Life Insurance - Preparing for the Inevitable

A life insurance can be described as an official contract, between two individuals, i.e. the insured and an insurer, wherein the insurer promises to pay a specified beneficiary, an amount of money upon the death of the insured. The policy holder pays either regularly or a lump sum as premium to the insurer. There are three categories of life insurance, whole insurance, term insurance and universal insurance. The whole insurance includes the entire life and beyond of the insured. It also includes insurance and an investment fund. Term insurance lasts for a particular period and has no investment component. Universal insurance is a combination of term insurance with money market investments.

The life insurance policies also provide investment options along with tax benefits to the insured Under Section 80C as per the Tax Act. Products that are best suited to the need of the individual such as child plans, retirement plans, pension plans, etc are also provided. The section 80C under the Tax Act provides certain Tax Saving Schemes which help individuals obtain a tax deduction on their annual income. When a person invests up to a maximum amount of Rs 1 lakh, some of these investments are deductible from the income. Various financial service providers are providing insurance covers in India such as the SBI Life Insurance which is currently the best life insurance in the country.

Some of these tax saving schemes have been listed as below:

1. Post Office Time Deposits: These are fixed deposits in the small savings segment. The POTDs of 5 Year is only eligible for tax benefits though under this section.

2. National Savings Certificate: Requires a lump sum investment for a 6 year period presently with a return of 8.0% p.a.

3. Public Provident Fund: Every year deposits need to be made to keep the account active and extend over a 15 year period.

4. Life Insurance Premiums: A premium or a lump sum has to be paid by the insured to the insurer.

5. Equity Linked Savings Scheme: Some mutual fund schemes known as Equity Linked Savings Scheme are eligible for Deduction Under Section 80C.

Some other avenues such as Voluntary Provident Fund, Infrastructure Bonds, Pension Funds, Bank Fixed Deposits, children's education expense are declared as deductions under Sec 80C.

Life insurance is for providing a security cover to the life of an individual. It includes whole insurance, term insurance, and universal insurance. Benefits of life insurance are not only limited to insurance but also provide investment plans and tax benefits under section 80C.