Definition of Life Insurance

It is a comprehensive cover that safeguards your family's financial interests in the event of
your death or expiration of the maturity period. It as a contract between two parties - you
and the insurance company or insurer. This contract is made up of reciprocal promises, as
illustrated below:
 You enter into a contract to pay regular premiums for a pre-decided tenure.
 The insurer promises to pay a lump sum to the beneficiary if you pass away or the
tenure period ends.
A life insurance policy is a legally-binding document that safeguards your interests. You can
name one or more beneficiaries in your life insurance policy, and the insurer will award them
the appropriate sum in case of a tragic event.
Importance of Life Insurance
In India 10.4% of total deaths are unnatural deaths. These were caused due to accidents,
homicides and even medical errors. While modern healthcare has advanced to combat
various diseases and improve the overall age expectancy of humans, it still has a long way to
go.
In the face of these numbers, it is vital to stay secure and look out for the financial well-
being of your loved ones, especially if you are the sole earning member. Purchasing a life
insurance policy helps you avail of the following advantages:
 Helps build a retirement corpus if you choose insurance with a maturity period.
 Extended financial security for you and your family.
 Access to income tax deductions on premiums according to section 80C of the
Income Tax Act 1961.
 Tax-free payout in the case of death or maturation expiry.
Based on the type of life insurance policy you choose, the benefits may increase and help
you plan better long-term financial stability.
Types of Life Insurance Policies
Life insurance policies are divided into four categories, depending on their nature and
essentials.
1. Term Insurance Plans
Term insurance protects your family’s financial future if something were to happen to you.
Designed as a simple and affordable way to give financial cover, a term plan is a vital part of
financial planning for the primary wage earner in a family.
Term insurance is a pure protection plan and is not market-linked. Moreover, the premiums
for term insurance are lower as compared to any other life insurance product. The premiums
are also more affordable if you buy them early in life. Experts often suggest that term plan
should be a priority for you as soon as you start earning.
Term insurance can be used for various purposes. In the absence of an income, your family
can use the cover from the insurance to pay for their day to expenditure, education costs, or
wedding expenses. If you have any outstanding debts, such as home loan, car loan, etc., your
family can pay them off with the cover.
Some term plans also give you the option to add riders, like critical illness^ coverage
(providing a lump sum for the treatment of specified critical ailments) and accidental death
benefit+ (paid over and above the sum assured in the unfortunate event of death due to an
accident). These riders can provide you and your family with an extra layer of protection at a
nominal increase in the premium.
Let’s understand with an example. A 25-year-old Fatima wants ₹ 1 crore term insurance till
she turns 60. She buys ICICI Pru iProtect Smart Term Plan with an annual premium of ₹ 9225
for a premium paying term of 35 years and with the regular income payout option. She also
buys ₹ 50 lakhs accidental death cover (premium: ₹ 3540) and ₹ 50 lakhs critical illness cover
(premium: ₹ 7657). So, the total premium for this comprehensive package turns out to be
less than ₹ 63 a day or ₹ 20422 a year for Fatima, inclusive of all taxes.
2) ULIPs – Unit Linked Insurance Plans
A unit linked insurance plan (ULIP) is a combination of insurance and investment. A ULIP
provides life cover that offers financial protection for your loved ones. In addition to this, it
also gives you the potential to create wealth through market-linked returns from systematic
investments.
A ULIP offers you the opportunity to invest your money in different fund options, depending
on your risk appetite. ULIPs come with a 5-year lock-in period, and the money can be
invested in bonds, equities, hybrid funds, etc. If you are looking for safer options, bonds can
be a good choice. On the other hand, if you are open to more risk, hybrid funds and equities
have the potential to offer better returns.
Since each individual is different, ULIPs allow great flexibility for investment. Your risk
appetite and investment preferences are likely to change with age. ULIPs permit you to take
these factors into consideration and alter your investment strategy accordingly.
ULIPs also provide flexibility in terms of partial withdrawals and fund-switching. They offer
interesting benefits like loyalty additions and wealth boosters to help you generate more
wealth over time. Additionally, the maturity amount from ULIPs is tax-free* subject to
Section 10(10D) of the Income Tax Act of 1961.
