Why Life Insurance is Important

Life insurance is a critical component of financial planning, especially for individuals with dependents. It ensures financial security for your family in the event of your untimely demise. Chartered Accountants should advise clients to incorporate life insurance into their estate and tax plans.

• Provides income replacement for dependents
• Covers liabilities like loans, mortgages, and EMIs
• Ensures children’s education and spouse’s future needs
• Serves as a tax-saving investment under 80C
• Useful in estate and succession planning

Types of Life Insurance Policies

There are various types of life insurance products tailored to different financial goals and life stages. Here's a breakdown:

Term Insurance

Pure risk cover with no maturity benefit. Highest coverage for lowest premium. Ideal for income protection.

Whole Life Insurance

Coverage continues for life (usually up to 99 years). Offers maturity benefits along with life cover.

Endowment Plan

Combines insurance with savings. A lump sum is paid on maturity or death. Lower returns but guaranteed payout.

Unit Linked Insurance Plans (ULIPs)

Investment-cum-insurance product. Part of the premium is invested in equity/debt. Market-linked returns with tax benefits.

Child Plans

Designed to fund future education or marriage of children. Offers payouts at key milestones.

Retirement/Pension Plans

Focuses on creating a retirement corpus. Provides annuity or lump sum after retirement age.

Tax Benefits under Section 80C & 10(10D)

Life insurance provides tax-saving opportunities under the Income Tax Act:

• Section 80C: Premiums paid are eligible for deduction up to ₹1.5 lakh per financial year.
• Section 10(10D): Maturity proceeds are tax-free if:
  • Premium is less than 10% of sum assured (for policies after April 1, 2012)
  • Sum assured is at least 10x the premium
  • Policyholder survives the policy term
• HUFs and NRIs are also eligible for these deductions.

How Much Insurance Do You Need?

The ideal life insurance cover should be sufficient to:

• Pay off existing liabilities
• Replace lost income for the next 15–20 years
• Cover children's higher education and spouse’s future needs

Rule of Thumb: Aim for 10–15 times your annual income. Use Human Life Value (HLV) or Need-Based Analysis methods for accurate estimation.

Example: For someone earning ₹10L annually, a cover of ₹1.5 crore is ideal.

Top Life Insurance Providers in India

• LIC of India – Oldest and most trusted brand with wide product variety
• HDFC Life – Excellent online term plans and ULIPs
• ICICI Prudential – Known for flexible term and wealth plans
• Max Life Insurance – High claim settlement ratio and customer service
• Tata AIA Life – Competitive pricing and high sum assured options
• Aditya Birla Sun Life – Comprehensive ULIP and child plan offerings

Always consider Claim Settlement Ratio (CSR) and Solvency Ratio before selecting an insurer.

Claim Process & Settlement

Timely and smooth claim processing is critical. Here's how it works:

1. Claim Intimation: Notify the insurer via email, phone, or online form.
2. Documentation: Submit original policy document, death certificate, medical records, KYC, and bank details.
3. Claim Evaluation: Insurer investigates the claim (especially for early deaths within 3 years).
4. Settlement: Once approved, the payout is processed to nominee’s bank account within 30 days.

For rejected claims, the nominee may approach the IRDAI or Insurance Ombudsman.

FAQs for Financial Planning

• Is term insurance premium eligible under 80C?
  Yes, the premium qualifies up to ₹1.5 lakh.
• Are maturity benefits taxable?
  No, if Section 10(10D) conditions are met.
• Can I buy life insurance for my spouse?
  Yes, and you can claim a deduction under 80C for the premium paid.
• Is there GST on life insurance premiums?
  Yes, 4.5% for ULIPs and 18% for first-year premiums (varies by plan type).
• Can HUF claim 80C on life insurance?
  Yes, if the policy is in the name of a HUF member.