The insurance firm (insurer) and the individual enter into a legal arrangement known as insurance (insured). In this case, the insurance company agrees to compensate the insured for any losses incurred as a result of the covered contingency occurring. The contingency is the occurrence that results in a loss. It may be the policyholder’s death or the property being damaged or destroyed. It’s referred to as a contingency since the outcome of the occurrence is unknown. In exchange for the insurer’s commitment, the insured pays a premium.
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How does Insurance Work?
An insurance policy is nothing but a legally binding contract between the insured and the insurer. It specifies the criteria and situations under which the insurance company pays the nominee of the insured or the insured the said sum. It works as a means of protecting yourself and your family from any financial problems.
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A comparatively larger insurance policy, in general, requires a lower premium. This is because only a small section of insured people eventually make claims, the insurance firm accepts the risk of offering a high level of coverage for a low cost. Any individual can apply for insurance but it’s up to the insurance provider if they want to cover your risks or not. The company analyzes the risk involved with the application. If the company feels there is high-risk involved, then the company might refuse the application.
Common Types of Insurances in India
Life Insurance is one of the most popular insurance products in India. It is bought in order to provide financial assistance to your dependents in the happening of an event, i.e. the death of the insurer. It becomes very important if you are the sole bread-earner for your family. In the event that the policyholder dies within the policy’s term, the policyholder’s family gets financially reimbursed with the insured amount.
Health insurance is bought to cover the expenses of pricey medical procedures. Different insurance policies cover a variety of medical conditions and illnesses. You may purchase both disease-specific and general health insurance coverage. A health insurance policy’s premium generally covers treatment, hospitalisation, and pharmaceutical expenditures.
This insurance covers you in the event of any unfortunate happening, for example – accident. Some plans additionally cover damage to your automobile caused by natural disasters such as floods or earthquakes. It also covers if your car gets caught.
Child education insurance is similar to a life insurance policy that has been developed specifically as a savings tool. When your child reaches the age for higher education, education insurance would come in really handy to offer a lump sum amount of money (18 years and above). This money can then be utilised to cover the costs of your child’s further education. The kid is the life assured or the receiver of the funds under this insurance, whereas the parent/legal guardian is the policy owner.
We’ve all fantasised of having a home. House insurance assists in covering the cost of repairing your home in case of an accident, such as a fire, or other natural disasters or hazards. Other events covered by home insurance include lightning, earthquakes, and other natural disasters.
Insurance and its tax advantages?
Purchasing insurance also comes with its fair share of tax benefits.
- Section 80C – A tax deduction for up to 1.5 lakhs.
- Section 80D – A tax deduction of up to Rs. 25,000 in medical insurance + 25,000 for your parents.
- These claims must be submitted while electronically submitting income tax returns.
Benefits of Term Insurance and Life Insurance: Comparison
Financial security is linked with life insurance. Life insurance plans cover the financial loss incurred in the event of a premature death. Furthermore, the plans are created in such a way that they assist you in efficiently achieving your life goals. For example, a kid insurance plan can assist you in building a solid financial corpus for your child. Pension plans, on the other hand, provide a designated retirement fund and provide lifetime earnings. As a result, life insurance policies fit into every part of your life and provide financial stability.
Life insurance comes in a variety of forms that make up the many sorts of life insurance policies. Life insurance comes in a variety of forms that make up the many sorts of life insurance policies. Term insurance is frequently compared to other forms of life insurance policies among these options. Is the analogy, however, justified? Is term life insurance the same as other forms of life insurance?
No, it’s not. Term life insurance plans differ from other forms of life insurance policies in a number of ways. Let’s take a closer look at the differences between term and life insurance –
What is a Term Plan?
A term insurance plan is a form of life insurance that protects you against the danger of dying too soon. The insurance offers to pay a death benefit in the event that the insured dies within the policy’s term. Term insurance policies offer high coverage for affordable premiums, allowing you to obtain a large sum assured to fulfil your family’s financial needs in your absence.
What are some alternative options for life insurance?
Term insurance, among other things, is a form of life insurance plan. Life insurance policies exist in a variety of shapes and sizes, in addition to term insurance. The following are some of these variations:
- Plans that cover your entire life
- Assurance strategies for endowments
- Plans with a money back guarantee
- Plans for children
- Insurance policies that are tied to units
- Plans for retirement
Life Insurance vs. Term Insurance
Now that you have a fundamental understanding of both, let’s look at the differences between term and life insurance plans. The following parameters can be used to describe the differences between the two:
- Coverage Term insurance products only protect you in the event of premature death. In most term plans, the benefit is only paid if the insured passes away within the plan’s term. Maturity benefits are available in other forms of life insurance plans as well. These plans not only cover the danger of early death, but they also provide a reward if the insured lives to the end of the policy term. Term plans and other insurance plans are so very diverse in terms of coverage.
