Insurance for Defence Personnel
Table of Content
1.What is Insurance for Soldiers
2. Types Of Insurance
3. Benefits of Insurance
4. Key Points Before Buying a Policy
5. Frequently Asked Questions
What is Insurance for Soldiers
Insurance is a contract in which the individual or an entity gets the financial protection i.e reimbursement from the insurance company for the damage caused to them or their property. The insurer and the insured enter a legal contract for the insurance called the insurance policy that provides financial security from the future uncertainties.
In simple words, insurance is a contract, a legal agreement between two parties, i.e., the individual named insured and the insurance company called insurer. In this agreement, the insurer promises to compensate for the losses of the insured in case of untoward happening. The insured, on the other hand, pays a premium in return for the promise made by the insurer.
Types Of Insurance
There are two broad categories of insurance:
- Life Insurance
- General insurance
Life Insurance – The insurance policy whereby the policyholder (insured) can ensure financial freedom for their family members after death. It offers financial compensation in case of death or disability.
While purchasing the life insurance policy, the insured either pay the lump-sum amount or makes periodic payments known as premiums to the insurer. In exchange, of which the insurer promises to pay an assured sum to the family if insured in the event of death or disability or at maturity.
Depending on the coverage, life insurance can be classified into the below-mentioned types:
- Term Insurance: Gives life coverage for a specific time period.
- Whole life insurance: Offer life cover for the whole life of an individual
- Endowment policy: a portion of premiums go toward the death benefit, while the remaining is invested by the insurer.
- Money back Policy: a certain percentage of the sum assured is paid to the insured in intervals throughout the term as survival benefit.
- Pension Plans: Also called retirement plans are a fusion of insurance and investment. A portion from the premiums is directed towards retirement corpus, which is paid as a lump-sum or monthly payment after the retirement of the insured.
- Child Plans: Provides financial aid for children of the policyholders throughout their lives.
- ULIPS – Unit Linked Insurance Plans: same as endowment plans, a part of premiums go toward the death benefit while the remaining goes toward mutual fund investments.
General Insurance – Everything apart from life can be insured under general insurance. It offers financial compensation on any loss other than death. General insurance covers the loss or damages caused to all the assets and liabilities. The insurance company promises to pay the assured sum to cover the loss related to the vehicle, medical treatments, fire, theft, or even financial problems during travel.
General Insurance can cover almost anything, and everything but the five key types of insurances available under it are
- Health Insurance: Covers the cost of medical treatment.
- Fire Insurance: give coverage for the damages caused to goods or property due to fire.
- Travel Insurance: compensates the financial liabilities arising out of non-medical or medical emergencies during travel within the country or abroad
- Motor Insurance: offers financial protection to motor vehicles from damages due to accidents, fire, theft, or natural calamities.
- Home Insurance: compensates the damage caused to home due to man-made disasters, natural calamities, or other threats
In simple words, insurance is a contract, a legal agreement between two parties, i.e., the individual named insured and the insurance company called insurer. In this agreement, the insurer promises to compensate for the losses of the insured in case of untoward happening. The insured, on the other hand, pays a premium in return for the promise made by the insurer.
Benefits of Insurance
Insurance gives benefits to individuals and organizations in many ways. Some of the benefits are discussed below:
- The obvious benefit of insurance is the payment of losses.
- Manages cash flow uncertainty when paying capacity at the time of losses is reduced significantly.
- Complies with legal requirements by meeting contractual and statutory requirements, also provides evidence of financial resources.
- Promotes risk control activity by providing incentives to implement a program of losing control because of policy requirements.
- The efficient use of the insured’s resources. It provides a source of investment funds. Insurers collect the premiums and invest those in a variety of investment vehicles.
- Insurance is support for the insured’s credit. It facilitates loans to organizations and individuals by guaranteeing the lender payment at the time when collateral for the loan is destroyed by an insured event. Hence, reducing the uncertainty of the lender’s default by the party borrowing funds.
