Life is unpredictable, and securing the financial future of your loved ones is one of the most important responsibilities. Life insurance plans are essential tools that provide financial protection and peace of mind.
However, understanding the differences between these plans and choosing the right coverage can take time and effort. This article explores everything you need to know Life insurance plans To help you make an informed decision.
Permanent Life and Term Insurance: An Overview
Life insurance comes in different forms and can be divided into two main categories: permanent life insurance and whole life insurance.
Permanent life insurance
A permanent life insurance plan is a contract between the policyholder and the insurance company. They generally provide coverage for the entire life of the policyholder, as long as premiums are paid. Depending on the type of policy, policyholders may also receive vesting benefits. Some common types of permanent life insurance include whole life insurance and ULIPs (Unit Linked Insurance Plans).
6 main advantages of permanent life insurance
Let us take a look at the most important features of life insurance in India.
No expiration
Unlike term life insurance, permanent life insurance remains active throughout the policyholder’s life, providing lifetime protection.
Death benefit
On the death of the policyholder, the death benefit amount is paid as a lump sum to the nominees.
Accumulation of monetary value
Some types of permanent life insurance (such as whole life insurance) generate cash value over the term. The policyholder can borrow or withdraw from this resulting cash value.
Investment component
In ULIPs, a portion of the premium is invested in market-linked funds, such as equity, debt, etc. This helps the policy generate returns based on market performance.
Tax advantages
The amount received by beneficiaries as death benefit is generally tax-free as provided in Section 10(10d) of the Income Tax Act.
Estate planning
Estate planning is often associated with permanent life insurance. It can help policyholders leave an inheritance to their heirs or help pay estate taxes, ensuring an efficient transfer of wealth.
Term insurance
Term insurance is a financial instrument that provides life coverage for a certain period of time (known as the term of the policy). It is considered one of the most affordable and simplest forms of life insurance. It provides broad coverage at relatively low premiums compared to other life insurance policies. Some common types include level insurance, increasing term insurance, decreasing term insurance, return of premium period (ROP) insurance and convertible term insurance.
4 main features of term insurance
Let us take a look at the most important features of term insurance in India.
Legally binding agreement
A term insurance policy is an agreement between the insurance company and the policyholder.
Death benefits
Unlike a permanent life insurance policy that offers maturity benefits, term insurance only provides financial security to the nominees in the event of the death of the insured.
Tax advantages
Premiums paid for term plans are eligible for tax deduction under Section 80C up to INR 1.5 lakh. The death benefit paid to beneficiaries is usually tax deductible under Section 10(10D) of the Income Tax Act.
Flexible coverage options
Term insurance plans are very flexible. They allow policyholders to increase or decrease the sum insured, term of the policy, add valuable riders, etc., based on their changing needs or circumstances.
conclusion
Choosing the right policy — whether life or term insurance — is a critical decision that can shape your family’s financial future. While life insurance offers the dual protection and savings benefits, term insurance stands out because of its affordability and simplicity. By evaluating your financial goals, budget, and family needs, you can choose a policy that provides peace of mind and a secure future for your loved ones.
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