scorecardresearchAll you need to know about Life Insurance Covers

All you need to know about Life Insurance Covers

Updated: 10 May 2022, 02:14 PM IST

Losses are unavoidable in life, and the extent to which they affect our lives varies. By providing cash compensation for insured losses, insurance helps in reduction. There are many different forms of insurance, but there are a few that are more important than others.

A contract between an insurance policy holder (insured) and an insurance firm is known as life insurance.

A contract between an insurance policy holder (insured) and an insurance firm is known as life insurance.

Although human life can never be quantified, a monetary amount might be calculated based on potential income losses. As a result, the Sum Assured (or the sum promised to be repaid in the case of a loss) is considered as an ‘advantage' in terms of an insurance. Insurance policies pay out a certain sum of money if the policyholder faces an unexpected incident during the term of the insurance.

What is Life Insurance?

In legal terminology, a contract between an insurance policy holder (insured) and an insurance firm is known as life insurance. The insurer agrees to pay a predetermined quantity of money (also known as "Cover Amount"or "Sum Assured" ) upon the insured person's death or after a certain length of time under this contract.

How does life insurance work?

A death benefit and a premium are the two primary components of a life insurance policy. Let us understand these terms in detail:

Death benefit

The death benefit, also known as face value, is the amount of money guaranteed by the insurance company to the beneficiaries named in the policy after the insured passes away. For example, the insured may be a parent, and the beneficiaries could be their children. The insured will select the appropriate death benefit sum based on the projected future requirements of the beneficiaries.

Based on the company's underwriting standards relating to health, age, or any hazardous activities in which the prospective insured participates, the insurance company will assess if there is an insurable interest and if the prospective insured meets the requirements for coverage.


The money paid for insurance by the policyholder is known as premiums. If the policyholder pays the requisite premiums, the insurer must provide the death benefit upon the death of the insurer. The premiums are calculated in part by the insured's average lifespan considering the chances of the event that the insurer will have to provide the policy's death benefit .A portion of the premium is also used to cover the insurance company's operating costs.

Life insurance may provide peace of mind by ensuring that your bills and loved ones are taken care of financially in the case of your death. As a general guideline, after you become a parent, each adult in your household who earns a living should obtain life insurance coverage that will continue until the youngest kid graduates from high school. If you have substantial financial responsibilities, such as excessive credit card debt or a mortgage, you may be able to pay those liabilities with life insurance.

What are the important life insurance terms you should know?

Life insurance is a safety valve that ensures your family's financial security in the event of your death. It is, after all, an important element of financial planning.

The purchasers mostly face a challenge during this process i.e they must go through a bush of language that has been used by the insurance industry for decades. The complicated vocabulary and technical terms used in insurance policy contracts overwhelm the majority of consumers. An "accelerated death benefit," for example, may not seem attractive, but it is essential to be aware of such terminology in order to make an educated selection when purchasing an insurance.

Let us understand some basic life insurance terms in detail.


The policyholder is the person who purchases the life insurance policy and pays the premiums. He/she may or may not be the person whose life is covered under the policy.

Amount Assured

The Sum Assured is the sum guaranteed to the nominee in the event of the life assured's untimely death. In most situations, the decision to calculate the sum promised is based on the potential financial loss resulting from the death of the life assured.This amount is determined by the policyholder at the time of purchase.

Life Assured

The life assured is the person who is insured or protected. The nominee will get the insurance sum in the event of an unfortunate occurrence, such as the death of the Life Assured.

It's critical to know the distinction between a policyholder and a life assured. When a husband purchases an insurance policy for his children, for example, he is the policyholder and his children are the life assured.

Tenure of Policy

It is the amount of time that a life insurance policy will cover you for. The policy duration of life insurance plans varies depending on the kind of policy and the insurance company's terms and conditions.


The amount you pay to the insurer for life insurance and related services is known as the premium. It's the fixed fee you pay to keep your insurance policy active and enjoy the coverage's additional advantages.


The Nominee is the person named by the policyholder to receive life insurance payouts and other benefits in the event of a tragic occurrence. The nominee must be declared when the insurance is purchased. Children, spouses and parents of policyholders can be named as nominees if they are financially dependent on you right away.

Death benefit

It is the sum paid to the nominee in the event of the life assured's death during the policy's term. It should be understood that the phrases death benefit and sum guaranteed are not interchangeable. Because the death benefit, which can include the rider benefit, might be equal to or greater than the sum assured.

Grace period

The grace period is an extension provided by the insurance provider to the policyholder after the premium payment due date. The insurance's protective cover remains if the policyholder pays the overdue premium amount.

Lapsed Policy

Non-payment of premiums will result in the cancellation of an insurance. When the due premium is not paid even after the grace period, the policy will lapse. Some life insurance companies may allow a lapsed policy to be revived if the policyholder pays the due premiums.

