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Gap in Life Cover – What We Need and What We Have?

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Although the market for life insurance in India is a big one, one wonders if the gap in life cover is a negligible one or a huge fissure has developed over the coming years. This gap is primarily between what customers expect to have and what they actually get in reality.

While low premiums, money back guarantee, useful capital gains, and Bonus add-ons are some of the lucrative features of many life insurance policies, do the policyholders actually get what they had expected? Have unwritten codes in the life insurance cover actually eluded the requirement benefits?

Take a look at some of the instances where gap in life cover still exists. In other words, we need to perhaps have something more but the reality is far below what we had wanted – and, this difference is a conspicuous gap that one can find in a life cover.

Value for Money

People get life insurance for financial protection against death of the life assured. While pure protection plans provide this option, it does not provide Maturity benefit. Life Assured who survived the Term would be left with no benefit. We need to have a maturity benefit as well to allow the Policyholder get value for money. However, term plans are cost effective and at a low premium, the insurance benefit would not be anything better.

Endowment plans would suit the Life Assured who survived the term period as he or she would get Survival Benefit as well. However, Premium would increase correspondingly.

Rate of Return

If you think that life insurance Policy with Pension benefits provide a profitable rate of return, you may be wrong. While pension plans with Death Benefit offer solace to many retired couples, it may not be all what they need. Deferred pension policies are some types of plans which provide reduced rate of interest. Getting immediate lump sum amount would allow a Beneficiary to invest in a better scheme.

In other words, even if you require regular pension amount each month, the option is not what you need – you would get a reduced amount as that is what life insurance policies of such type provide.

Miscellaneous Benefits – Tax Sops

Income tax relief is a huge relief to investors who invest in life insurance policies. When you get life insurance plan for yourself or your loved one, you are always told about tax exemption as per Section 80 C of the Income Tax Act. However, exemption is only at a limit of Rs. 1Lakh per year. In many life insurance policies that are catered for high net earning individuals, the minimum premium would exceed Rs. 1 Lakh per year.

In a nutshell, if you take such plans, you cannot avail tax relief. We require tax laws to address such insurance plans. However, till date, we have to abide by a general exemption rule.

ULIP Plans and Participatory Plans

Investments also feature in many life insurance policies. When customers get life insurance plan that is ULIP or participatory in nature, they are in for a risky endeavor. In fact, the life insurance cover disclaimer for such plans says that the policyholder has to bear the risk. With global recession, it is low capital gains that we get although we need a higher one to make our investment plan profitable. Participatory plans also have similar issues where bonus add-ons are available only when the company generates a profit.

All in all, customer expectations opine that there is a gap in life insurance cover which needs to be addressed by the insurance sector.