Life insurance is a contract between an insurer and a policyholder in which the insurer guarantees payment of a death benefit to named beneficiaries upon the death of the insured. The insurance company promises a death benefit in consideration of the payment of premium by the insured.
One of the simplest and the most affordable forms of life insurance, a term plan provides death risk cover for a particular period. In case the life insured, succumbs to death during the entire period of the policy, the insurance company pays out the death benefit to the nominee. It is a pure risk cover plan that offers high coverage at low premiums
If some of your colleagues have opted for Rs. 1 Crore cover, should you opt for the same amount too? Though there isn't any specific formula to figure out what should be the right value of your cover, many analysts offer some basic guidelines to be used as a rule of thumb
AGE BRACKET | COVER |
---|---|
25 TO 35 YEARS | 15-18 times the current annual income, after considering the debts/outstanding loans |
35 TO 45 YEARS | 10-15 times the current annual income, after considering the debts/outstanding loans |
45 TO 55 YEARS | 5-8 times the current annual income, after considering the debts/outstanding loans |
While this is only a generic method, you can also find some detailed methodologies to figure out the right value of your cover.
Life insurance premium is calculated through a process known as underwriting. The process employs the use of many statistical and mathematical calculations around the details of the person to be insured. Some of the major factors considered while calculating premium are –
Life Stage | Term Insurance Plan variants to be considered |
Young and unmarried | Term plan with a onetime lump sum payout |
Married with no children | Term plan with a regular monthly income |
Married with young children | Term plan with a lump sum payout and an increasing monthly income |
Parents with children in high school | Term plan with a lump sum payout and an increasing monthly income |
Nearing retirement | Term plan with a life cover and an increasing monthly income |
We recommend one should ideally have a term life cover till retirement because mostly people do not have dependents after retirement. Also, longer life cover increases premium. In case you have some loans or liabilities which will continue even after your retirement. You may choose your life cover accordingly. Eg: If your current age is 30 and you expect to retire at the age of 60, you should opt for a term life cover of 30 years.
Therefore, Ideal Policy Term = Your Expected Retirement Age – Your Current Age
Or
Your Expected Age to attain Zero Liability – Your Current Age?
With ICICI Pru iProtect Smart, along with tax benefits under section 80C for premium, you can save tax under section 80D if you opt for critical illness benefit option. Death benefit is also tax free under section 10(10D).
Enhanced protection for Life stage change
You can increase your life cover in case you get married or if there is a birth/ legal adoption for 1st and 2nd child without any medicals.
This type of life insurance provides coverage throughout the policyholder’s life, provided the policy is in force. While such life insurance policies also contain a cash value element that increases with time, one can withdraw the cash value or take a loan against the same, as per their convenience. Apart from that, in case of the policyholder’s untimely demise, before the loan is paid back, the death benefits paid to the beneficiaries will be reduced.
Best known for: Life coverage for whole life.
Benefit of Whole Life Plan: Lifelong protection to the insured and an opportunity to leave behind a legacy for heirs.
Another important life insurance plan, in a money back policy, a percentage of the sum assured is paid back to the policyholder at periodic intervals as survival benefit. If a policyholder continues to live beyond the term, then she will receive the remaining part of the corpus along with the accrued bonus at the end of the policy term.
However, in case an unfortunate event occurs before the full-term of the policy gets over, the beneficiaries will receive the entire sum assured regardless of the number of installments paid put. While it can be little expensive, a money back policy paves the way for a person to plan the main course of his life with a sum that is expected at regular intervals. Long-term fixed goals such as children’s higher education or their marriage can be executed in a much better fashion with the help of this policy.
Best known for: Short-term investment product to meet short-term financial goals.
Benefit of Money Back Plan: Short-term financial planning and an opportunity to earn returns on maturity.
As the name suggests, this segment of life insurance is curated for children. A child plan helps to build a corpus for a child’s future growth. Needless to say it even ensures a child’s education and even marriage thereafter. Most child plans in India provides annual installments or one-time payout after 18 years.
In case of an unfortunate incident, like when an insured parent passes away during the policy term, the company makes an immediate payment. Some child plans waive off future premiums on death of the life insured and the policy continues till its maturity.
Best known for: Building funds for your child’s future.
Benefit of Child Plan: Helps in fulfilling your child’s dream.
Also referred to as annuity plan, a retirement plan protects policyholders from the risk of outliving their income. Under this plan, a policyholder’s contribution, in terms of premiums is converted into regular periodic payments after one retires.
Somewhat similar to a term insurance policy, a retirement plan covers a policyholder’s loss of income. Since in most cases, private sector employees are not entitled to pension, an annuity plan comes in handy that provides regular income in the form of pension to the policyholder.
Best known for: Long-term savings and retirement planning.
Benefit of Retirement Plan: Helps in building corpus for retirement.
It is never too early or late to start thinking about retirement plans – the sooner, the better. Whether you are salaried or entrepreneurial, there is a slew of pension plans you can choose from as listed below.
SL No. | Plan Type | In Detail |
---|---|---|
1 | Deferred Annuity | Systematic premium or one lump sum premium over the tenure Pension begins after completing the term No taxation (unless you withdraw the corpus) |
2 | Immediate Annuity | Only lumpsum investment allowed Pension begins immediately after investment Income Tax exempts tax on the premiums The nominee can claim the pension or the corpus after the passing of policyholder |
4 | With Cover Pension Plan | Comes with a ‘cover’ policy – policyholder’s dependents are entitled to a lump sum after he/she expires The insurance amount is not large a most of the premium goes towards building the corpus |
5 | Life Annuity | Pension paid till death ‘With spouse’ option – spouse continues to receive after the policyholder’s demise |
6 | National Pension Scheme (NPS) | Launched and managed by the central government Your money will be distributed in equity and debt markets as your preference. Withdraw 60% when you retire, and the rest should be used to buy the annuity The tax levied on the 20% of the corpus you withdraw upon maturity |
7 | Pension Funds | Better returns once it matures Regulated by the government body, Pension Fund Regulatory & Development Authority (PFRDA) Currently, 6 fund houses in India are authorized to offer pension funds. Example, SBI |
8 | Guaranteed Period Annuity Plan | Annuity disbursed for specific terms like 5 to 20 years. |
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