Free Look period

If you do not agree with or are uncomfortable with the terms and conditions of your bought insurance, you have the option to return it within the time frame specified in the policy document. The free-look period is the term given to this period. After subtracting the proportionate risk premium, stamp duty costs, and, if applicable, the cost of a medical examination, the premium will be reimbursed.

Revival period

Your insurance will lapse if you do not pay your premium during the grace period. However, you have the option of reactivating your expired insurance if you want to keep it. However, when the grace period expires, the re-activation process must be performed within a certain amount of time. This is referred to as a revival period.

Maturity benefit

The sum paid to the policyholder at the end of the policy term is known as the maturity benefit.

Claim process

In the event that the life guaranteed passes away within the policy term, the nominee files a claim to collect the death benefit. The claim process is the term used for this procedure.


There are several things that a life insurance policy does not cover. The insurance provider will not pay any compensation if the claim is grounded on these exclusions.


Riders are optional perks that supplement your plan's coverage. There are extra riders that you may add to your policy to increase your financial security and safeguard yourself/your family against accidental disability or death.

Whether you're just commencing your search for an insurance or have already been approved for one, there are a few key phrases to understand while buying or researching life insurance online. Knowing these phrases and terminology for life insurance will assist you in making fair comparisons between choices and obtaining the coverage you require.

What are the different types of Life insurance policies?

In exchange for the premiums paid throughout the policyholder's lifetime, a life insurance policy ensures the insurer pays an amount of money to designated beneficiaries when the covered policyholder dies.

If you want to provide a sense of security for your loved ones, you should consider adding life insurance to your financial strategy. A life insurance policy's proceeds might be used to cover last costs, pay off debts, or cover day-to-day expenses. What are your needs and what do you want a policy to do for you may determine whether or not life insurance is a good investment.

It's critical to understand the many sorts of life insurance plans available before choosing whether or not they're a smart investment. Let us dig deeper and understand the different types of Life insurance policies.

Term Insurance Plan

Term insurance plans, as the name implies, are those that are acquired for a certain length of time, such as 10, 20, or 30 years. Because these plans do not have any cash value, they do not have any maturity advantages, thus they are less expensive than conventional insurance. Only when the event occurs does this policy become advantageous.

Term Insurance Plan with Premium Return

As the name suggests, this plan is an extension of term insurance that reimburses your premiums if you live until the end of the policy period. This plan is also referred to as Endowment Policy. The sole advantage that endowment policy has over the term insurance plan is that the former comes with the added advantage of a lump sum payment if the policyholder survives until the maturity date.

Unit Linked Insurance Plan

A ULIP is one of the forms of life insurance plans that meets both of these criteria.In addition to providing life insurance, these plans allow policyholders to accumulate wealth. The premium paid into this policy is split into two parts: one for life insurance and the other for wealth accumulation. This plan allows you to withdraw the portion of your money allocated into the wealth accumulation division.

Money Back Policy

The goal of purchasing an insurance policy in India for your loved ones might be to accumulate cash through time. However, most forms of life insurance do not allow for withdrawal of cash before the policy's term expires. It is here that a money back policy comes into play in resolving the liquidity issue.This insurance offers a variety of survival advantages that are distributed proportionally over the policy's duration.

Whole Life Insurance Policy

Unlike other plans that expire after a certain length of time, the whole life policy covers the insured for the rest of his or her life by providing survival benefits. The policyholder can withdraw a portion of the money or borrow a certain amount in this sort of insurance. A whole life insurance plan differs from other forms of life insurance in that it covers the insured for the rest of his or her life, up to the age of 100.

Child Insurance Plan

A child plan is a combination of investing and insurance that assists you in meeting your child's financial needs. A child insurance policy can support you in building wealth for your child's future requirements, such as school. You may begin investing in these schemes as soon as your child is born and it provides you with the option of investing your hard-earned money in a variety of funds based on your financial situation and objectives.

Annuity/ Retirement Plan

Retirement or annuity plans are insurance policies that provide financial stability and aid in the accumulation of wealth once you retire. The sum collected in the form of a premium is accumulated as assets under this policy and given to the policyholder in the form of income via annuity or lump payment, depending on the insured's preferences.If the person insured dies unexpectedly during the insurance term, the nominee receives the insurance benefits.

Even if you're buying life insurance solely for investment purposes, it's still a good idea to research around for the finest life insurance providers to guarantee you receive the greatest deal.

What are the benefits of life insurance policy?

Most individuals are aware of the most important advantages of obtaining life insurance i.e. If you die unexpectedly, your family gets money, and you get the peace of mind that they'll be able to go on without you. While those advantages apply to all types of life insurance, there are additional benefits that vary based on the type of policy and quantity of coverage you obtain.

Let us understand some basic benefits of life insurance policy in detail.

Financial security with risk coverage

Having life insurance gives you the greatest sense of security. This is because if someone passes away, they may rest assured that their family and loved ones will be financially secure. We all have financial obligations, but having enough life insurance guarantees that your bills and loved ones are financially protected in the case of your death.In exchange for the premium paid, insurance offers risk coverage to the policyholder’s family in the form of financial settlement.