- It reduces social burden by reducing uncompensated accident victims and the uncertainty of society.
Every Soldier Must Remember these Points Before Buying any Insurance Policy
- Insurance is not the same as investment.It should not be purchased only for tax benefits.
- If used as an investment tool, it may prove costly in comparison to stand alone investment options.
- Understand the claim process before you buy any policy.
- Remember to update the Beneficiary or Nominee in your insurance policy.
- Keep the Beneficiary/Nominee or your family members informed about your insurance policy.
- Always add the nominee for the policy.Review periodically whether you want to change the nominee for your policy.
- Remember to pay the premium on time. Sending premium due notice or renewal notice is not a statutory responsibility of the insurance company.
Frequently Asked Questions
Insurance aims to provide financial protection to an individual, one’s family and assets from unfortunate eventualities such as death, accident, illness, etc. or loss of assets. A classic insurance policy, i.e. a term plan, provides financial assistance to your family in the unfortunate event of your death. In addition to that, modern day insurance policies have evolved to help you to build your corpus of wealth, plan for retirement, protect your house and personal belongings, reimburse medical expenses, hospitals bills, etc.
As a thumb rule, it is recommended that you have 10x of your annual income.However, you need to evaluate the requirement on a personalised basis based on the income, expense pattern, household requirement, number of dependents, key financial goals, debt obligations etc.
Premium payments can be made annually, quarterly, semi-annually, or monthly as per your convenience. Some life insurance plans also have a one-time premium payment option as well.
The premium is a function of age, gender, lifestyle, occupation, sum assured, medical history, genealogy,medical condition/fitness etc.The older you are, the higher the premium. If you have a medical condition or history of lifestyle illnesses running in the family, then the premiums are likely to be high. The premium for an individual with a smoking habit is likely to be higher than that of an individual with a similar profile who is a non-smoker.
A grace period of 30 days (for annual mode) or 15 days (for monthly mode) is allowed from the premium due date, you can make the premium payment within this grace period, and your policy will continue to provide the stipulated benefits. If the payment is not made within the grace period, the policy will be considered lapsed, and all the benefits under the policy will be lost.If you intend to re-activate the policy, you will have to pay the revival premium and undergo the entire revival underwriting process, which could entail medical examination as well, depending on the tenure of the lapse, the total sum assured of the plan, etc.
A tax benefit is available for the premium paid towards any life insurance plan upto Rs 1.5 lakhs for given financial year, under section 80C of the Income Tax Act 1961, subject to satisfaction of conditions mentioned therein. The death benefit is always tax-free in the hands of the nominee.
In fact, the surrender benefit or maturity benefit of the plan is also completely tax-free in the hands of the policyholder, u/s 10(10D) of the Income Tax Act, 1961, subject to the terms and conditions being fulfilled.
There are a variety of riders available such as Critical illness riders and accidental death benefit riders, among others, available for help to achieve comprehensive coverage. Critical illness benefit provides a sum assured upon diagnosis of critical illness that is covered under the policy. The premium paid towards this rider qualifies for tax benefit under section 80D of the Income Tax Act, 1961. Deduction of the same is available as under:
Particulars | Family Amount (Rs) | Parents Amount (Rs) |
General deduction | 25,000 | 25,000 |
Additional deduction, if anyone is Senior citizen | 25,000 | 25,000 |
Maximum deduction available | 50,000 | 50,000 |
Accident Death Benefit offers coverage against death due to an accident. The additional premium towards this rider qualifies under section 80C of Income tax India, 1961.
Purchasing a life insurance policy becomes much easier when you are clear about the basic queries. Hope this helps to resolve most of your queries so that you can embark on your journey towards opting for optimal coverage for yourself.
Note- customer must consult with independent tax advisor before investment and before claiming any benefit in Income Tax Return.
Yes, a minor can be the nominee of a policy. However, he or she must have a legal guardian in the form of an appointee.