Accidents and mishaps are unfortunately a part and parcel of one’s life. No one can predict the future, which is why it is essential to stay financially prepared to face a rainy day. You might be the sole breadwinner of the family, and your unfortunate passing can cause them financial difficulties with the absence of a regular source of income. To ensure that they always remain financially stable, it is advisable to be covered under life insurance. However, before buying this insurance policy, you need to know its terms and conditions in detail. It is quite natural to have questions regarding life insurance plans, and while some are basic and some very specific, it is important to get every doubt cleared before buying any insurance policy.
So, take a look at some of the most frequently asked questions about life insurance to get a better understanding of the product:
- What is a life insurance policy?
A life insurance policy is a contract that assures a specific sum to a nominee chosen by the policyholder in case of their unfortunate demise. Policyholders need to pay a premium to buy these policies and each one can be charged different premiums based on various factors such as their age, medical history, lifestyle habits, coverage, etc.
- What is meant by a ‘rider’?
A rider is an additional feature that you can include in your life insurance plan. For instance, you can choose riders such as accidental permanent disability benefit or accidental death benefit to your life insurance plan for enhancing your financial coverage.
- How to decide on a suitable life insurance amount?
To understand a suitable sum, consider your family’s ongoing expenses as well as any particular financial obligations in the future. Compare that amount to your financial corpus to see the amount that you need. Your financial resources can include your partner’s income, your investments, savings, etc. Medical bills, house rent, daily expenses, college funds, and retirement savings should always be taken into consideration while deciding on an ideal life insurance amount. The difference between your financial resources and the amount needed for all the above-mentioned expenses is ideally what you should look for in a life insurance payout.
- When should one buy a life insurance policy?
Ideally, buying a life insurance policy early in life is considered to be a good move. The older you get, the higher the risk of developing health problems, which would then increase the premium of your life insurance plan. So, buying a life insurance policy when you are young and healthy can help as insurance companies are more likely to offer better deals at this stage of your life.
- Does a life insurance policy provide tax benefits?
Yes, life insurance plans do include tax benefits! As per Section 80C of the Income Tax Act, all premiums paid towards life insurance policies are eligible for tax exemption. A policyholder can enjoy maximum tax deductions of up to Rs 1.5 lakh under Section 80C. Also, death benefits paid to the nominee are tax-free (Section 10(10D) of the Income Tax Act).
- What is the difference between a life insurance policy and a term insurance policy?
A life insurance policy offers both death as well as maturity benefits to the insured. However, a term insurance policy only offers death benefits if the policyholder passes away within the term period.
- What happens when the policyholder fails to pay their insurance premium on time?
A lot of life insurance policies have a 1-month grace period where policyholders can pay the premium without attracting any interest or penalty. It is very likely that if a policyholder does not pay for their term insurance plan within the grace period, the insurer will terminate the policy. Those having permanent life insurance policies can authorise their insurers to take the premium from the policy’s cash value.
Knowing all about life insurance and the coverage that you require is important to work on a suitable financial plan. This can help in choosing a life insurance policy that provides adequate coverage for your family. Also, make sure to use a life insurance premium calculator. This calculator is an online tool that can help in understanding the premium of a life insurance plan based on factors such as your age, policy tenure, premium frequency, sum assured, and so on.
