Insurance FAQ

Life Insurance is a contract between you and a life insurance company, which provides your beneficiary with a pre-determined amount in case of your death during the contract term.

Buying insurance is extremely useful if you are the principal earning member in the family. In case of your unfortunate premature demise, your family can remain financially secure because of the life insurance policy that you have purchased.

The primary purpose of life insurance is therefore protection of the family in the event of death. Today, insurance is also seen as a tool to plan effectively for your future years, your retirement, and for your children's future needs. Today, the market offers insurance plans that not just cover your life and but at the same time grow your wealth too.

If you have dependants and financial responsibilities towards them, then you certainly need insurance.

Having a family means dependants, which, in turn means financial commitments. Financial commitments come in the form of loans, children's education, medical expenses etc.

Imagine what would happen if you were to lose your life suddenly or become disabled and cannot earn. . Being insured in a situation like this is a necessity.
When you insure your life, in effect what you are doing is insuring your earning capacity. This guarantees that your dependants will be able to continue living without financial hardships even in case of your demise.

Most insurance plans available today come with a savings element built into it. These policies help you plan not only for protection against death but also for a financially independent future, which would enable you to have a comfortable retirement.

In order to buy a life insurance policy, you must pay premiums to the life insurance company. The amount of premiums payable depends upon the type of policy, term of policy contract, sum assured and your age.

You could pay these premiums monthly/ half-yearly/ annually/ or as a single premiums.

• Under Sec.80C of the Income Tax Act
  Premiums paid upto maximum of Rs.1,00,000/-, subject to maximum of 20% of Sum Assured ,to effect or keep in force an insurance on the life of the individual, the spouse and any child of the individual.
• Under Sec.80CCC of the Income Tax Act
  Premiums paid upto maximum of Rs. 1,00,000/- to effect or keep in force a contract of annuity plan for receiving pension.
  However, u/s.80 CCE, the aggregate amount of deduction under section 80C, section 80CCC, and section 80CCD shall not, in any case exceed Rs. 1 lakh
• Under Sec.80 D of the Income Tax Act
  Premiums paid (other than through cash) towards Critical Illness Rider, subject to a total maximum of Rs.15,000/- (an additional Rs 5,000 for senior citizens) to effect or keep in force an insurance on the health of the individual, spouse and dependent parents or children.
• Maturity Benefits are exempted Under Sec.10(10D) of the Income Tax Act.
  Maturity benefits are tax free. However in cases where premium exceeds 20% of Sum assured in any year, benefits paid in excess of premiums paid will be taxable.

One of the simplest rules is to assume that insurance is a replacement for your lost earning capacity. Calculate your total income for the years that you expect to work.

Assuming that the prevailing interest rate is 8%, you need to insure your life for at least 12 times your current annual income. Assuming that a family needs Rs.100 annually for household expenditure and the rate of interest would be at 8%, then the breadwinner needs to have a life insurance policy of approximately Rs.1200. If the insurance amount were to be put in the bank by the family, the family would get a comfortable Rs.96 p.a., which would at least let the family maintain the current life style.

However to calculate your insurance need more precisely, use the following steps:

• Calculate Monthly Livable Income required (Post tax). This is the monthly amount that the survivors of the policyholder will need in the event of his death. This is taken at 70% of the current total family expenses. Denote this as "M".
• Calculate Monthly Income required (Pre tax) as M/ (100-t)%. Denote this as "M1". Here t = Tax rate.
• Calculate Annual Income (A) = M1*12.
• Assume Estimated-earning rate on capital as 8%. Denote this as "r".
• Calculate Capital livable income required (C ) as A/ r%.
• Subtract Existing Insurance Cover amount (if any) from "C".
• The final amount you arrive at is the amount for which you should buy insurance.

• You are looking for a low cost life cover without any savings benefits attached. Or
• You are at that stage in life where insurance cover is vital but you cannot afford high premium payment due to low income.

An Endowment Policy is a combination of savings along with risk cover. These policies are specifically designed to accumulate wealth and at the same time cover your life. In simple words, these polices are issued for specific time periods during which you pay a regular premium. If you die during the tenure of the policy, your beneficiaries will receive the sum assured along with the accumulated bonus additions and if you outlive the policy tenure you will receive the sum assured along with accumulated bonus additions (if any). For example, Endowment Plan.

This is suitable for you if…

• You want to accumulate capital for anticipated financial needs like buying an asset such as a home, providing for your old age, your children's education, marriage, etc.

• You plan to coincide the funds received from the policy with your future anticipated needs like a car, an overseas holiday, children's educational needs, marriage expenses, etc.

All policies provide yearly, half yearly and quarterly modes of premium payment.

In the Endowment Plan, you also have the option to pay the premiums only for a limited period of time and not for the full policy term.

Riders are additional benefits that can be attached onto your basic life insurance policy. These riders give you the benefit of increasing your risk cover in case of certain events happening. For instance if you have taken an Accident Death Benefit rider and you die due to an accident then your beneficiaries can get upto a maximum of twice the basic sum assured.

Similarly there are different riders addressing different contingencies like Critical Illness, Permanent Disability Benefit, etc. There are riders available that waive your future premiums in case of death or disability of the proposer.

These riders come at a nominal cost. and can be availed of depending on the policy taken. These can only be taken at the beginning of the policy term.

Riders offered by Life Insurance are Accidental Death Benefit, Permanent Disability Benefit, Critical Illness Benefit, Term Benefit, Preferred Term Benefit, Life Guardian Benefit, and Accidental Disability Guardian Benefit etc.

The maturity values are product specific. Please refer to individual product pages for exact details.

Life Insurance offers a grace period of 30 days after the premium payment due date for paying the outstanding premium. If you fail to pay the premium on your policy within this grace period your policy will lapse. You can revive your lapsed policy by paying your outstanding premium and 6% handling charges. This facility is available for six months. However, you can still revive the policy within 5 years from the date of issue of policy. But if you are applying for revival of your policy in this period, then shall entail submission of proof of good health and your premiums will be recalculated.

However, if your policy has been in force (in existence with all premiums paid on time) for three years and after that you fail to pay the premium, then your policy will get serviced out of your balance in your Accumulation Account. Every year the amount in this Accumulation Account will be used to covering your life (mortality charges and other expenses) will be deducted from your accumulated fund. This will continue till this fund has sufficient balance after which your policy will be terminated.

1. Every year you will pay premium on your policy.
2. This premium will get credited to an Accumulation Account.
3. The amount required towards your life cover expenses and any other expense would be deducted from this Account.
4. The balance will be invested in sound financial securities (as per IRDA regulations) on your behalf.
5. The bonuses declared each year by the company would be added to the Accumulation Account. Thus, every year the value in your Accumulation Account will get compounded.
6. At the end of the policy tenure, you would receive the amount in the Accumulation Account or the sum assured, whichever is higher.