Taxpayers can claim the entire premium paid in a financial year as deductible by investing in life insurance policies.
DETAILS AND FAQ
What is life insurance?
Life Insurance is a contract that promises payment of an amount to the assured on the happening of the event against which the insurance is taken. It is basically a tool to protect the financial well-being of the family against risks of untimely death. The payment becomes due on the date of maturity, at specified intervals or on the death of the insured, depending upon the kind of policy.
Following are the basic types of life insurance that all life insurance companies offer. However, each insurer may call it/name it differently or have sub categories under each head. For eg. Life Insurance Corporation of India has several policies with slight variations under each of the basic categories.
- Term Insurance: A Term Insurance policy is a pure risk cover policy. The premiums are paid over a specified term and the insured does not get any benefit other than the tax-saving during the term of the policy. If the insured expires during the term of the policy, his beneficiaries named in the policy will receive the sum assured. However, there is no pay-out if the insured survives the term of the policy. The premium for a Term Insurance policy is normally cheaper than other insurance policies.
- Endowment policy: The premiums under an Endowment policy are paid over a predetermined term. Unlike the Term Insurance policies, Endowment policies have a maturity benefit. If the insured expires during the term of the policy, the beneficiary receives the sum assured and if the insured survives the term, then the premiums paid are returned along with returns/bonuses, etc. at the end of the term.
- Whole life policy: A Whole life policy does not have a predetermined term. The insured pays regular premium until his death, upon which the sum assured is paid to the beneficiary.
- Money-back policy: Under a Money-back policy, the insured receives a periodic payment during the term of the policy, out of the total sum assured. If the insured survives the term, he receives the balance sum assured on maturity. If the insured does not survive the term, the beneficiary receives the total sum assured without deduction of the periodic payments made to the insured during the term.