Tax benefits and savings

Life insurance policies provide two tax benefits. The premiums paid are eligible for a tax deductible under Section 80C of the Income Tax Act. This implies that you may deduct up to 1.5 lakh in premiums from your gross income each year, decreasing your tax payment. The maturity insurance policies, on the other hand, may be completely tax-free. This tax advantage is provided under Section 10(10D) of the Income Tax Act.

Assistance in wealth creation

Some life insurance policies also provide you the opportunity to build income. Apart from providing life insurance, these plans reinvest your premiums in a variety of investment sectors to provide better risk-adjusted returns that outperform inflation and help you build your savings.

Financial backup in case of major health issues

Life insurance policies can safeguard you financially in the event of a serious sickness.

When a wide range of catastrophic health problems are diagnosed, critical illness insurance pays out a flat amount. This is a one-time payment based solely on the diagnosis. As a result, after receiving treatment, there is no need to file invoices or wait for claims. Critical illness insurance provides you with funds to pay for your treatment and to support your family while you are undergoing treatment. The claim money can be used in any way you like.

Provides loan facility

If you have life insurance, you have the option of taking out a policy loan if you are in dire need of cash. Depending on the policy conditions, the loan amount can be obtained as a proportion of the monetary value or sum insured under the policy.

All life insurance can provide you with financial assurance that your family will be financially secure in the event of your death. However, the more life insurance you possess, the more benefits it will offer to your family in the event of a claim.

It should go without saying that life insurance is a must-have. It's a risk-mitigation and protection tool that has to be acquired without hesitation. After all, it is a matter of a way of life that sustains a large number of people. As a result, one should understand the need for life insurance and sign up for it without delay.

What is Sum Assured in Life Insurance?

Sum assured is the value of the Insurance cover fixed at the amount of buying a Life Insurance Policy. In case of demise, the Sum Assured is the amount which is paid to the beneficiary.

The amount is fixed according to the income of the policy holder, and a maximum of 10 times of the income can be allowed as a Sum Assured. It is also considered as a financial security for the family of the policy holder in situations of sudden demise.

Sum Assured also has an impact on premium for example - if the amount fixed is higher then the premium is also costlier therefore, it is always advisable to fix the amount according to the financial needs.

Factors to be considered before selecting Sum Assured

Most of the people buy Life Insurance policy as a security for their loved ones, so that after their demise their loved ones are secured, while others consider Sum Assured as a mere ceremonial before buying the policy. In both cases, the amount has to be selected which requires a decent amount of research.

Let’s have a look at some factors can be kept in mind while selecting the amount -


Age without saying is the most important factor while deciding the Sum Assured. If you’re a young and healthy individual then the initial amount can be low and gradually as the time proceeds, the amount can be increased. But if you're a middle-age or above individual then the amount should be higher taking all the medical history etc in consideration.


According to statistics only 33.7% of the Indian population has been covered under Life Insurance policies till 2020. It clearly shows the low income population in the country. It is important for citizens to analyze the premium of the policy and monthly incomes so that both the amounts are compatible with one another. A balanced decision needs to be made that premium payments do not get missed and the monthly income of the families are not disturbed.


Lifestyle needs to be considered while deciding the amount. If you have a very stressful job then it’s suitable that you choose a high Sum Assured, while if an individual consumes alcohol or tobacco it is advisable to tell the insurer as these goods can cause problems at the time of the claim. But if you're a healthy person then the amount can gradually increase according to the needs of the policy holder.


There is no doubt that inflation is increasing with every year passing. Not many of us can afford the expenses in today’s world with the loss of the breadwinner in the family. Therefore, the Sum Assured needs to be fixed while considering every uncertainty possible.

What is a Life Insurance premium?

Being fluent in life insurance takes a while, but there is one phrase with which you should become somewhat familiar to i.e. premium. This term is significant since it determines how much you will pay to maintain your life insurance coverage.

Simply stated, "Premium" refers to a monetary payment. It's the sum of money you pay to your life insurance provider in return for protection. The payout (also known as a death benefit) is the amount of money paid to your beneficiaries by the life insurance company if you, the policy holder, passes away unexpectedly.

In the event that you are unable to pay your premiums, your family will no longer be covered by life insurance. That's why it's critical to acquire insurance with affordable premiums which can be substituted as installments for better understanding.

The premium is earnings for the insurance business once it has been received. In return the insurer is obligated to cover any claims made against the insurance. The termination of the insurance may occur if the individual or business fails to pay the premium.

Definition of Life Insurance premium

The term "insurance premium" refers to a certain sum that the insured person must pay on a regular basis to retain their insurance coverage, as determined by the insurance provider. An insurance company considers the type of coverage chosen, the possibility of a claim, the policyholder's lifestyle and health circumstances among other things, when determining the premium amount.

What factors determine a life insurance premium?

