By Samina Patel
You can’t always predict the future, and ensuring financial security through life insurance is a sound idea, says Samina Patel.
The entry of private insurance companies has increased mass awareness about this sector. The new players are offering various flexible and customised products tailored to meet specific client needs. In addition to the traditional products like term plans and endowment plans, the new private players have introduced single-premium products, investment-linked products and retirement products, along with various flexible riders as add-ons.
WHY LIFE INSURANCE? Life insurance is an essential part of financial planning. The reason most people buy life insurance is to replace income that would be lost with the death of an income earner. The premature death of the income earner of the family could result in a drastic reduction in his family’s standard of living. The cash provided by life insurance can also help ensure that the dependents are not burdened with any significant debt left behind by the deceased.
Life insurance proceeds are tax-free and provide the much-needed financial security to the family in the event of a tragedy.
TYPES OF POLICIES You must buy a policy that fits your needs depending on the stage of life you are at — single, married, married with children/dependents, etc.
The first step is to decide how much insurance you need, how much you can afford to pay as premia and the kind of policy you want.
Regardless of how fancy the policy title sounds, all life insurance policies contain benefits derived from one or more of the three basic kinds of insurance. These are endowment, term and whole life.
Under an endowment plan, the specified sum assured is paid to the nominee or beneficiary of the policy holder, if he dies within the duration of the policy, or to the holder, on surviving the term.

Term insurance is death protection for a term of one or more years. Under term assurance, the sum assured is payable only if death occurs during the specified, pre-determined term.
If the policy holder does not die, the total amount of the premium paid stands forfeited. No survival benefits are provided. Some insurance companies also offer term insurance policies that are renewable for one or more additional terms even if your health has changed.
Each time you renew the policy for a new term, the premium will be higher. Some term insurance policies are also convertible — which means that before the end of the conversion period (before the policy comes to an end), you may trade the term policy for a whole life or endowment policy even if you are not in good health. Such a policy is offered by Tata AIG and Max New York Life.
However, the premia for the new policy will be higher than what you have been paying for the term insurance. Whole life insurance provides for the payment of the face value of the policy upon the death of the insured, regardless of when it may occur. LIC, Tata AIG, Max New York Life and Birla Sun Life are among those offering whole life insurance.
Amounts paid out of your taxable income towards your life insurance premia are eligible for tax benefits under section 88 of the IT Act, subject to certain limits.
* Under section 10(10D), the maturity value including the bonus received on a life insurance policy (except annuities) is fully exempt from tax.
* Under section 80 CC, the premia paid under a pension policy qualify for exemption from tax up to Rs 10,000.
The Private Side