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Features of Life Insurance

A life insurance is a financial tool with various benefits. The primary feature of a life insurance is to provide a financial safety net for your family in case of your early demise. If you survive the policy term, the maturity benefits you get can be utilised to fulfil your long-term financial goals. The corpus created also makes you financially independent on your retirement. The multiple benefits of life insurance policies make them a must-have in your financial planning. Read on to understand the features of life insurance and its importance at various life stages.

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Features of Life Insurance in India

Features of Life Insurance
August 08, 2024

Table of Content

 

What are the Features of a Life Insurance Policy?

Before you invest in life insurance, you should understand the features of life insurance. Given below are some of the important life insurance features:

  • Premium Payment

    • Premium is one of the key features of life insurance. It is the amount you need to pay the insurance company to buy a life insurance plan. You can either make a lump sum payment or opt for flexible payments. It can be monthly, quarterly, half-yearly, or yearly. The factors determining the premium are the sum assured, tenure, riders, and other aspects mentioned in the plan you propose to buy.

  • Policy Term

    • The policy term is the duration for which the insurer provides the life cover, and the life insurance plan is active. You should choose a term that aligns with your long-term financial goals. Investing early in life gives you the advantage of a longer-term for an affordable premium.

  • Tax Benefits

    • One of the important features of life insurance and must-note benefits of Life Insurance are the tax benefits. These ultimately reduce your income tax burden. You get tax benefits on life insurance under various sections of the Income Tax Act 1961*. They are:

    Section 80C: The premiums paid for life insurance policies of self, spouse, and children are eligible for deduction from your taxable income up to ₹ 1.50 lacs under section 80C

    Section 10(10D): The insurance payouts you receive are exempt under Section 10(10D) subject to conditions under the Income Tax Act 1961.

    Section 80CCC: The premiums paid towards retirement/pension policies are eligible for tax benefits under Section 80CCC.

  • Claim settlement ratio

    • Claim settlement ratio is one of the crucial characteristics of life insurance. It is the procedure involved in providing the death benefit to the nominee on the untimely death of the policyholder. A seamless settlement provides timely financial support for the family. While purchasing the life insurance plan you should ensure that the insurer you choose has a claim settlement record of over 90% as per the IRDA report.

  • Nominee

    • A nominee is the person who receives the sum assured as specified in the insurance policy on the untimely demise of the policyholder. If you’re wondering what is a nominee in insurance, it refers to the individual you designate—such as your parents, spouse, or children—to receive the proceeds. Insurance companies also provide the option to change/ update the nominee any number of times during the policy term.

  • Sum Assured

    • A sum assured is the required amount a nominee receives in case of sudden demise of the policyholder during the policy tenure, according to the terms and conditions of the plan. Make sure to choose the sum assured carefully, as it is one of the most important features of life insurance. Consider the financial preferences of your loved ones along with their existing liabilities while choosing the sum assured amount.

  • Insured

    • The insured is an individual who avails life coverage from an insurance company under a life insurance plan. Upon the sudden demise of an insured individual, the nominee/beneficiary receives the desired amount as the death benefit.

  • Grace Period

    • A grace period is the tenure for policyholders to pay their premium amount after the due date has passed. However, no penalty is charged for the delay. The grace period varies from one insurer to another, ranging between 15 days to 30 days. Every policyholder must pay the premium amount within the grace period to keep the policy in force.

Benefits of Buying a Life Insurance Policy

The features of life insurance are one aspect to consider before buying a policy. The benefits of a life insurance policy are equally important. Benefits life insurance is available with the following benefits:

  • Financial Security

    • The main purpose of investing in a term insurance and life insurance plan is to provide financial security for your family. In case of any eventuality, the insurer will pay the nominee/beneficiary a predetermined amount. The payout can be utilized to fulfill long-term goals, pay off debts, manage monthly expenses, etc. Term insurance is a type of life insurance that provides a lump-sum coverage amount to the nominee if something unfortunate happens to the policyholder.

