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In recent times, the interest in life insurance products has grown manifold. As the need for insurance increases, doubts and queries also increase. It is important to conduct proper research before one decides on which life insurance cover to buy. To help you with this, we have gathered a list of frequently asked questions (FAQs) on life insurance and provided answers here.
1. What is life insurance?
Life insurance is an agreement between a policyholder and an insurance company. This agreement states that upon the death of an insurer, the insurance company is bound to pay a lump sum amount, which is pre-decided in most cases, to the designated beneficiary of the policy buyer. However, it is a two-way process. In exchange for a sum assured, the insured/policy buyer promises to pay a specified sum of money to the company in the form of premium payments that can be one time, monthly, quaterly yearly for most life insurance plans.
After that, either the policy buyer gets the sum on the policy term’s completion, or the designated beneficiary receives the money after the death of an insurance buyer.
2. Why should I invest in life insurance?
Investing in life insurance is a personal choice that depends on numerous factors. An endowment insurance plan can offer you a range of benefits. One of the reasons life insurance can be a good investment is that it helps you cover your personal loans and mortgage.
Besides, it helps your family maintain a decent quality of life when the resources available are scarce. In addition, the premium paid on an endowment plan is also eligible for a tax* deduction of up to ₹ 1, 50,000 as per Section 80C.
3. How is life insurance different from other insurance (Such as general, health
insurance etc) plans?
There are two kinds of term insurance policies you could choose from. However, making the right choice is only possible when you can differentiate between the insurance plans available.
While an endowment insurance policy ensures guaranteed1 returns (stated monetary benefits) to the beneficiary, a general insurance plan covers any or every risk that goes beyond the life-risk bracket.
Further, an endowment plan can be considered an investment, but a general insurance policy is primarily an indemnity contract rather than an investment, as there is no savings factor.
4. Is life insurance worth buying?
Each individual has different goals. This kind of insurance provides your dependents with an income replacement scheme, especially when you are the sole provider of your family. In addition, your peace of mind remains undisturbed, knowing that there are guaranteed1 returns on premium payment.
Therefore, you can choose from a host of different endowment insurance plans according to your needs, with each endowment plan emphasizing guaranteed1 returns for several aspects of your life.
Tata AIA Life Insurance is one such reliable provider if you are looking for a good term plan.
5. What are the different types of life insurance?
Fortunately, the choices for investing in life insurance policies are not limited. In India, there are eight different types of life insurance policies one can choose from that offer guaranteed1 returns.
These are term life insurance, whole life insurance, endowment life insurance policy, money-back insurance policy, savings plan, investment insurance plans, retirement insurance plans, ULIP life insurance plans, and child insurance policy.
6. How will I know which is the right plan for me?
It is not difficult to select the right type of endowment plan. Consider a few points when looking for plans. These include setting your goals and predicting expenses you might incur in the future. This provides maximum financial stability, including income insurance to your family. Study the plans offered by different insurance companies to make an informed decision.
7. What is not covered by life insurance?
While death due to various causes is covered by life insurance policies, some causes are excluded from endowment insurance. This means your beneficiary will not receive the guaranteed1 returns.
The claim made by the policy buyer is rejected if death occurs due to self-inflicted injuries, STDs, and/or the beneficiary murders the insured. The cases mentioned here indicate a complete rejection of the claim. Further, if the insured party commits suicide, the beneficiary is subjected to various restrictions.
8. Is life insurance expensive?
To secure your life against financial losses, no cost is too high. It is important that you compare different term life insurance plans and choose the best according to your needs.
Apart from this, it also depends on the policyholder’s age. If you are young, the premiums will cost you less than an aged person.
9. What questions do they ask when buying a life insurance policy?
When buying a life insurance policy, you can expect questions about the following topics.
Prescription and over-the-counter medications taken.
Previous or other scheduled surgeries.
Family medical history (including all the lifestyle diseases).
Factual answers to tobacco and alcohol use.
Occupation (current and previous work history).
Driving record (includes traffic violations, DUIs, and speeding tickets).
Besides, some companies also require medical tests during which the paramedical is likely to check your blood pressure and pulse rate, get a urine sample, and draw out a blood sample.
10. Do I have to pay taxes on money received from a life insurance policy?
Generally, the monetary amount received by the beneficiary is not considered taxable* income. Therefore, this exempts beneficiaries from paying taxes* on the money received. However, there are exceptions in this situation too. If the death benefit is dispensed to an estate, the owners of that particular estate are required to pay estate taxes* on the assured sum.
Next, if the insured person chooses to hold the premium with the company for some time after his/her/their death, the beneficiary is liable to pay taxes* on the interest generated in the stipulated period.
A complication arises if the policyholder decides to transfer the ownership of his policy to another member before death. In this case, the sum paid to the beneficiary named in your policy will be considered a taxable* income to that beneficiary. It is always advisable to contact tax professionals before initiating any step and carefully reading all the policy documents.
These answers are based on empirical research and reliable data. We hope you have found suitable and relevant solutions to your questions.
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*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 on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you
1Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry
IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER.
THE LINKED INSURANCE PRODUCT DO NOT OFFER ANY LIQUIDITY DURING THE FIRST FIVE YEARS OF THE CONTRACT. THE POLICY HOLDER WILL NOT BE ABLE TO SURRENDER/WITHDRAW THE MONIES INVESTED IN LINKED INSURANCE PRODUCTS COMPLETELY OR PARTIALLY TILL THE END OF THE FIFTH YEAR.
Past performance is not indicative of future performance.
All investments made by the Company are subject to market risks. The Company does not guarantee any assured returns. The investment income and price may go down as well as up depending on several factors influencing the market.
Please make your own independent decision after consulting your financial or other professional advisor
Insurance cover is available under the product.
The products are underwritten by Tata AIA Life Insurance Company Ltd.
The plans are not a guaranteed issuance plan and it will be subject to Company’s underwriting and acceptance.
For more details on risk factors, terms and conditions please read 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.