Page 117 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Financial Institutions and Services

Notes Tax Relief

Life Insurance is the best way to enjoy tax deductions on income tax and wealth tax. This is
available for amounts paid by way of premium for life insurance subject to income tax rates in
force.
Assessees can also avail of provisions in the law for tax relief. In such cases the assured in effect
pays a lower premium for insurance than otherwise.

Money when it is Needed

Life insurance comes as a policy that has a suitable insurance plan or a combination of different
plans that can be effectively used to meet certain monetary needs that may arise from time-to-
time like those of children's education, start-in-life or marriage provision or even periodical
needs for cash over a stretch of time.
Alternatively, policy money can be made available at the time of one's retirement from service
and used for any specific purpose, such as, purchase of a house or for other investments. Also,
loans are granted to policyholders for house building or for purchase of flats (subject to certain
conditions).

8.4.3 Types

Life Insurance policy is the most popular and taken by the most number of people. Many of us
buy life insurance policies, because we want to make sure our loved ones remain financially
secure after we die. Insurance companies offer both individual as well as group insurance
policies.
Types of Life Insurance Available:
1. Whole Life Assurance: In whole life assurance, insurance company collects premium from
the insured for whole life or till the time of his retirement and pays claim to the family of
the insured only after his death.
2. Endowment Assurance: In case of endowment assurance, the term of policy is defined for
a specified period say 15, 20, 25 or 30 years. The insurance company pays the claim to the
family of assured in an event of his death within the policy's term or in an event of the
assured surviving the policy's term.
3. Assurances for Children: These can be divided into two forms, viz.
(a) Child's Deferred Assurance: Under this policy, claim by insurance company is paid on
the option date which is calculated to coincide with the child's eighteenth or twenty
first birthday. In case the parent survives till option date, policy may either be
continued or payment may be claimed on the same date. However, if the parent dies
before the option date, the policy remains continued until the option date without any
need for payment of premiums. If the child dies before the option date, the parent
receives back all premiums paid to the insurance company.
(b) School Fee Policy: School fee policy can be availed by effecting an endowment policy,
on the life of the parent with the sum assured, payable in instalments over the
schooling period.
4. Term Assurance: The basic feature of term assurance plans is that they provide death risk-
cover. Term assurance policies are only for a limited time, claim for which is paid to the
family of the assured only when he dies. In case the assured survives the term of policy, no
claim is paid to the assured.

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