Let’s understand with an example. Ritesh is a 30-year-old male who purchased the ICICI Pru
LifeTime Classic Plan with a policy term of 20 years. He decided to pay ₹ 5000 per month as
a premium for 20 years. The life cover for this plan was ₹ 3.6 lakhs. On maturity, Ritesh will
get returns according to the performance of the funds he had invested in. This implies that
the maturity benefit at a 4% return would be ₹ 9.05 lakhs and at an 8% return would be ₹
13.9 lakhs. In the case of Ritesh's unfortunate demise, his nominee will receive the death
benefit as a lump sum payout.
3) Endowment Insurance Plans
Endowment plans are ideal for people who want guaranteed returns along with the
protection of life insurance. An endowment plan is a life insurance policy that provides life
coverage along with an opportunity to save regularly. This enables you to receive a lump
sum amount on the maturity of the policy. In case of death during the policy term, your
nominee(s) also receives a death benefit.
Just like ULIPs, endowment plans are quite flexible too. You can choose a suitable method
and time frame to pay the premium. Endowment plans also give you a chance to benefit
from bonuses, that are paid additionally over and above the sum assured of your policy.
Lastly, the returns generated on maturity from an endowment plan are tax-free* subject to
Section 10(10D) of the Income Tax Act of 1961. The premiums paid can also be claimed as a
deduction under Section 80C* of the same Act.
Let’s understand with an example. Mohit, aged 35, buys ICICI Pru Savings Suraksha Plan for a
policy term of 20 years and a premium paying term of 10 years. He pays an annual premium
of ₹ 30,000 and has a sum assured of ₹ 3 lakh. At an 8% return, the maturity benefit would
be ₹ 7.21 lakhs. At a 4% return, his estimated maturity benefit, including guaranteed
additions, and terminal bonus, will be ₹ 4.47 lakhs.
Benefits of Different Life Insurance Policies
There is no one insurance policy that can be perfect for all individuals looking to get started.
However, each offers different benefits to help you understand the strengths of investing in
each type of life insurance.
Term Life Insurance Benefits
 Relatively lower premiums than other types, especially if you start early.
 No concept of risk since it only deals with death payouts.
 Option to add coverage for terminal diseases.
Whole Life Insurance Benefits
 Provides cover for your entire life and assures payouts to beneficiaries.
 Flexibility to acquire loans from the policy.
 Freedom to build supplemental retirement income.
Endowment Life Insurance Benefits
 Encourages regular savings to invoke discipline with disposable incomes.
 Caters to long-term investment goals.
  One of the few options that help in asset building while providing life cover.
Unit-Linked Insurance Plans Benefits
 An added layer of customization to diversify your investment portfolio.
 Option of partial withdrawal to withdraw some amount in case of emergencies.
 Chance to achieve market-linked growth without directly entering the stock market.

Post office life insurance policies

1) Postal Life Insurance
It is a government-sponsored insurance program provided by India Post.
Established in 1884, it is one of the oldest insurance schemes in India, offering
a range of insurance products to the public. In 1894, it also expanded its
scope to offer coverage to female employees of the erstwhile P&T (Posts and
Telegraph) department. This was at a time when life insurance coverage by
any other company was not extended to women. Today, the coverage
expands to a wider demographic outside of postal employees. The insurance
plan provides life coverage with various options for saving and investment,
catering to diverse financial needs.
Key features of this policy.
1) Government-Backed: PLI is supported by the Government of India, ensuring a
high level of security and reliability.
2) Range of Policies: It offers various policies, including endowment plans, whole life
plans, and term insurance plans.
3) Affordable Premiums: The premiums are generally lower compared to many
other life insurance policies.
Postal Life insurance offers a range of benefits designed to suit various needs.
 Financial Security
PLI provides a safety net for policyholders and their families, ensuring
financial stability in case of unforeseen events. With life insurance coverage,
families can be safeguarded against loss of income due to the policyholder’s
untimely demise.
 Investment Opportunities
PLI not only offers life coverage but also serves as a savings instrument. The
guaranteed returns and bonuses make it a viable option for long-term
financial planning.
 Tax Benefits**
Policyholders can avail of tax deductions under Section 80C of the Income Tax
Act on premiums paid. Additionally, the maturity proceeds are generally
exempt from tax under Section 10(10D).
 Loan Facility
 Some PLI policies allow policyholders to take loans against the policy's
surrender value, providing financial assistance during emergencies.
 Flexibility
PLI offers various plans with different coverage amounts and tenures,
allowing individuals to choose a life insurance plan best fitting their financial
goals and needs.

