Life Insurance — Types, How to Buy Online, Claim Process & Tax Benefits
Complete guide to life insurance in India — term, endowment, ULIP, whole life plans, how to buy online, claim process, tax benefits under 80C & 10(10D).
Life insurance is the cornerstone of financial planning for every Indian household. It provides financial security to your family in case of your untimely death and can also serve as a long-term savings tool. With IRDAI-regulated insurers now offering fully digital buying experiences, purchasing a life insurance policy online has never been easier.
This guide covers every type of life insurance available in India, how to compare and buy policies online, the complete claim process, and the tax benefits you can avail under the Income Tax Act.
Types of Life Insurance in India
1. Term Life Insurance
Term insurance is the purest and most affordable form of life insurance. You pay a premium for a fixed term (10–40 years), and if you die during this period, your nominee receives the sum assured. There is no maturity benefit — if you survive the term, you get nothing back.
Best for: Anyone who wants high coverage at low cost. A 30-year-old non-smoker can get ₹1 crore cover for roughly ₹700–900/month.
Key features:
- Highest cover-to-premium ratio
- Optional riders: accidental death, critical illness, waiver of premium
- Some plans offer "return of premium" variant (costs more)
2. Endowment Plans
Endowment plans combine life insurance with savings. You pay premiums for a fixed period, and at maturity you receive the sum assured plus bonuses. If you die during the term, the nominee gets the death benefit.
Best for: Conservative investors who want guaranteed returns with insurance cover. Returns typically range from 4–6% per annum.
Popular plans: LIC Jeevan Lakshya, LIC New Endowment Plan
3. Unit Linked Insurance Plans (ULIPs)
ULIPs invest your premium partly in life cover and partly in market-linked funds (equity, debt, or balanced). The policy value depends on fund performance.
Best for: Investors comfortable with market risk who want insurance and investment in a single product. ULIPs have a 5-year lock-in period.
Key features:
- Switch between fund options (equity/debt) without tax
- Charges: premium allocation, fund management, mortality, administration
- After 5-year lock-in, partial withdrawals allowed
4. Whole Life Insurance
Whole life plans provide coverage for your entire lifetime (up to age 99 or 100). Premiums are paid for a limited period (e.g., 15–25 years), but coverage continues lifelong.
Best for: Estate planning, wealth transfer to the next generation, or those who want permanent cover regardless of age.
5. Money-Back Plans
Money-back policies pay a percentage of the sum assured at regular intervals (called survival benefits) during the policy term. The remaining amount plus bonuses are paid at maturity. Full sum assured is paid on death regardless of earlier payouts.
Best for: People who want periodic cash inflows for planned expenses like children's education or weddings.
How to Choose the Right Life Insurance
| Factor | What to Consider |
|---|---|
| Coverage amount | 10–15× your annual income is the standard rule |
| Policy term | Cover until your youngest child becomes financially independent or until retirement |
| Premium affordability | Keep premium under 10% of annual income |
| Riders | Add critical illness & accidental death if not covered separately |
| Claim settlement ratio | Check IRDAI annual report — prefer insurers above 95% |
| Company reputation | Consider solvency ratio (must be >1.5 as per IRDAI norms) |
Pro tip: Term insurance should be your base. If you want investment returns, consider PPF, NPS, or mutual funds separately — this "buy term, invest the rest" approach usually outperforms bundled products.
How to Buy Life Insurance Online
Buying directly from the insurer's website is often cheaper (10–20% lower premiums) because there is no agent commission. Here's the step-by-step process:
Step 1: Compare Plans
Visit the official websites of major insurers or use IRDAI-registered aggregators:
- LIC — licindia.in
- HDFC Life — hdfclife.com
- SBI Life — sbilife.co.in
- ICICI Prudential — iciciprulife.com
Step 2: Calculate Premium
Use the online premium calculator on each website. Enter your age, gender, smoking status, sum assured, and policy term. Compare premiums across insurers for the same cover amount.
Step 3: Fill the Application
Provide personal details, income proof, and health declaration. For higher sum assured (usually above ₹50 lakh–1 crore), a medical examination may be required.
Step 4: Complete KYC
Upload Aadhaar, PAN, and a recent photograph. Most insurers support Digi-Locker and video KYC for instant verification.
Step 5: Pay & Receive Policy
Pay the first premium via UPI, net banking, or card. The e-policy document is sent to your registered email within 24–48 hours.
Premium Comparison (Indicative)
For a healthy 30-year-old male, non-smoker, ₹1 crore term plan, 30-year term:
| Insurer | Annual Premium (approx.) | Claim Settlement Ratio |
|---|---|---|
| LIC Tech Term | ₹12,000–14,000 | 98.6% |
| HDFC Life Click 2 Protect | ₹9,500–11,000 | 99.0% |
| SBI Life eShield Next | ₹9,000–10,500 | 96.4% |
| ICICI Pru iProtect Smart | ₹9,500–11,500 | 97.8% |
Premiums are indicative and vary based on exact age, health, city, and add-on riders. Always get a personalized quote from the insurer's website.
Tax Benefits on Life Insurance
Section 80C — Premium Deduction
Premiums paid towards life insurance policies qualify for deduction under Section 80C of the Income Tax Act, up to ₹1.5 lakh per financial year. This applies to policies on self, spouse, and children.
Condition: For policies issued after 1 April 2012, the annual premium must not exceed 10% of the sum assured to claim the full deduction.
