is life insurance?

Life insurance is a contract between a policyholder and an insurer. The policyholder gets insured for a specific amount and, in return, has to make regular premium payments. Alternately, there are single premium life plans as well. The policyholder must also declare his/her nominees in the life insurance policy. In case of an unfortunate event such as death, these nominees will receive the amount the policyholder was insured for.

Why is life insurance important?

Life insurance is one of the best ways to ensure your family is taken care of if anything unfortunate happens to you. A life insurance policy can be helpful to cater to the monetary needs of your loved ones when you're not around, especially if they are financially dependent on you.

Why should I consider taking life insurance?

The main aim of a life insurance policy is to ensure your loved ones are taken care of after you die. Here are some reasons why you should consider getting a life insurance policy:
- With you gone, the emotional loss will be unbearable, but with a life insurance policy in place, at least your dependents won't have to bear financial loss too.
- The assured sum can provide financial support so that your family can continue to live the lifestyle you wanted them to have.
- Your family won’t have the additional burden of repaying your loans or debts if you have adequate insurance cover.
 - A life insurance policy also provides many tax benefits for the insured as well as for the beneficiary.

Does life insurance policy cover death due to COVID-19?

Yes, existing life insurance policyholders are covered for death due to COVID-19 related issues. For the purpose of life insurance claims, death due to COVID-19 is considered an event, and family members can raise the claim.

Can I buy Life insurance if I have recovered from COVID-19?

COVID-19 survivors may not be able to buy a life insurance policy immediately after recovery. Most insurers follow a cooling-off period, but there are insurers who are offering policies to recovered patients with no waiting time. People with coronavirus history need not pay any extra premium at the time of buying the policy.

What are the disclosures required for buying life insurance after COVID-19?

COVID-19 surviving policy buyers must disclose their medical records while submitting the proposal form. This includes the record of the diagnosis of COVID-19. Failure to disclose these documents can lead to the rejection of the proposal form and claim.  

How do I choose the best life insurance policy?

When it comes to choosing the best life insurance policy, you can go online to compare the benefits and features offered by various insurance companies. Additionally, also take into consideration which policy best matches your needs. 
 If you have a financial advisor, you should take their opinion. Once you shortlist a few companies or policies, read reviews about them and compare all the specifics. This should help you choose one policy that suits all your needs.

Related: Does Your Life Insurance Policy Cover Death Due To COVID-19?

Are there any tax benefits offered on life insurance policies?

Under sections 80C, 80CC, and 80CCE, a maximum deduction of an amount of Rs 1,50,000 is allowed on the premiums you pay.
 Additionally, under section 10 (10D), any amount received under a life insurance policy is exempted from tax. This amount could be any of the following: maturity benefit, death benefit, bonus, or survival benefit.

Is it safe to buy life insurance online?

Yes, it is very safe to buy life insurance online. It's not only safe and secure but also beneficial if you buy insurance online. You get transparency on all the features and benefits of the policy. Also, you can avoid any additional costs you may incur if you buy a policy from an agent.

What are ‘premiums'?

A 'premium' is a periodic instalment you, the policyholder, pay the insurance company covering you. Covering you is a risk for the insurance company, and for taking this risk, the company charges you a specific amount, which is your 'premium'.

What must I consider before purchasing a life insurance policy?

Before buying an insurance policy, you must have clarity on the following:
-        Have you compared all the different types of insurance policies?
-        How frequently will you have to pay the premium?
-        What is the claim settlement process?
-        Can you avail of any riders on your policy? If yes, what are they?
-        If the need arises, can you take a loan against your life insurance? 

What medical reports will I have to submit to get a life insurance policy?

For getting a life insurance policy, it is better if you carry all documents related to your medical history. If specific medical reports are required by your insurer, they will ask you for them.

How are life insurance premiums calculated?

Life insurance premiums are calculated based on many factors, such as:
- Your age
- Medical history
- Gender
 - Additional riders

Can I avail of a loan through my life insurance policy?

