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Whenever you buy life Insurance plan, the first thing you
need to check is that sum assured value of the policy along with the maturity
and death benefits offered by the plan. These important factors determine the
overall worth of the policy and you can get to know if this suits your
individual requirements in the long run. The basic thing you need to remember is
that the death benefit offered by the policy may not be the same as the sum
assured in most cases. There are many reasons for this difference and you have
to read the features of the plan along with the details mentioned in the policy
document to get complete idea about these two factors.
In some cases, the death benefits offered by the plan may be more than the sum
assured offered by the policy. In other cases, the death benefits may be less
than the sum assured due to various reasons. It usually depends upon the tenure
of the policy and the duration for which the premium amount is paid for the
policy. However, the IRDA also has mandated certain rules with regards to the
amount of sum assured along with death benefits and this protects the family of
the policy h older in the unfortunate event of death of the policyholder. You
will often notice that there will be no drastic changes or difference between
the sum assured and death benefits offered by regular
Insurance plans. In this regard, let us take a detailed look into both these
factors that determine the overall value and usefulness of the policy.
What exactly is sum assured in a life insurance policy?
When you buy any policy, you need to understand that it comes with a maturity
period. In normal cases, you need to pay the premium amount only till this
period and the company will offer you benefits after the completion of tenure of
the policy. The amount of money that the policyholder is guaranteed to receive
from the insurance company is usually termed as sum assured of the policy. In
simple terms, whenever you take any insurance policy, you can be assured that
you will receive the amount mentioned in the sum assured column of the plan. You
can easily consider this as the amount for which your life has been insured
through the policy.
What is the meaning of death benefit in a life insurance plan?
The primary objective of choosing any insurance plan is to get appropriate cover
for the life of the policyholder. In simple terms, if the policyholder dies
during the tenure of the policy, the nominee will get benefits as mentioned in
the Death benefits category of the policy. Depending upon the tenure of the
policy and the premium payment done for the policy, the death benefit amount
will be calculated by the insurance company. It can even be more than the sum
assured amount as some policies also include bonus and other factors into the
sum assured amount and provide the benefits to the nominee after the death of
the policy holder.
Minimum death benefits for life insurance policies mandated by IRDA
- There were no proper guidelines from the authorities earlier with regards to
the minimum death benefits offered for any policies.
- In some cases, the insurance companies only returned the premium amount paid
by the policy holders after the death of the policy holder.
- This essentially meant that the policy did not serve the basic purpose of
providing life cover to the policyholder.
- To correct these measures, the IRDA set new regulations that required the
insurance companies to pay the minimum death benefit of up to 10 times of the
annual premium if the policyholder is under the age of 45.
- For policyholders who are above this age category, the minimum death benefit
shall not be less than 7 times of the annual premium.
- The death benefits shall also not be less than 105% of the total premium paid
till date.
- Apart from this, the IRDA also increased the amount of sum assured eligible
for tax benefits through various regulations.
In simple terms, if the policy holder has paid a premium amount of 20 lakhs for
a plan that has an annual premium payment of 1 lakh, the death benefits will not
be 10 times of annual premium. It will be 105% of total premium paid and the
death benefits will exceed 20 lakhs. The death benefits paid is considered the
higher of the sum assured or 10 times annual premium or 105% of total premium
paid for the policy.
In this way, depending upon various factors like the age of the policyholder,
the tenure of the plan and the duration for which the premium is paid till date,
the Death Benefits are offered to the nominees. It is usually more than the
minimum sum assured value mentioned in the policy. When it comes to life
insurance policy, you can rest assured that you will get the basic sum assured
value at any cost if thee policyholder does not survive the tenure of the plan.
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