Section 10(10D) — Tax-Free Maturity
The maturity proceeds or death benefit received from a life insurance policy are exempt from tax under Section 10(10D), provided:
- For policies issued after 1 April 2012: annual premium does not exceed 10% of sum assured
- For policies issued after 1 April 2023: if aggregate annual premium exceeds ₹5 lakh across all policies, the income is taxable (except death benefit, which remains fully exempt)
Death benefit is always 100% tax-free regardless of premium amount.
Tax Treatment of ULIPs
For ULIPs purchased after 1 February 2021, if the annual premium exceeds ₹2.5 lakh, the maturity proceeds are taxed as capital gains (similar to equity mutual funds). ULIPs below this threshold continue to enjoy Section 10(10D) exemption.
For comprehensive tax-saving strategies, also explore filing your income tax return online and tax-saving instruments like PPF and Atal Pension Yojana.
Life Insurance Claim Process
Death Claim
- Intimate the insurer — The nominee or legal heir must inform the insurance company as soon as possible. Most insurers have a toll-free number and online claim registration.
- Submit claim form — Download the death claim form from the insurer's website or collect it from the nearest branch.
- Provide documents (see list below).
- Insurer investigates — For claims within 3 years of policy issuance, the insurer may investigate (as per Section 45 of the Insurance Act). Claims after 3 years cannot be questioned on grounds of misstatement.
- Claim settlement — IRDAI mandates that claims must be settled within 30 days of receiving all documents. If investigation is needed, the decision must come within 6 months.
Maturity Claim
For endowment, money-back, and ULIP policies, the insurer typically sends a discharge voucher 2–3 months before the maturity date. Sign and return it with your KYC documents to receive the maturity amount directly in your bank account.
Documents Required for Death Claim
- Original policy document (or indemnity bond if lost)
- Death certificate issued by the municipal authority
- Claimant's identity proof (Aadhaar, PAN)
- Claimant's bank account details (cancelled cheque or passbook copy)
- FIR or post-mortem report (if death is unnatural/accidental)
- Hospital records (if death occurred during treatment)
- Nominee/legal heir certificate (if nominee is not registered)
Documents for Maturity Claim
- Original policy document
- Discharge voucher (signed)
- ID proof and bank details
- Recent photograph
Nominee Rules
- Who can be a nominee? Any family member — spouse, children, parents. A minor can be a nominee with an appointed guardian.
- Multiple nominees: You can assign multiple nominees with specified percentage shares.
- Changing nominee: Nominee can be changed anytime during the policy term by submitting a written request to the insurer.
- Nominee vs legal heir: The nominee is a custodian of the proceeds as per the Insurance Laws (Amendment) Act, 2015. For beneficial nominees (spouse, children, parents), the claim amount belongs to them directly.
- No nominee registered? The claim amount is paid to the legal heirs as per a succession certificate or probate.
Free-Look Period
IRDAI mandates a free-look period of 15 days (30 days for online/distance-marketed policies) from the date you receive the policy document. During this period, you can cancel the policy and get a full refund of premiums paid, minus proportionate risk charges and stamp duty.
Use this wisely — if after reading the policy terms you find anything different from what was promised, cancel within the free-look period without any penalty.
Life Insurance vs Investment — Which Should You Choose?
| Parameter | Term Insurance | Endowment/ULIP | Mutual Funds + Term |
|---|---|---|---|
| Primary purpose | Pure protection | Protection + savings | Protection + wealth creation |
| Returns | Nil (no maturity) | 4–8% | 10–14% (equity, long-term) |
| Cost for ₹1 Cr cover | ₹9,000–14,000/yr | ₹4–6 lakh/yr | ₹9,000–14,000/yr (term) + SIP |
| Flexibility | High | Low | Very high |
| Liquidity | No cash value | Surrender after lock-in | Redeem anytime (equity MF) |
The verdict: For most people, the optimal approach is to buy a term plan for pure protection and invest separately in NPS, PPF, or mutual funds for wealth building. This gives you both higher coverage and better long-term returns.
Frequently Asked Questions
What is the best type of life insurance for a salaried person?
Term insurance is the best option for most salaried individuals. It offers the highest coverage at the lowest premium, allowing you to invest the savings in higher-return instruments like mutual funds, NPS, or PPF.
Can I buy life insurance online without a medical test?
Yes, most insurers offer term plans up to ₹50 lakh–1 crore without a medical exam for applicants under 40–45 years of age, subject to a health declaration. Higher sums may require medical tests.
How much life insurance cover do I need?
The standard recommendation is 10–15 times your annual income. Also factor in outstanding loans (home loan, car loan), children's future education costs, and your family's lifestyle expenses.
Is life insurance maturity amount taxable?
Under Section 10(10D), maturity proceeds are tax-free if the annual premium does not exceed 10% of the sum assured. For high-value policies (aggregate premium above ₹5 lakh, issued after April 2023), the income portion is taxable. Death benefits remain fully tax-exempt.
What happens if I stop paying life insurance premiums?
For term plans, the policy lapses and cover ceases. For endowment and ULIPs, the policy becomes "paid-up" — the cover reduces proportionally, and you receive a reduced maturity value. Most policies allow revival within 2–5 years by paying all due premiums with interest.
Can NRIs buy life insurance in India?
Yes, NRIs can buy life insurance from Indian insurers. They need to complete KYC with their passport, provide an NRE/NRO bank account, and premiums must be paid from an Indian bank account.