What Is Life Insurance? – Complete Guide
Life insurance is a financial contract between an individual and an insurance company where the insurer promises to pay a fixed sum (called sum assured) to the nominee in case of the policyholder’s death or after maturity, in return for regular premium payments.
The main objective of life insurance is financial protection for your family against loss of income due to unforeseen events such as death, illness, or disability.
What Is Term Insurance?
Term insurance is the simplest and most affordable form of life insurance. It provides pure life cover for a specific period (term).
Key Features of Term Insurance:
- High life cover at low premium
- No maturity benefit (pure protection plan)
- Financial security for dependents
- Option to add riders like accidental death or critical illness
Example: If you take a ₹1 crore term plan for 30 years and the policyholder dies during the term, the nominee receives ₹1 crore.
Number of Life Insurance Companies in India
As per IRDAI regulations, India has over 24 life insurance companies, including:
- 1 Public Sector Insurer
- Life Insurance Corporation of India (LIC)
- 23+ Private Life Insurance Companies, such as:
- HDFC Life
- ICICI Prudential
- SBI Life
- Max Life
- Tata AIA
- Bajaj Allianz Life
These companies offer a wide range of term plans, ULIPs, endowment plans, pension plans, and child insurance policies.
Tax Benefits of Life Insurance in India
Life insurance policies offer attractive tax benefits under the Income Tax Act, 1961.
1. Tax Benefit Under Section 80C
- Premiums paid for life insurance policies qualify for deduction
- Maximum deduction limit: ₹1.5 lakh per financial year
- Applicable for self, spouse, and children
2. Tax Exemption Under Section 10(10D)
- Death benefit received by nominee is fully tax-free
- Maturity amount is also tax-free (subject to conditions)
3. Additional Benefits
- Term plans with critical illness riders may offer deductions under Section 80D
- Helps in effective tax planning along with financial protection
Why Life Insurance Is Important
- Protects family’s financial future
- Helps repay loans and liabilities
- Ensures children’s education and marriage goals
- Offers peace of mind
- Acts as a long-term financial safety net
How to Choose the Right Term Insurance Plan
- Calculate adequate life cover (10–15 times annual income)
- Choose policy term based on retirement age
- Compare claim settlement ratio of insurers
- Select necessary riders
- Buy early to get lower premiums
Conclusion
Life insurance, especially term insurance, is a must-have financial product for every earning individual. With affordable premiums, high coverage, multiple insurers to choose from, and attractive tax benefits, life insurance forms the foundation of sound financial planning.
At Saving Mantra, we help you compare policies, understand benefits, and choose the right insurance plan as per your needs.
Disclaimer
This blog is for informational purposes only and does not constitute financial or legal advice. Tax benefits are subject to changes in income tax laws. Readers are advised to consult a qualified financial advisor or tax consultant before purchasing any insurance policy.