  • Investment Feature

    • This feature of life insurance is available in plans like ULIPs (Unit Linked Insurance Plans). Opt for this plan If you require both protection and savings in life insurance. A part of the premium paid provides life cover, and the remaining is invested in market-linked assets of your choice that help your money grow and create wealth for your future goals.

  • Add-on Benefits

    • The treatment for critical illnesses like heart disease, renal failure, stroke, etc, can dig a hole in your pocket. If you need comprehensive life insurance, you opt for add-on benefits. Riders provide coverage for life-threatening diseases specified in the policy, permanent/partial disability, accidental death benefits, etc., and enhance the scope of the policy.

  • Secure Retirement

    • To have a peaceful retired life, you should be financially independent. Investing in a life insurance plan provides financial security for your family in your absence, as well as helps create a corpus for your retired life. Retirement plans are life insurance policy types that provide long-term financial stability for a stress-free retired life.

  • Loan Option

    • A cheap loan facility is one of the benefits of life insurance plans. You can use your life insurance policy to get a quick loan against it. There are many well-known insurance companies providing life insurance policies at competitive rates.

    Only certain types of life insurance policies, such as money back plans and endowment plans, allow this type of loan. Considering the provisions of the policy, you are eligible to borrow a certain percentage of the policy's surrender value as a loan.

  • Building Wealth and Investment Components

    • Several life insurance policies provide wealth benefits to policyholders. In this kind of life insurance plan, you can deposit premiums in different funds considering your risk appetite. These kinds of life insurance plans are recognised as wealth builder investments.

    While some policies (like endowment plans) have a fixed sum savings component, others (like ULIP) have an investment component that invests in market-linked assets. If you start with any plan, make sure to pay regularly, as missing out on any payment might lead to losing out on the benefits of the plan.

Importance of Having a Life Insurance Policy

The following explains the importance of having a life insurance policy:

  • Financial Protection For Your Family

    • Financial protection is one of the features of life insurance that will take care of your family’s needs in your absence. A life insurance plan with maximum life insurance coverage benefits can take care of their essential and emergency needs and compensate for the loss of income. Plans like whole life insurance provide life cover even up to 99 years. The death benefit from these plans will take care of your family’s financial future.

  • Income Replacement

    • Income replacement is crucial for your family to manage recurring expenses, provide for children’s education, etc., in the event of your early demise. This is one of the major features of life insurance. The life insurance plan provides death benefits to the nominee in the form of regular income by way of monthly payouts. Some types of life insurance allow customisation of death benefits. A portion of the payout is in lump sum and a regular income stream is created with the remaining.

  • Debt Settlement

    • The sudden demise of the policyholder can disrupt the finances of a family. Even more, if you leave behind huge debts like mortgage loans, car loans, credit card dues, etc. The lump sum payout from a life insurance policy will enable them to pay off the debts and ease the financial burden.

  • Achieving Financial Goal

    • The life insurance savings component creates wealth for achieving financial goals. Plans like ULIPs have both insurance and savings components. By purchasing these plans, you can fulfil both long-term and short-term goals like children’s education, owning your dream home, buying a car, creating a retirement corpus, etc.

  • Retirement Planning

    • The features of life insurance include retirement planning. Some specific plans, like pension plans, are ideal for retirement planning. Invest in these plans during your career days to be financially stable and have a worry-free retirement.

  • Riders

    • Riders are also among the life insurance policy features that customise the plans with add-on benefits like converge for terminal illnesses like cancer, heart disease, stroke, permanent/partial disability, or accidental death benefits.