- Variants Term: The following four types of term insurance policies are available:
|Level Term Insurance Plan||A term plan is one in which the sum assured remains the same during the policy’s term.|
|Increasing Term Insurance Plan||A term plan is one in which the sum guaranteed grows throughout the course of the policy’s life.|
|Decreasing Term Insurance Plan||A term plan is one in which the sum guaranteed diminishes throughout the course of the policy’s term.|
|Return of Premium term Plan||If the insured lives until the policy’s maturity date, the premiums paid during the policy’s term are reimbursed.|
As a result, term plans are classified into several types according to the coverage they give. However, the aim of all versions is the same: financial security or income replacement.
Various life insurance versions, on the other hand, achieve different life goals. Money back plans give liquidity while endowment plans allow you to build wealth through assured returns. Kid plans provide a savings account for your child even if you are not there, whereas unit-linked plans provide investment returns. As a result, you can select several programmes based on your various life objectives.
3. Premium Term insurance only protects you against the danger of dying too soon. That is why their premiums are so low and cheap. You may easily get high-sum-assured levels at a reasonable price. Other life insurance plans provide a broader range of coverage by including a maturity benefit. As a result, premiums are greater than for term policies.
4. Duration of coverage: Long-term coverage is available with term plans, which can last up to 30 or 35 years. Other forms of life insurance plans, on the other hand, can be purchased for shorter periods of time, with terms ranging from 5 to 30 years.
5. Paid-up and surrender values: There are no paid-up or surrender values in term plans. If you stop paying your premiums, your plan will lapse, and if you do not reinstate it, your coverage will be cancelled. You will not get anything in exchange for the payments you have already paid if the coverage is cancelled. Other life insurance policies, on the other hand, provide you with some benefits even if your payments are no longer paid. Your insurance will become paid-up if you pay the premiums for a certain minimum number of years and then stop paying them. The sum promised on a paid-up insurance would be decreased, but the insurance would remain. You can also surrender the policy to discontinue it on your own terms. You’d get a surrender value if you surrendered.
6. Bonuses and other forms of additions: Under term plans, there are no bonuses or other forms of additions. The basic sum insured is paid in the event of death. Bonus additions, guaranteed additions, loyalty additions, and other forms of life insurance policies, such as endowment, money return, or kid plans, are available. These enhancements improve the policy’s advantages.
7. Flexibility Term plans are quite restrictive in that they have no paid-up or surrender value, and they do not provide any maturity benefits. On the other hand, life insurance plans are adaptable. A paid-up value and a surrender value are promised in traditional life insurance policy. You may even get policy loans through these programmes. Furthermore, ULIPs allow you to partly withdraw, swap, or pay additional premiums.
The similarities between Term Insurance and Life Insurance
The only thing that life insurance and term insurance plans have in common is their tax benefits. The premiums paid under both plans are deductible up to INR 1.5 lakhs under Section 80C. Furthermore, under Section 10 of the Internal Revenue Code, the death or maturity benefit paid is tax-free (10D).
Which one should you choose? Life Insurance or Term Insurance?
It is a mistake to pick one plan of the two. Life insurance and term insurance policies are both important. Everyone seeks financial stability and security against the potential of premature death, therefore a term insurance coverage is a requirement. As a result, everyone should purchase term insurance. Other life insurance policies, on the other hand, should target the following customers:
|Life Insurance: Types||Audience to target|
|Money-back Plan||Individuals with a relatively safe appetite who wish to build a guaranteed endowment but still want flexibility during the plan’s duration.|
|Endowment Plan||Individuals with a low-risk appetite who wish to build a secure financial future|
|Whole life Plan||Individuals searching for a long-term insurance policy|
|Child Plan||Parents who wish to build a secure fund for their child’s future.|
|Unit Linked Plan||Investors who are willing to take on a high level of risk in order to increase their wealth through market-linked returns.|
|Pension Plan||Individuals who desire to build a retirement fund and/or a stream of regular income once they retire.|
As a result, term insurance policies differ significantly from life insurance policies. You should be aware of the differences between term and life insurance before selecting the most appropriate plan for your requirements. Term insurance is a universal requirement that should not be overlooked. Assess your financial objective in the case of other forms of life insurance policies, and then pick a plan that matches and seeks to achieve it.
1. Is it possible to get both term and other types of life insurance?
Yes, you may purchase as many different types of life insurance policies as you like.
2. Will I receive a death benefit under both my term and money-back policies if I have both?
Yes, you would get a death benefit under both term and money back policies in the event of your death.
3. What is the maximum tax-related benefits that one can attain using insurance plans?
There is no limit to how many benefits you may claim tax exemption for. In your hands, any death or maturity benefit received from your life insurance policy would be totally tax-free.