The Advantages And Disadvantages Of Life Insurance | Tata AIA Blog (2024)

The penetration of life insurance in India is very low since many people still consider buying one an unnecessary investment. However, with life being inherently unpredictable, being prepared for uncertainties can be the best protection against them. In the event of an untoward incident, a life insurance policy can help ensure the financial security of your loved ones. However, before you buy a policy, it is important to know the benefits of life insurance along with its limitations, as described below.

Advantages of Life Insurance

Life insurance policies offer a range of benefits:

• Death Benefit

  
  This is one of the primary benefits of a life insurance policy. If the insured person meets with an untimely death, then the nominee receives compensation from the insurance company in the form of a death benefit. The compensation amount is usually the sum assured plus any bonus² accrued over the period the policy was active.




• Suitable Returns

  
  Many life insurance policies offer good returns on premium amounts. There are different types of life insurance policies offering returns in the form of a bonus². Hence, you can get the dual benefit of getting insurance coverage and returns on saving by paying a life insurance premium.




• Tax^* Advantages of life insurance

  
  One of the important uses of life insurance is saving tax^*. When you purchase a life insurance plan, the premium amount can be deducted from your taxable income under Section 80C of the Income Tax^* Act 1961. The maximum deduction is up to ₹1.5 Lakh in a financial year, subject to other permitted investments under the section. Life insurance tax benefits are used by many people to reduce their tax^* liability.




• Loan against the policy

  
  Many reputed insurance companies offer loans against life insurance policies at affordable rates. Based on the provisions of the policy, you can borrow up to a certain percentage of the sum assured. This can help manage financial exigencies without having to dip into your savings.




• Financial planning through different stages of life

  
  With a range of life insurance policies available, you can plan your finances using life insurance at different stages of your life. While death benefit allows you to ensure the financial security of your loved ones in the event of an untoward incident, there are policies that offer returns to help meet different financial goals like your child’s education, building a home, etc. Make sure that you look at the life insurance plans and choose the best one for your needs.




• Add-on covers

  
  Many insurance providers offer riders^# to boost the scope and extent of that standard life insurance policy. These add-on covers or riders^# allow policyholders to customise the coverage as per their needs. These include waiver of premium payments, loss of income due to a partial or complete disability, etc.

  
  These benefits make life insurance policies worth the investment. However, before you buy one, make sure that you understand the limitations of insurance too.

Disadvantages of Life Insurance

Here are some disadvantages of life insurance:

• Too expensive for old people

  
  Most people purchase a life insurance policy when they are young. This makes sense since the premium amounts are low for young policyholders. One thing that you need to know about premium calculation is that there are various factors that impact it, including the policyholder’s age, medical condition, family medical history, etc.

  
  Hence, as you age and if you develop a medical condition, then the insurance company will charge more premium since it will consider you to be a more-risk individual. With age, the premium amount can rise exponentially, making it too expensive for people over 60/70.




• Returns are not more

  
  Many life insurance policies offer the benefits of protection and saving. These policies are preferred by many people looking for a single instrument that offers insurance and returns. However, the returns offered by these plans are much lesser than standalone investment instruments.




• Issues with claim settlement

  
  Life insurance policies have certain inclusions and exclusions along with terms and conditions for claim approval. There are many instances of claims being rejected or the compensation amount being reduced due to certain clauses of the policy.

  
  Therefore, it is important to go through the policy documents carefully before making the purchase. You should also ensure that you look for a reliable insurance provider with enhanced Individual Death claim settlement Ratio³. TATA AIA Life Insurance has a Individual Death claim settlement Ratio³ of 98% (FY 2020-21) and a simple claims settlement process.




• Too many options

  
  There are many insurers in India offering a wide range of life insurance policies. While this means more choices for buyers, choosing the right one can be overwhelming. Also, many policies are not straightforward and require an understanding of financial products.
  

Conclusion

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