For the uninitiated, buying life insurance can be confusing, unless you know a few things beforehand. Aside from the usual questions around the need for insurance and its benefits, you need to know what the policy covers and doesn’t cover to get the most out of it when you or your dependents need it.
Sum assured: This is nothing but the quantum of life insurance cover that you will get with the policy. Effectively, this is the sum that gets passed to your dependents when the policy benefits come into effect.
Premium: This is the regular periodic sum that you pay for an insurance policy and to keep it operational. The premium paying frequency could be monthly, quarterly or yearly. Remember, the premium also includes service tax and any other tax that may be charged.
Tenure: This is the duration for which your policy is in force.
Maturity: The date on which the policy proceeds are paid to the policyholder or dependents at the end of the policy tenure.
Exclusions: This is a list of situations that are not included in the policy cover. This is an important list because an exclusion that you are unaware of can make the cover redundant. For instance, suicide is typically not covered in the first year of the policy.
Policy illustration: This is the detailed working of the policy, which illustrates how the policy benefits work. For policies that have savings and investment components, the illustration indicates their performance over time based on stipulated assumptions.
Nominee: Nomination is an act by which the policyholder can authorise another person, known as the nominee, to receive the policy proceeds.
Free look: Insurance regulator IRDAI has introduced this consumer friendly provision that takes care of a situation where after buying a policy you realise it is not what you want. In such a case, you can return the policy within the free look period of 15 days of receiving the policy document, where the premium refund will be adjusted for the expenses incurred by the insurer and stamp duty charges.
Tax benefits: Premiums paid towards life insurance policies qualify for tax deductions under Section 80C of the Income Tax Act, for up to Rs.1.5 lakh in a financial year. Deductions are allowed only for premiums, up to a maximum of 10 per cent of the sum assured for the policies issued on or after April 1, 2012.