Let us understand the determinants that are taken into consideration while calculating Life Insurance premiums.

Type of policy selected

Whole life insurance policies contain a cash value component that can increase or decrease in value over time and can be utilised while you're alive. Hence, their rates are five to fifteen times more expensive than term life insurance premiums due to these additional characteristics. Term life insurance is significantly less expensive and, for most individuals, the best option.

Amount covered

The more coverage you have, the higher your rates will be. A 35-year-old female with no severe health issues, for example, can pay around 1500 Rs.per month for a 20-year, 3 crore term insurance, but 3000 Rs. per month for a 20-year, 6 crore coverage.

Age of the policyholder

The younger you are, the cheaper your insurance premiums will be. In contrast, the older you become, the higher your insurance rates will be. The cost of life insurance is greater for older applicants. Premiums rise by an average of 4.5-9% every year as you become older.

Duration of the policy

The cost of a term life insurance policy varies based on the length of the coverage. It can be explained as purchasing coverage for 30 years will be more expensive than purchasing coverage for 20 years because the longer the duration, the insurer is more likely to cover the death benefit. As a result, picking a term length that is not longer than your real requirements will save you money.

Health and hobbies

Health and hobbies of the policyholder is another key factor assessed while calculating the premium. Smoking and drinking are related to an increased risk of sickness, which may necessitate paying higher life insurance rates. As a result, adopting a healthier way of life may not only keep you safe in the long term, but it may also help you receive better insurance rates.

Actuaries are employed by insurance firms for the purpose of precise life analysis and premium computation. They are in charge of assessing the risks connected with a certain incident or claim, and the bigger the risk, the higher the insurance premium.

It can be said that the risk that a person might incur during his lifetime is transferred from the insured to the insurer under an insurance arrangement and premium is the amount charged by the insurer for accepting this risk.

What are riders in life insurance?

Individuals need financial security, and life insurance is one of the most essential tools that may help them achieve it. Anyone who is the sole breadwinner of the family and has family members depending on him immediately qualifies for a life insurance policy, the primary aim of which is to safeguard your loved ones financially in the event of your untimely death.

When it comes to life insurance, it is something that differs based on the demands of the individual. Different people have different financial conditions and demands, which influences their life insurance needs.

Considering that Mr. A has considerably more assets than Mr. B, the quantity of insurance Mr. A needs may be drastically different from what Mr. B requires. The add-on rider is one of the most significant features that may assist increase the value of a life insurance policy for the policyholder.

READ MORE: Here's why you must add a disability rider to your term insurance plan

Definition of a Rider

In basic terminology, Riders can be defined as simple coverage extensions that may be added to a life insurance policy's base coverage to expand its coverage. They are optional features that may be purchased and added to a standard life insurance policy which let you create a policy and, if you satisfy their requirements,in return may offer a variety of protection.

Importance of Riders in life insurance

Let us try to understand the importance and benefits of an add on rider in life insurance.

Allows policy customization

If you have a term life insurance policy that offers minimum insurance against the risk of injury or death, an add-on rider with the policy allows you to modify the policy. You can receive additional coverage against a possible danger that isn't covered by your policy by adding the proper rider.

Removes the need for a separate policy

Life insurance plans cover a variety of risks, including loss of income,permanent disability, temporary incapacity, accidental death, critical sickness and many more. However, you'll seldom come across a situation where a single insurance covers numerous risks. This is when the add-ons come in handy. You may add a rider to your basic plan to receive additional coverage without having to buy a separate policy.

Makes insurance more affordable

As previously noted, having an add-on rider eliminates the need to purchase a separate life insurance policy. As a consequence, you will not be required to pay additional payments for a new life insurance policy. When compared to the premiums payable for a fully functional life insurance plan, the rates for an add-on rider are substantially cheaper. As a result, having an add-on saves you a significant amount of money, which is always a beneficial move.

Types of riders in life insurance

There are four basic types of riders available as an add on in life insurance.

Term riders

Term riders are a type of insurance that provides extra risk coverage in the event of death. This can be added to a basic life insurance policy for a low cost add-on benefit. However, the rider can only be applied to non-linked plans at the start of the basic policy.

Rider for accidental death benefits

The accidental death benefit rider, as the name implies, offers an additional payout to the policyholder's family in the event of death due to an accident. This can also be added as a rider to a basic life insurance policy. If purchased separately, it provides complete coverage as well as the option of disability coverage. If the policyholder has a separate policy, he or she is also entitled for a living benefit in the event of a partial or permanent disability that results in a loss of income.

Premium rider waiver

If the policyholder dies or becomes partly or permanently handicapped during the policy term and has chosen the waiver of premium rider, the policyholder's premium will be waived. The policyholder's family or surviving parent does not have to pay any further premiums to keep the insurance active. The insurance company pays the remaining payments on the policyholder's behalf, and the policy remains in effect until the conclusion of the policy term.