Some life insurance policies do let a policyholder take a loan against their policy. Whether or not you are eligible for this is something you should clarify with your insurer while taking your policy. 

What are the documents my nominees must furnish in case I die during the policy term?

The documentation your nominee will need depends on the insurer. Listed below are the documents insurance companies usually ask for:
- Original life insurance policy
- A premium receipt
- Duly filled claim form
- ID proof of nominee
- Hospitalisation documents, including discharge summary
- All prescriptions
- All bills
- Last attending physician’s certificate
- Death certificate
- Cremation certificate
In case of unnatural death, the following documents may be required:
- Certified police report
- Certified police inquest report
- Chemical analysis report, if there is one
 - Certified post-mortem report

How much does life insurance cost?

It varies from person to person. A young, healthy individual (Person A) may have to pay a smaller premium than a middle-aged person (Person B). A smoker/alcohol drinker often has to pay a higher insurance premium compared to someone who doesn’t. This is because when an insurer insures you, they are taking a risk. And this risk is less with Person A as compared to Person B.

What benefits does a life insurance policy provide?

Having a life insurance policy ensures the loved ones of the insured have adequate financial support in case the insured dies. Other than providing financial support, a life insurance policy also provides a host of benefits such as:
- Death benefits are usually exempted from income tax.
- Most insurers let policyholders take a loan against their life insurance policy.
- If you surrender your life insurance policy before the term is completed, you are eligible for a surrender bonus.
- Premium amounts are usually very small and affordable when you compare them to the payout that you will get. The premium you pay largely depends on the type of life insurance policy you choose and your age. This is one reason why it is advisable to get a life insurance policy as early in your life as possible.

Can I find a policy that will pay me money while the policy term is still in progress?

Term life insurance policies issue a payout only when the insured person is no more. If your policy has certain riders like a critical illness rider, you or the beneficiary will get a specific amount as payout while the policy term is still in progress. On the other hand, endowment life insurance policies come with maturity benefits, in addition to life cover. This completely depends on the type of policy you own, and you should get these details clarified from your insurer.

How often will I have to make premium payments?

Policyholders usually have the option of making premium payments on a monthly, quarterly, half-yearly or yearly basis.

Is it better to buy life insurance policies at a young age?

Yes, it is advisable to buy a life insurance policy as early in life as possible, preferably when you're between 25 and 30. Buying a life insurance policy at a young age is beneficial because the younger you are, the lower premiums you'll have to pay. The more you delay getting life insurance, the higher the premium you pay.

Is it better to purchase a life insurance policy from an agent, or should I buy one directly from an insurance company?

It is always recommended you buy an insurance policy directly from your insurance company instead of getting it from an agent. It is extremely easy to buy a policy directly from an insurance company. Other than that, here are a few other benefits:
- You directly interact with the company without having a middleman. This gives you first-hand access to all the information you need. When interacting with an agent, there is potential for wrong information being passed on to you. There is also a small chance of the agent being a fraudster. On the other hand, very rarely will a life insurance company trick its customers.
- When it comes to cost, you will have to pay the commission and other additional costs if you get a policy from an agent. You can save on all of these intermediary costs by buying a life insurance policy directly from the insurance company.
 - If you buy a policy directly from your insurer, you have an option to do so online. This is not only instant but is also very safe. With an agent, the handling of money will mostly be through traditional methods of payment and can cause delays. The potential for fraudulent transactions is also higher when interacting with an agent.

Having said that, if you value the advice of your trusted agent and are more comfortable with the offline mode, you can follow the traditional path of policy purchase. 

Related: How To Judge A Life Insurance Agent?

When does life insurance cover begin?

Life insurance coverage begins once all the prerequisites and paperwork are complete. The coverage effective date is the actual date when your life insurance cover comes into effect. Be sure to check your policy papers to know when your life coverage begins.

Are life insurance premiums fixed?

