FAQs related to Life Insurance

What is life insurance?

Life insurance is a contract that happens between insured and insurer where they both agree on the policy benefits given to the nominee in case of demise of the policyholder.

Why life insurance is useful?

A Life insurance cover is a mandate to ensure the financial stability of your family, in case you are not able to do many earnings due to an illness or accident. Procuring coverage ensures that your family meet all the expenses and sustain a standard lifestyle even when you are not around.

Is it necessary to have life insurance?

Purchasing a life insurance policy is a smart investment decision especially when you have dependents such as parents, spouses, and children. Life insurance is a sense of financial security for your family. There are several benefits associated with the life insurance policy which include the flexibility of adding riders for greater coverage or withdrawing part of the accumulated corpus to meet expenses such as meeting the expenses of a child’s education or wedding.

How can one decide on the amount of Life Insurance cover I need?

The maturity benefits are one of the main factors based on which premium of the policy term needs to be decided. This amount consists of several factors such as spending habits, income expenses, and debt obligations. It is always recommended that your insurance policy should have coverage that is approximately 8-10 times your annual income.

How much life insurance cost?

The insurance cost is based on the policy chosen. Also, factors like premium amount, age, and coverage influence the insurance cost. The insurance cost comprises of mortality charges, investment fees, and administrative charges. To understand the cost, it is a must to read the policy document.

Are different options available to pay the premium?

The insurers provide several options for premium payment. You can choose according to your convenience. Options are annual, semi-annual, quarterly, or monthly. In some policies, there is an option of one time-premium payment.

What are the consequences of making delays in premium payment?

A grace period of 30 days is available from the premium due date. If you will not pay within this period, in that case, the policy becomes defunct and all benefits are lost. You need to pay the revival premium when you want to restart the coverage.

How Life insurance is calculated?

One of the most important questions is term insurance and what is the difference between other forms of insurance policies. The former is a pure life cover and it offers only death benefits to your nominee, it has no maturity benefits. If you are looking for higher coverage, it is an affordable and convenient way to do so.

Am I not able to claim tax benefits if I stop paying premiums on my life insurance or pension policies, right?

If you stop making premium payments, then it will result in discontinuation of the policy. In that case, you cannot claim any tax benefits. If you stop making premiums after 2 years from the date of commencement of your policy, in that case, the tax will not be deducted on the premium paid in the year when your policy ends. The amount of tax deducted on the premium paid in the preceding year is taxable in the year when the policy terminates.

What about with a Unit Linked Insurance Plan (ULIP). Can I claim tax benefits if I discontinue my ULIP policy?

When you opted for Unit Linked Insurance Plan, in that case,  you are not entitled to receive any tax benefits on stopping paying premiums before 5 years from the date of commencement of your policy.

Should my spouse have life insurance too?

There are many families which prefer to have coverage of both husband and wife. There are many financial pressures on a family after the demise of either parent. Beyond the obvious final expenses, the financial strain on a family can be significant, even if the deceased spouse is not working anywhere.

So the surviving  spouse or domestic partner may need to take time off work or change jobs to spend more time with the children. Therefore, your financial plan should include life insurance for both spouses/parents.

What tax benefits one can avail of from medical insurance premiums?

In calculating your (individual or HUF) total income, any sum paid by you, other than in cash, out of your income that is chargeable to tax to effect or to keep in force insurance for your health or the health of your spouse or children and to effect or to keep in force an insurance on the health of your parent or parents up to Rs. 15,000 for each person mentioned in (i) and (ii) in the previous year and in case the person is a senior citizen up to Rs. 20,000 for each person mentioned in (i) and (ii) in the previous year shall be allowed a deduction.

Can I claim tax benefit on the interest on a loan taken against an insurance policy for the purchase or construction of a house?

Interest on loans taken against an insurance policy is allowed as a deduction from income chargeable under the head “Income from house property” provided the amount of loan is used by the policyholder to acquire, to construct, to re-construct, to repair or to renew any property.

What are the Tax Benefits in case I opt for a Pension Plan?

You can claim tax benefits for a Pension Plan as per Section 80CCC if you have paid premiums. You will receive a pension from a fund referred to in Section 10(23AB). You will be able to get a deduction of up to Rs. 100,000 on your total annual income.

What happens when my life insurance policy matures?

When your policy matures you will receive the accumulated amount. This amount will include the total of all your premiums paid, plus any bonuses you have received on the part of your premium that has been invested by the insurance company on your behalf (for eg, ULIPs). The amount you receive will be quite substantial because the premiums you pay will accumulate and get compounded every year until the maturity of your policy.

Will I have to pay tax on my maturity benefit?

No, you will have to pay no tax on the maturity proceeds of a life insurance policy. In fact, under a pension plan you can even withdraw up to one-third of the total maturity amount in cash and that too will be tax-free. All this is if you have paid all your premiums and you have not let your policy lapse.

Can I get life insurance if I am a smoker or use tobacco?

Yes but you should in mind that smoker is required to pay high premium rates as compared to a non-smoker. However, some life insurance companies will not charge extra if you only use chewing tobacco or smoke cigars occasionally which is subjected to your medical test.

Can I  buy life insurance during the COVID-19 pandemic?

Yes, you can buy a life insurance plan anytime, from the comfort of your home. The issuance of the policy will be subject to medical tests and underwriting. 

Does life insurance cover deaths from COVID-19?

Life insurance also pays out in the event of death from COVID 19 also. May be Life insurance company plans to change the guidelines for future applicants but for already existing applicants they cannot alter insurance policy guidelines and deny your beneficiary a payout if you die from the coronavirus. However, an insurer may reject any life insurance claim if the policyholder submitted an inaccurate life insurance application or not paying premiums.