You can make elaborate plans for different financial goals like planning for your child’s education, buying a house, etc. but an unfortunate incidence can put a full stop to your plans.
The risk of death is unavoidable. If it occurs prematurely it causes a financial loss especially if the breadwinner of the family dies. You, therefore, need a plan in place to protect against the financial loss caused by premature death. This is where a life insurance policy becomes relevant.
Life insurance – what it means?
Life insurance is an insurance contract on human life. It primarily covers the risk of premature death although there are plans which cover the risk of living too long as well. When you buy a life insurance plan, you are essentially buying financial security for your loved ones so that if something untoward happens to you, your family would be financially taken care of.
Types of life insurance plans
Variety is the spice of life goes an old saying. Life insurance plans also fulfil this saying. They come in different variants to provide you a solution for your different financial goals. Here’s a look at the different types of life insurance policies that you can find –
| Types of life insurance plans | Brief description | Benefits payable | Goal fulfilled |
| Term life insurance plan | It is a pure protection plan which covers the risk of premature death. In case of death during the policy tenure, the policy pays the sum assured | Death benefit.
Premiums paid are refunded in return of premium term plans. |
Income replacement in case of premature death of breadwinner |
| Whole life plan | A protection oriented plan which runs lifelong, i.e. till 99 or 100 years of age | Death benefit.
Some plans are savings oriented plans wherein a maturity benefit might be paid on survival till maturity |
Income replacement in case of premature death |
| Endowment plan | A savings oriented life insurance plan which provides a guaranteed benefit on maturity or death | Death benefit or maturity benefit. Bonus is also paid in some plans | Creation of a secured corpus through long term savings |
| Money back plan | A savings oriented life insurance plan which pays periodic benefits called money backs during the policy tenure | Death benefit or maturity benefit. Bonus is paid under these plans | Creation of a secured corpus through long term savings plus liquidity through regular money backs |
| Child plans | Life insurance plans specifically designed to protect the financial future of the child. The plan has a premium waiver benefit which waives the premiums if the parent dies but the plan runs undisturbed | Death benefit or maturity benefit | Planning for the child’s future even in the absence of the parent |
| Unit linked insurance plans | Investment oriented life insurance plans which earn market-linked investment returns on the premiums invested. | Death benefit or maturity benefit. Partial withdrawals are also allowed during the policy tenure | Wealth maximization through market-linked returns |
| Pension plans | Retirement oriented life insurance plans which help you create a retirement corpus and/or receive lifelong incomes in the form of annuities | Death benefit or maturity benefit in deferred annuity plans. Annuity payments in immediate annuity plans | Creation of a retirement corpus |
Life insurance taxation
Life insurance policies allow you to save taxes. Here are the different types of tax benefits which can be availed through life insurance policies –
Premiums paid for a life insurance policy, except for a pension plan, qualify for deduction under Section 80C. Such premiums can be deducted as a tax-free expense from your taxable income up to a limit of INR 1.5 lakhs.
If you buy a pension plan, the premium paid for the plan would be allowed as a deduction from your taxable income under Section 80CCC. The limit of deduction available is INR 1.5 lakhs which includes the deduction limit under Section 80C.
If you have invested in a deferred annuity plan and you withdraw 1/3rd of the accumulated corpus when the plan matures, such a withdrawal is called commutation. The amount which you commute, i.e. 1/3rd of the corpus, is treated as a tax-free income in your hands under Section 10 (10A).
Any type of maturity benefit, death benefit, bonus earned and/or partial withdrawal benefit (in case of ULIPs) is a tax-free income in your hands. Tax exemption is allowed on the benefits received from a life insurance policy under Section 10 (10D).
When you are thinking of buying a life insurance policy for yourself, understand the different types of plans available and choose the most suitable one. Also understand the tax benefits available so that you can reduce your taxes by investing in suitable life insurance policies.