Rider for critical illness

This coverage protects policyholders against serious critical illnesses that aren't often covered by health insurance. This includes advantages for the heart and arteries, cancer, a key organ, the brain, and the neurological system. Payments might also be given in a lump amount to the policyholder on the first incidence of any severe sickness. The extra rider is cancelled when CI benefits are paid, but the base policy remains in effect.

It is up to the insured person to decide whether or not to purchase an insurance rider, and they should evaluate the cost against their specific needs. Although riders may appear tempting, they come at a cost — in addition to the policy's premiums. Another thing to keep in mind is that a rider may duplicate coverage, so go over the main insurance contract thoroughly.

How much life insurance cover do I need?

Enrolling in a life insurance plan serves the primary aim of ensuring that your family is financially secure in the event of your untimely death. It can assist your loved ones manage their day-to-day living expenditures by covering funeral and burial costs, paying off outstanding debts, and other essential needs.

However, what constitutes appropriate coverage is a relevant topic to pose here. 1 crore is a typical term life insurance cover amount. To be honest, an eight-figure figure is plenty big. However, the majority of us buy it without doing any simple maths. Let us understand the factors to be kept in mind while assessing your coverage needs to make sure that your policy is adequate for you.

What factors should be considered while deciding the amount of life insurance cover?

Your current annual earnings

Your current annual earning is the first important element to consider when determining your life insurance policy. While people mostly tend to get life insurance that is approximately 10 times of their yearly income, severe inflation and growing living costs now need you to choose a policy that is equal to at least 20 times your annual income.

If your annual income is Rs. 10 lakhs, it would be wise to purchase a life insurance policy with a cover of Rs. 2 crore. This sum will assist your family in meeting their annual costs and maintaining their level of living while you are away.

Your future and current debts or liabilities

Another important aspect to consider while picking the sum assured of your life insurance plan is our financial responsibilities, such as existing loans and debts. Your family may struggle to manage EMIs and home expenditures if you die young, especially if you were the sole breadwinner. As a result, be sure the coverage is adequate to cover all of your current responsibilities.

Your financial goals

Your financial objectives, of course, play a significant influence in determining your insurance coverage. The purpose of insurance is to assist your family in maintaining the lifestyle you planned for them in the event of your untimely death. This involves achieving financial objectives such as your children's schooling and marriage, both of which need a significant sum of money. As a result, your life insurance policy must account for these potential liabilities in the future while also taking inflation into account.

Your present age

The age at which you purchase your coverage is also significant, as various life phases have distinct needs. Your age and health will influence not only how much insurance you should get, but also how long you should keep it. As you become older, you'll probably need less insurance since you'll have less debt and fewer dependents to maintain.

Duration you wish to remain insured

It is critical to pick the policy duration carefully while deciding on the coverage. It's possible that the life insurance coverage that ends when you turn 50 isn't all that good. Preferably, you should purchase when you are young and for the longest possible period of time.

To be precise you can add up your financial commitments and deduct your liquid assets, such as savings accounts, to figure out how much life insurance you need.

Most people can get by with renewable term insurance, but you should assess your specific position. If you opt to get insurance through an agent, make a list of what you'll need ahead of time to prevent being caught with insufficient coverage or overpaying for coverage you don't require. To make the best decision, you must educate yourself, just like you do when investing.

Estimating how often life insurance you require is critical to preserving your dear ones' long-term financial wellbeing. You could be certain that your loved ones will be taken care of if you are no longer able to sustain them by acquiring enough coverage and the proper policy term length.

How to file a life insurance claim?

We consider a number of variables while purchasing a life insurance policy, including the sum assured, the cost, the policy coverage ,exclusions and so on and so forth. It's also crucial to understand how to file a claim for life insurance in case the worst happens. The nominee's or family members' knowledge of the claim-filing process is also important.

One of the most essential services that an insurance company may give to its clients is claim settlement. Insurance companies have a legal responsibility to resolve disputes as quickly as possible. You will be required to fill out a claim form and get in touch with the financial advisor who sold you the insurance.

To substantiate your claim, provide your insurer with all required papers, such as an original death certificate and a policy bond. The majority of claims are paid by sending a check within 7 days of receiving the documentation. You will be told in writing if your insurer is unable to deal with all or part of your claim.

There are two possible situations for submitting a claim: death and the end of the life insurance policy's maturity period. Under all circumstances, the general process for filing insurance claims are listed below.

Claim notification

To allow the insurance provider to begin processing the claim, the claimant must send the written notification as soon as feasible. The claim notification should include basic information such as the insured's name, policy number, the date of death, the location of death,the cause of death, and the name of the person filing the claim. A claim intimation/notification form can also be obtained through the claimant's insurance agent or from the insurance company's nearest local branch office . Alternatively, some insurance providers allow you to download the form directly from their website.

Documents required

A claimant's statement,death certificate, original policy document, police FIR, certificate and documents from the treating doctor/hospital (for death due to disease),and post mortem report (for death due to accident), , and an advance discharge form will be required for claim processing. Insurance companies may also seek extra papers based on the amount at risk, the reason of death, and the length of the policy.