Things to Consider Before Buying a Life Insurance Policy

  • Financial Goals

    • If you are willing to provide financial protection for your family and child, consider their financial goals to determine the insurance coverage needed. First and foremost, look into their present household expenses and consider the following:

    a) Financial goals of your family

    b) Your household’s fixed obligations– kid's school fees, groceries, electricity costs, medical bills, etc., on a monthly basis

    c) Your household needs for the future – home renovation, modifications, and repairs, children’s higher education and marriage

    d) Financial needs of your family – life insurance for your spouse, comprehensive insurance coverage

    e) Household expenses and lifestyle changes

    Thus, choose a life coverage that will be large enough to safeguard your family’s needs. Today’s life insurance plans let you choose the one providing comprehensive coverage at challenging stages of life.

  • Investment Time Frame

    • Once you set your financial goals, consider the investment horizon, i.e., the tenure you must continue investing to reach your desired goals. Thus, you can choose the right policy tenure. For example, if you want to build up an educational fund now for your one-year-old child, go for a policy tenure of 15 to 20 years.

  • Tolerance for Risk

    • Risk tolerance is an important factor to consider while making insurance-related decisions. It reflects the ability of an individual to accept potential risks associated with insurance policies.

    Thus, make sure to choose an insurance policy aligning with your financial goals, comfort, and long-term objectives. Assessing your risk tolerance will allow you to choose the right coverage with suitable premium payments. However, policyholders with high-risk tolerance go for more aggressive investment options with high returns but greater volatility.

  • Amount Needed

    • While purchasing a life insurance policy, look into the coverage amount and select a plan only if it meets your financial goals and objectives. The amount should be adequate for safeguarding your family during your absence but should not be so large that you cannot afford the premiums.

    Considering this scenario, experts usually recommend purchasing a policy coverage that is about 10 to 15 times your annual income. However, for accurate estimation, you should use an online life insurance calculator.

    Opting for a high amount assures you the protection of your family members without any financial difficulty. This helps them to meet their desired life goals even in your absence.

  • Benefit Structure

    • Have a clear understanding of the benefit structure provided by your chosen policy. For instance, know about the maturity benefit, death benefit, guaranteed returns, bonus, money-back benefit, etc., which might be offered by the policy. Go through the policy documents carefully before making a purchase.

  • What’s Covered and What’s Not

    • Lastly, take into consideration the inclusions and exclusions of your chosen life insurance plan. This will help you know about the claims your chosen policy will pay and the ones it will not. Considering these factors, choose the most suitable policy as per your coverage needs.

How to Choose the Right Life Insurance Plan?

  • Evaluate Your Needs

    • By evaluating your needs, you can figure out which life insurance plan is right for you. Make sure to consult a trusted financial advisor to discuss your financial needs to reach an informed decision making and avail the benefits of life insurance.

    For example, if you are in search of a life insurance plan that will provide you with regular income over a prolonged period, ask your financial advisor to help you choose a plan. Many life insurance policies will offer you guaranteed long-term income for extended periods, say up to 50 years or so.

  • Research Carefully

    • After you have determined your financial needs, start researching the options available in the market. Choose a product and go through its brochure, which is available on the insurer's website. This will let you familiarise yourself with the features of the life insurance plan.

    While researching policies, try to find the best value by comparing the coverage amount offered against the premium amount requested. Furthermore, look into the policy tenure, riders available and exclusions, as well as the insurer's reputation and claim settlement ratio.

  • Compare Various Plans

    • After conducting research, you must have shortlisted a few plans that you consider worth buying. Make a thorough comparison of the plans and choose the one you consider worth buying. Also, it is recommended that you purchase your preferred policy online. This is because it will let you purchase the policy directly from the insurer with a hassle-free and convenient experience and zero commissions.

  • Get Your Policy

    • After you finalise a policy, fill out the application form and submit all necessary documents, be it online or offline. Opt for your desired date and frequency of premium payments. Upon successful submission of the application form, the insurance provider will thoroughly review your form and ask for additional information, if required.

  • Pay Your Premium

    • Determining the premium amount is one of the crucial factors for any insurance policy. This amount varies depending on several factors, such as lifestyle habits, age, riders, and, most importantly, your chosen policy.

    A policyholder can pay the premium amount annually, bi-annually, quarterly, or monthly, considering the policy insurer and the type of policy.

