An insurance policy/plan is a contact between an individual (Policyholder) and an insurance company (Provider). Under the contract, you pay regular amounts of money (as premiums) to the insurer, and they pay you if the sum assured on unfortunate event arises. Here are top 6 Benefits Of An Insurance Policy for you to know.
What are Insurance Components?
Insurance Premium Policy
The premium of an insurance policy is the amount that you need to pay to purchase a specific amount of insurance cover. It is typically expressed as a regular cost, be it monthly, quarterly, half-yearly, or annually, that you incur during the premium payment term.
There are various factors upon which an insurance company calculates the premium of a policy.
Policy Limit
It is defined as the maximum amount that an insurance company is liable to pay for the losses covered under the insurance policy. It is determined based on the period (policy term), loss or injury, and similar factors.
Deductible
Deductible related to an insurance policy is the amount or percentage that the policyholder agrees to pay out of pocket before the insurer sets in to settle a claim. Deductibles are applicable per policy or per claim as defined by the terms of a specific type of policy. Generally, insurance policies bought with high deductibles are less expensive as the higher out-of-pocket expense results in fewer claims.
Types of Insurance in India
The four most common types of Insurances that people buy are :
a) Life Insurance
b) Health Insurance
c) Motor Insurance
d) Home Insurance
Benefits of an Insurance
Insurance policies benefit people as well as society as a whole in various ways.
Cover against uncertainities
It is one of the most prominent and crucial benefits of insurance. The insured individual or organizations are indemnified under the insurance policies against losses. Buying the right type of insurance policy is indeed, a way to get protection against losses arising from different uncertainties in life.
Cash Flow Management
The uncertainty of paying for the losses incurred out of pocket has a significant impact on cash flow management. However, with an insurance policy by your side, you can tackle this uncertainty with ease.
Investment Opportunities
Unit linked insurance plan, invest a part of the premium into several market linked funds. This way, they enables you to invest money regularly to benefit of market linked returns and fulfill your life goals.
Tax Benefits of Insurance
Other than the protection benefits of insurance policies, you can also avail income tax benefits.
Section 80C
The premium paid to buy life insurance policies are eligible for deduction from the taxable income, Under Section 80C of the Income Tax Act. The upper limit for these deductions is Rs. 1.5 Lakh.
Section 80D
Health insurance premium paid to buy policies for yourself and your parents is also tax-deductible under Section 80D of income tax Act 1961.
Section 10(10D)
The life insurance benefits that you or the insurance policy nominee will receive from the insurer are tax-exempted under this section.
You can claim these tax benefits of insurance at the time of filing your income tax returns.
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Check this video to know in detail about how Insurance Policy is an Investment.
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