2) Rural Postal Life Insurance (RPLI) came into being as a sequel to the
recommendations of the Official Committee for Reforms in the Insurance
Sector (Malhotra Committee). The Committee had observed in 1993 that only
22% of the insurable population in this country had been insured; life
insurance funds accounted for only 10% of the gross household savings. The
prime objective of the scheme is to provide insurance cover to the rural
public in general and to benefit weaker sections and women workers of rural
areas in particular and also to spread insurance awareness among the rural
population.
The scheme shall cover all persons , male or female , who permanently reside
in rural areas and are ordinarily residents in India to the exclusion of
foreigners and non resident Indians provided they have attained majority.
RPLI offers the following six types of policies:
• Whole Life Assurance (Gram Suraksha)
• Endowment Assurance (Gram Santosh)
• Convertible Whole Life Assurance (Gram Suvidha)
• Anticipated Endowment Assurance (Gram Sumangal)
• 10 Year RPLI (Gram Priya)
• Children Policy (Bal Jeevan Bima)
Salient Features of Rural PLI policies
1. Whole Life Assurance (Gram Suraksha) This is a scheme where the assured
amount with accrued bonus is payable to the insured either on attaining the
age of 80 years, or to his/her legal representatives or assignees on death of
the insured, whichever occurs earlier, provided the policy is in force on the
date of claim.
• Minimum & Maximum age at entry: 19-55 years
• Minimum Sum Assured ₹ 10,000; Maximum ₹ 10 lac
• Loan facility after 4 years
2) Endowment Assurance (Gram Santosh) Under this scheme the proponent is
given an assurance to the extent of the sum assured and accrued bonus till
he/she attains the pre- determined age of maturity i.e 35,40,45,50,55,58 & 60
years of age.
• In case of death of insurant, assignee, nominee or legal heir is paid full
amount of sum assured with accrued bonus
• Minimum & maximum age at entry: 19-55 years
• Minimum sum assured ₹ 10,000 ,Maximum ₹ 10 lac
• Loan facility after 3 years
3) Convertible Whole Life Assurance (Gram Suvidha) A Whole Life Assurance
Policy with the added feature of an option to convert to Endowment
Assurance Policy at the end of five years of taking policy.
• Assurance to the extent of sum assured with accrued bonus till attainment
of maturity age
• In case of death, assignee, nominee or legal heir paid full amount of sum
assured with accrued bonus
• Minimum age & Maximum age at entry: 19-45 years
• Minimum sum assured ₹ 10,000; Maximum ₹ 10 lac
• Loan facility after 4 years
4) Anticipated Endowment Assurance (Gram Sumangal) It is a Money Back Policy
with maximum sum assured of ₹ 10 lacs, best suited to those who need
periodical returns. Survival benefits are paid to the insurant periodically. Such
payments will not be taken into consideration in the event of unexpected
death of the insurant. In such cases, full sum assured with accrued bonus is
payable to the assignee, nominee of legal heir.
• Policy term: 15 years and 20 years
• Minimum age 19 years; maximum age at entry 40 years for 20 years’ term
policy & 45 years for 15 years’ term policy
5) 10 Years Rural PLI (Gram Priya) It is a short term money back scheme for Rural
populace only
• Insurant is given life cover to the extent of Sum Assured for 10 years.
• Survival benefits are paid after 4 years- 20% after 7 years- 20%, and after 10
years – 60% with accrued bonus
• Minimum & maximum age at entry 20 – 45 years
• Minimum sum assured ₹ 10,000, maximum 10 lacs
• No interest is charged upto one year as arrears of premia in case of natural
calamities like flood, drought, earthquake, cyclone etc.
6) Children Policy (Bal Jeevan Bima) The salient features of this scheme are as
under:
• The scheme provides life insurance cover to children of policy holders.
• Maximum two children of policy holder (parent) are eligible
• Children between 5- 20 years of age are eligible
• Maximum sum assured ₹ 1 lac or equal to the sum assured of the parent,
whichever is less
• Policy holder(parent) should not be over 45 years of age.
• No premium to be paid on the Children Policy, on the death of policy holder
(parent). Full sum assured and bonus accrued shall be paid on completion of
term
• No medical examination of child necessary. However, child should be
healthy and risk shall start from day of acceptance of proposal