    Selecting the right life insurance plan with features that align with your financial goals and requirements is of utmost importance. Make sure to go through the fine print carefully, along with the plan's terms and conditions, before finalising your deal.

Conclusion

Life insurance is an essential financial tool that secures your family’s financial future. The varied features of life insurance like flexibility in premium payments, seamless claim settlements, add-on benefits, etc., can provide financial stability to your loved ones. A life insurance plan empowers your family to be self-reliant and financially independent even in your absence. A life cover bought early proves economical as the premium increases with age.

However, to achieve the purpose of the investment, life insurance policy management by upgrading the plan at various stages and regular premium payments is vital.

FAQs on Features of Life Insurance

Q. What are the four features of insurance?

A. The four features of life insurance policy are premium payment, policy term, claim settlement, and tax benefits.

Q. Can I purchase life insurance riders without buying a base policy?

A. No. You cannot purchase life insurance riders without buying a base policy. Riders are add-on benefits and among the life insurance features that enhance the coverage of the policy.

Q. How many riders can I add to my life insurance policy?

A. There is no restriction on the number of riders provided they are available in the base policy. The riders vary with the types of life insurance policies. 

Q. How to make the insurance claim?

A. To make the insurance claim, the claimant should submit a written intimation with basic details like policy number, name of the insured, date of death, place of death, cause of death, and name of the claimant for the insurance company to initiate the claim process. Subsequently, the claimant should have the claim form, death certificate, policy document, deeds of assignment/reassignment, legal evidence of title if the nomination is not done, and executed and witnessed discharge form. If the information and the documents submitted are accurate, the insurance company will process the claim.

Q. What is the primary feature of a life insurance policy?

A. The features of life insurance policy are varied. The primary feature is premium payment. Premium is the amount paid to purchase the plan. The premium can be a single payment or multiple payments made every month, every quarter, every half year, or every year. It depends on the tenure, sum assured, and the add-on benefits.

 

Q. Will I get a return at the time of maturity of my life insurance policy?

 

The benefits a policyholder receives upon the maturity of a life insurance policy after serving throughout the policy tenure are termed as maturity benefits. The maturity amount, however, varies from one policy to another. For example, there might be no maturity benefits with a pure term insurance plan, while ULIP might have some. 

 

Q. What are the advantages and disadvantages of life insurance?

 

The primary advantage of life insurance is that it offers financial protection to your family members with death benefits upon the sudden demise of a policyholder. However, disadvantages include high costs of premiums at older age and the possibility of not understanding the full benefits that a policy offers.

 

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Author Profile Written By:
Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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*Tax benefits are subject to conditions under Sections 80C, & Section 10(10D) and other provisions of the Income Tax Act, 1961. Tax Laws are subject to change from time to time.

#Provided we have received all the relevant and required documents and no further investigation is required. Claim settlement process would be completed within stipulated timelines once the claim request is approved.

In unit linked policies, the investment risk in the investment portfolio is borne by the policyholder. The Unit Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender/withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year.

Unit Linked Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. The name of the company, name of the brand and name of the contract does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your insurance agent or the intermediary or policy document of the insurer. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.

***Online Premium for Life Option for HDFC Life Click 2 Protect Super (UIN: 101N145V04), Male Life Assured, Non-Smoker, 20 years of age, Policy term of 25 years, Regular pay, Annual frequency, exclusive of taxes and levies as applicable. (Monthly Premium of 622/30=20.7).

**7% online discount available on 1st year premium only

~Tax benefits of ₹ 54,600 (₹ 46,800 u/s 80C & ₹ 7,800 u/s 80D) is calculated at highest tax slab rate of 30% on life insurance premium u/s 80C of ₹ 1,50,000 and health premium (Critical illness rider) u/s 80D of ₹ 25,000. Tax benefits are subject to conditions under section 80C, 80D, 10(10D) as per Income Tax Act, 1961. Please consult your tax advisor for more information.

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