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5 Things About Life Insurance You Wish You Had Known Earlier

24-08-2022 |

We are all aware that life insurance is an important financial saving that secures the long-term financial future of the insured member and their family. However, when it comes to matters concerning money it is important to be prudent and make the right decisions so that you don’t regret your savings later in life.

Inadequate financial literacy and last-minute investments to save on taxes* result in thoughtless financial decisions that are later regrettable. Additionally, the perceived complexity behind savings and getting overwhelmed by different types of life insurance further complicate the web of making the right saving choices.

As life insurance plans protect your family against the possibility of your untimely demise, it is important to be aware of the factors that are associated with the cover before making the purchase.


5 Things You Wished You Knew Before saving in Life Insurance


Life insurance is an efficient component in your risk-management toolbox. However, the diverse options presented by life insurance companies in India can surprise a novice insurance seeker. To ease the matters, here are the five things that every insurance seeker must be aware of:-


1. Life Insurance is Cheaper When Purchased Early

Before determining the premium amount and the sum assured, insurance companies scrutinise the risks involved with providing insurance coverage for an insurance seeker. This is done by asking about your lifestyle, checking your medical history, asking whether or not you are a smoker, and finally, determining your age.

Age is an important component in your risk analysis because you are healthier when you are younger. This is why premiums for life plans are cheaper when you are in your 20s and 30s as compared to when you are in your 40s. The premium amount for an individual increases every year so the premium for the coverage you would receive for the same amount of the sum assured would be a lot cheaper in your 20s than it will be in your 30s.


2. Life Insurance is Not an Investment


Amongst the types of life insurance provided by insurance companies, several have an investment component involved. However, while the dual benefit of insurance with a saving is an enticing proposition, these are not optimal investment solutions.


The primary function of a life insurance term policy is to steady the financial standing of your loved ones which can get compromised in the event of your unfortunate and untimely demise. The death benefit helps the surviving beneficiaries pay for outstanding liabilities, loss of income, and address future financial planning.


Savings are essentially made for future wealth creation whereas life insurance aims to protect the insured member against the risk of their premature death. As the goals of the two financial instruments are different, it is recommended to not combine the two under a single umbrella plan.


3. There are Living Benefits of Life Insurance


While life insurance secures the financial future of your loved ones in your absence, it also has surviving benefits for the policyholder. It is easier to get a loan through life insurance to address your dreams such as buying a home.


Banks see insurance as a security for providing the loan as it assures them that the loan will be taken care of even if you were to pass away before its repayment. Moreover, whole life policies that provide financial protection for life commonly have a cash value feature upon maturity that is generally equal to the sum assured.


If the policyholder passes away while the policy is active, then the surviving beneficiaries receive the death benefit. Some of the best term life insurance plans come with an add-on wherein the premiums are returned upon policy maturity.


 

4. There are Tax* Benefits for Life Insurance Purchase


Saving on taxes* is a continuous endeavour by taxpayers across the nation. It might lighten their hearts to know that saving in life insurance can help them save on taxes*. Under Section 80C of the Indian Income Tax Act 1961, the premiums paid towards insurance policy are eligible for exemptions. However, there are certain conditions associated with claim deduction:-

  • For policies issued after 1st April 2012, the premium paid should not exceed 10% of the sum assured
  • For policies issued before 1 April 2012, the premium should not exceed 20% of the sum assured

In addition to this, tax* exemptions are also permitted under Section 10(10D). This section states that the maturity amount and the death benefit received are free from taxes* when:

  • The premium paid on the policy does not exceed 10% of the sum assured for policies issued after 1 April 2012
  • The premium paid on the policy does not exceed 20% of the sum assured for policies issued before 1 April 2012   


5. It is Important to Check Reliability of the Insurance Provider Before Purchase


With the growing number of life insurance companies in India, fraudulent practices are also on the rise – looting unaware customers. To prevent unpleasant surprises, it is imperative to check the credibility of the insurance provider.


Checking the claim settlement ratio is a good way to analyse the reliability of the insurance company and to ensure that you buy the apt  life insurance. Claim settlement ratio gauges the number of claims that the insurance company has settled in a financial year against those that they received.


Aside from the claim settlement ratio, it is also important to verify the financial strength of the insurance company to determine whether they can address the claims made by their clients.   



To Conclude


It is important to carefully analyse your purchase decisions before saving in term insurance. As there are different types of life insurance products offered by insurance providers, a potential insurance buyer needs to acquaint themselves with the benefits and conditions associated with each product and how these align with personal financial requirements.  


L&C/Advt/2022/Aug/1973

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Disclaimers

  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not guaranteed issuance plans, and they will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility for tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.