Submission of documents

It is critical that the claimant presents comprehensive paperwork as soon as feasible in order for the claim to be processed as quickly as possible. A life insurer will be unable to make a decision until all of the prerequisites have been met. The life insurance can make a judgement on the claim once all required documents have been presented.

Claim settlement

According to rule 14 (2)(i) of the IRDA (Policyholder's Interest) Regulations, 2017, an insurer must pay a claim within 30 days after receiving all papers, including any clarification requested. The insurance company, on the other hand, might make it a habit to settle claims even sooner. If the claim requires further investigation, the insurer must finish its processes as soon as possible, but no later than 90 days after receiving the claim notification, and the claim must be resolved within 30 days.

In the long run, the death claim might be used to pay off any debts or other substantial financial obligations. It can also be observed how the claim settlement procedure might be completed entirely online. The nominee's first obligation is to notify the insurance company of the insured's death and begin the claim procedure as quickly as feasible. The claim procedure will be made easier if the action is taken quickly and submission of documents is completed correctly.

How to choose the right Insurance Policy/Cover?

The task to choose amongst the several forms of life insurance available can be a challenging one. It's because making the decision pushes you to consider the negative consequences that might occur at some point of your life.

It should be kept in mind that the most important forms of insurance policies are determined by your age and personal demands.The insurance policy you choose must be based on how much life insurance you require.

For example, if you want to secure your family's financial stability while you're away, you should acquire a term insurance policy after carefully analysing your financial demands and different insurance policy variables.The aspects to examine if you wish to support long-term goals in life will be different.

Let us discuss the major points to be kept in mind while choosing a life insurance policy.

Prefer online mode over offline while buying policies

Whether you acquire a term insurance plan online or offline will have a significant impact on your purchase. Purchasing insurance coverage online through numerous comparison websites is convenient and cost-effective. You may evaluate different plans based on pricing and other characteristics; there are no middlemen, and the policies are reasonably priced.

Furthermore, the selection is made in an unbiased manner; the goods are not hard-sold as they are in the case of engagement of insurance agents. Offline plans can turn out to be more expensive, and they are sold through insurance brokers, so the choice to buy is skewed.

Be clear about the preferred duration of policy

Preferably, the duration of the insurance policy should be determined by the age at which the individual wishes to retire. The policy tenure should be the difference between his projected retirement age and his present age. Also, because the premiums are low while you're young, it's preferable to get term insurance when you're young. The higher your age, the higher your premium.

Consider the consequences of inflation

An insurance of Rs. 60 lakh purchased now may not be sufficient to ensure their survival in ten years. Inflation raises the cost of goods, lowering the rupee's worth. After ten years, a 60 lakh will only be worth 38 lakh, assuming a 5% inflation rate. To address this issue, several insurers provide plans in which the coverage amount increases by 5-10% each year. The periodic rise in the sum guaranteed would assist in dealing with both income and inflation increases.

Reassess your insurance needs

When it comes to investing and creating a financial strategy, the golden rule is to evaluate your investments on a regular basis. Similarly, your insurance needs must be re-evaluated on a regular basis.

For example, the insurance you got when you were single may not be sufficient now that you are married and have added to your family. As a result, review your insurance needs on a regular basis to guarantee that your family is secured.

The life insurance industry has changed dramatically in the last 10 years or so, with insurers becoming more linked to their clients' current demands and offering more options. This implies that consumers have a wide range of choices. While this is definitely a benefit, selecting the proper products and the level of coverage you want has become much more complex. Hence, considering the above mentioned aspects can provide assistance in choosing the correct plan.

How to choose the right insurance company?

It's all about believing an insurer with your hard-earned money when it comes to picking an insurance provider. In a nation where there is no social security, the insurance company you pick is critical in protecting your financial future and that of your family. As a result, it is essential that you make an informed and cautious decision when selecting an insurance company.

Other considerations are equally as essential as pricing, if not more so when purchasing a long-term product such as life insurance. Depending on the sort of life insurance you choose, the best life insurance provider may fluctuate.

Let us discuss some basic points to be kept in consideration while choosing the insurance company.

Do not select a company only on the basis of initial price quotes

There's no denying that cost is a significant consideration when purchasing life insurance. However, if you choose a firm only on an initial price quotation, you may be disappointed. You may receive a final, higher price estimate once the policy has been completely underwritten, which means all of your personal and health details have been reviewed. Probably a lot more than you expected to pay.

Only life insurance companies with a strong financial position should be considered

When you get life insurance, you are entering into a long-term contract (the policy). You need a firm that can withstand the highs and lows of the economy and financial markets because a payment on your policy might be years away, particularly with permanent life insurance. Financial strength ratings are used to assess that quality, which is also known as claims paying capabilities.