Before your life insurance coverage starts, your premium amount is decided. Based on this premium amount, your coverage amount is decided. So yes, your life insurance premiums are fixed. 

Can I get life insurance for my parents?

Yes, you can get life insurance for your parents. While you will continue to make premium payments for the policy, your parents will be the ones insured. If your parents have retired or are close to retirement, it makes sense for you to get life insurance for them as they won't have the additional burden of paying premiums. 

Can older people buy life insurance?

Whether or not older people can get life insurance depends on their age and health. Every insurer has an age limit, after which they do not issue new life insurance policies. Either way, younger people should buy life insurance policies for older relatives. It can get difficult for older people to keep up with the premiums. Additionally, the older the insured person is, the higher the premium they will have to pay.

Are life insurance payouts taxable?

When it comes to the question of whether life insurance payouts are taxable, people have a preconceived notion that they aren't. This isn't always true. Certain conditions determine the taxability of insurance payouts, and there are some exceptions too. It is important that you. as a policyholder, be aware of the tax benefits of your insurance policy. 

Do life insurance premiums increase with age?

This depends on the type of life insurance you have opted for. If term insurance is what you have, the amount you pay as a premium will increase with your age. But in the case of a life insurance policy, the premium you pay will remain the same throughout your life.

Related: Term Insurance Vs Traditional Life Insurance: Know The Basic Differences

Can I hold multiple life insurance policies?

Yes, you can have as many life insurance policies as you want. In case a claim is rejected by one insurer, people with multiple policies have the advantage of filing a claim with another insurer. Multiple life insurance policies also have different maturity periods and varied premiums.

Who benefits from my life insurance?

When you get a life insurance policy, you have to add beneficiaries or nominees to your policy. This can be anyone - your spouse, your kids, or your parents. In case of your death, whoever is listed as your nominee will get the benefits of your life insurance.
If you survive till the time the policy term is completed, you will be eligible for maturity benefits unless it is a term policy. In either case, you or your nominees will benefit from your life insurance policy.

What does life insurance cover?

A life insurance policy covers the life of the policyholder.

How much life insurance do I need?

A very rudimentary way of calculating how much life insurance you need is by ensuring you get a cover that is 7-10 times your annual salary. A better way to calculate this is to envision the amount you’d want your spouse or your beneficiaries to have once you’re gone. From this amount, deduct any income they’d have at any point, e.g. pension, retirement funds, or any other savings. The amount after these deductions is the life insurance cover you need.

Can I insure my partner?

Yes, you can buy a life insurance policy for your partner. Your partner/spouse will be the one whose life is insured and can make the premium payments. Alternatively, you can opt for a joint life insurance plan. This will insure both you and your partner’s life. The surviving policyholder or listed nominees will get the insurance payout in case of the untimely death of either you or your partner. Some policies give a payout when either of the partners dies, and then the policy ends. In other policies, beneficiaries receive a payout when each of the two policyholders dies.

What does life insurance NOT cover?

Exclusions differ from policy to policy but mentioned below are some of the things most life insurance policies won’t cover:
- Critical illnesses
- Temporary or permanent disability
- Suicide (Some policies do have a suicide clause, but most life insurance policies don’t)
- Reckless endangerment of your life
 It is best to ask your insurer about all exclusions that come with your life insurance policy.

Are life insurance premiums tax-deductible?

According to Section 80C of the Income Tax Act, if you make a premium payment for yourself, your spouse, or your kids, you can claim a tax deduction on insurance premiums of up to Rs 1,50,000. But if the policy insures anyone else, the premium payments of the policy will not be eligible for deduction under Section 80C.

Conclusion

We hope these questions are among the ones that you wanted an answer to while buying a life insurance policy. All you now need to do is decide your purpose of insurance - saving and life cover or plain life cover. You must assess your family’s financial needs before selecting a sum assured. With these primary considerations, you can select the life insurance cover that suits you best.

Related Article

Premium Articles