Choosing the right company also depends on the type of life insurance you're purchasing

Permanent life insurance purchasers must examine more factors than term life insurance customers. Term life insurance may appear complicated at first sight, but it is a pretty straightforward policy.

You pick the amount of coverage you want and how long you want it to last.Buyers of permanent life insurance must negotiate a variety of assurances inside the product, comprehend how quickly (or slowly) the cash value will grow, and grasp the policy's internal costs. A business that gives a competitive term life insurance quotation may not offer a cash value policy with the best long-term value.

Research about the history of the company

Although an insurance company may advertise in spectacular ways, you must be a discriminating investor and look into how long the firm has been in operation. When it comes to picking an insurance provider, you should search for one with a proven track record.

Consider the claim settlement ratio, which can be found on the Indian insurance regulator's website, the Insurance Regulatory and Development Authority (IRDA), and insurer ratings, which can be found on the websites of the respective companies and the company's network and reach.

Referrals have a lot of influence

We are bombarded with marketing and promotional messages every day, which may be overwhelming. To learn about other people's experiences with insurance companies, talk to family, friends, and coworkers.

It may appear to be a lot to take in at first, and it is. That is why you should not do it on your own. Enlist the aid of a seasoned agent and be honest about your health issues from the outset. This will assist your agent in narrowing down the finest possible alternatives for you.

Solid financial stability, affordability, excellent ratings from financial and consumer institutions, and if the firm delivers features and services that will help you create your financial safety net are all things that every life insurance buyer should look for in a company.

What is the difference between life insurance and general insurance?

Insurance is a contract between an insurance provider and an individual or entity that aims to accord security and financial support to the buyer in times of crisis. There are myriad types of insurances that one can choose from. Let’s look into two broad categories of insurances- Life insurance & General insurance and learn the difference between them.

Life Insurance

A life insurance policy is an agreement in which the insurance company covers the life of the insured. If the policyholder dies during the term of the policy, the beneficiary, as nominated by the policyholder, will be offered monetary compensation. This insurance is usually bought to support the family of the deceased in the event of his/her premature demise.

General Insurance

General insurance is an insurance contract for a particular asset wherein the insurer compensates for any expense of loss/damage pertaining to that asset. The insurance provider is liable to cover the costs of the insured asset in case of an unfortunate event. Types of general insurance include car insurance, home insurance, travel insurance, health insurance, etc.

These policies differ on the following basis:

Cover: Life insurance covers the life risk of a person whereas general insurance covers non-life assets such as vehicles, houses, health among others.

Nature: General insurances work on the principle of indemnity i.e. compensation in the event of loss or damage. Life insurance policies are however considered a type of investment to safeguard the family of the insured. The compensation for life insurance is paid either on maturity or in the event of death.

Premium: The premium for life insurance policies is fixed and is based on the cover amount that the policyholder chooses. On the other hand, the premium for general insurance policies varies depending on the condition/value/depreciation of the asset. For example: In health insurance, the premium for an individual depends on his/her age, lifestyle habits, and various other factors.

Sum insured vs sum assured: Sum insured is the amount of money that is paid as reimbursement to the policyholder in the case of damage to the asset under general insurance. While in life insurance the sum that the company is potentially liable to pay to cover the claim is called sum assured. Sum assured is a fixed sum that is paid in total whereas the sum insured depends on the extent of the damage.

Beneficiary: The benefit of the policy in general insurance is enjoyed by the insured himself. In the case of life insurance, the benefit of the claim goes towards the family member nominated by the policyholder at the time of signing the contract.

Tenure: Life insurance policies are for a long term. On the contrary, general insurance contracts are short-term and can be extended as per the policyholder’s wish.

At what Age should I get Life Insurance?

Purchase of Life Insurance depends on the financial and family circumstance that varies from person to person. Generally, a person buys Life Insurance as they are the breadwinner of the family, or have debts which can continue after their demise as well, and obviously do not want their loved ones to suffer because of it.

Younger Age is Better

While talking about Life Insurance it is said, the younger you are while buying the policy, the better. As the policyholder is young, they can qualify for lower premiums. When the individual is older and has medical diseases, they might not also get qualified for the Insurance.

Ideal Age to buy Life Insurance

As far as Life Insurances are concerned, age and health of a person are the most important part. When an individual is young and has less or no medical problems, this considerably affects eligibility and premium costs. Therefore, the younger and healthier the person is, the cheaper the premium will be.

Experts say that an individual should buy a policy as soon as they have dependents which can be parents, children, spouses etc. The process of buying a policy shouldn’t be delayed after that because as much as you will delay the process the cost of premium will increase as the time passes.

As the Insurance companies might want you to undergo certain medical checkups before granting you the policy, therefore when you are younger it is a high possibility that you are healthier and have less or no medical problems which will result in a less premium as chances of the individual to ask for the claim is low.

For example, if you buy a Life Insurance at the age of 30 years and you do not indulge in smoking and the claim is let's suppose of 1 crore till age of 60 years then the premium the policyholder needs to pay is only 8,000 but if the same person buys the policy at the age of 35, the premium will be upto 11,000.

Even though Life Insurance also offers tax deductions of upto 1.5 Lakh paid against premium, under section 80C of the Income Tax Act. However, that shouldn’t be a reason for a policyholder to buy a Life Insurance as it is meant to cover your finances after the demise, for saving money and tax deduction an individual can indulge in other government operated schemes like Public Provident Fund (PPF).

People in the Age of 20s

When an individual is in their 20s, health problems and death seems quite a far off topic. But as life is uncertain, it is always beneficial to take Life Insurance in early 20s as individuals do not have much responsibility at the moment, and the premiums offered by the Insurance companies are on the lower side.

The premiums usually charged by young adults are between Rs. 1,400 - Rs. 1,750, which is fairly low when compared to other age groups. The main question arises, which Life Insurance to choose - Term Life Insurance or Permanent Life Insurance.

Term Life Insurance - As the name suggests Term Life Insurance provides coverage for a specific term. It should be noted that renewal of policies after 10-20 years is quite expensive, so term life insurance where rates get fixed is a considerably better option. A lot of insurance companies allow policyholders to convert their Term Life Insurance to Permanent Life Insurance, so the policyholder can do so, once they are capable of paying high premiums.

Permanent Life Insurance - The particular Life Insurance provides lifetime coverage to the policyholder, except when the individual stops paying the premium, in that case the policy lapse. The policy comes with cash value as well, which can serve as a savings for the policyholder in the long run.

As it is known that Life Insurance and its coverage depends upon various factors like drug use, medical history, age, lifestyle, income etc., so it is always better to get a policy as early in life as possible, as the coverage provided is good and the premiums rates for the same is lower.

What is the right amount of Life Insurance for me?

This is the most important question which arises in the mind of the individual before buying the policy. The answer to the query is very simple, the individual should look out for financial needs and wants, so that the amount thus received after their demise can be used by the family members efficiently. Deciding the correct amount for your financial needs is not actually a tedious task but requires you to keep in mind some factors.

But before understanding the factors, let’s glance on the meaning of a Term Life Insurance Policy.

Term Life Insurance Policy

Term Life Insurance as the name suggests is for a fixed tenure where the insured pays premium to the insurer for a fixed number of years and in return the insurer pays the sum assured to the family members or nominee in case of demise of the policyholder. Term Life Insurance doesn’t provide the amount at the maturity of the policy, while providing a huge amount of coverage in comparison to lower premium rates.

Factors Affecting the Right Amount of Life Insurance

Current Annual Income

Annual Income is the first factor to consider while deciding your Life Insurance coverage. 10 times the annual income is the thumb rule used while deciding the coverage, but considering the inflation rate, increase in standard of living it is ideal to have the coverage which is 20 times your annual income,

For example, if an individual has an income of 10 lakhs per annum, it would be a rational decision to opt for a cover that offers 2 crore. This amount will help the family in their daily expenses and to maintain their standard of living at the demise of their breadwinner.


Financial liabilities are a crucial part in deciding the Sum Assured for your Life Insurance plan. In case of sudden death, the coverage can help the family members to pay off these debts and have an undisturbed life. The coverage should always ensure that the existing liabilities of the policyholder are met.

Financial Goals

The whole point of the Life Insurance policy is to meet the financial needs of the family after the demise of the policyholder. The coverage should at least cover the most important expenses which includes children’s education and marriage as they some up to be a major expense in our Indian households. Therefore, the life coverage must include these expenses in the case of the deceased, while keeping the inflation in mind.


Age is an important aspect to be considered while deciding the coverage. Different ages have different responsibilities to adhere to and that is why your coverage should also be according to it.

Young individuals who are in the age of 25-35 should have higher coverage as currently they can pay higher premiums considering they don’t have many responsibilities and are currently in their youth. People in the age of 35-45 should have a slightly lower salary as most of the responsibilities get over by now and individuals above 45 should have much lower coverage amounts.

An average policyholder aged 25 years can avail a Rs. 2 Crore policy with 30-40 years policy term for an annual premium of Rs. 15,000 to Rs. 20,000 (this will vary from one plan to another). This is an assumed premium figure and may vary from insurer to insurer basis the product offered.

The above information is solely based on the current and previous trends and the individual is free to choose the coverage according to their needs and research.

If a person needs to buy Life Insurance, it is important to know what type and how much the individual requires. Not all types of Policy can go hand-in-hand with everybody; the most suitable one needs to be chosen with a decent amount of research and by looking for own financial needs and security. With technological advancement a policyholder can use online calculators which help the individuals to select the policy and the right coverage for them.

Different types of insurance policies are offered in the market for individuals with diverse demands. It is advisable to understand the terms and inclusions of a policy and select one to suit personal needs before sealing a deal.

Important Life Insurance terms who should know
First Published: 10 May 2022, 02:14 PM IST