Life insurance in India has been made a federal affair by The Insurance Act, 1938 and Insurance Regulatory and Development Authority Act 1999. Therefore, all the life insurance companies in India have to follow with rigorous ordinances laid out by the mentioned Acts of the Apostless, irrespective of whether they are state-owned ( LIC ) or private ( Bajaj Allianz Life Insurance Company, HDFC Standard Life Insurance Company Ltd, ICICI Prudential Life Insurance etc. ) .
Life insurance encouragements assurance in the insured, offers satisfaction of being covered for life, any unwellness or fiscal loss. The advantage for the policy proprietor is the “ peace of head ” in cognizing that, the decease of insured individual will non ensue in fiscal adversity for loved 1s. Uncertainties of life can non be controlled but, the hazards environing us can be decidedly taken attention of like guaranting fiscal protection on accident or decease. Life insurance besides protects us from those eventualities that could impact us in a large manner and enable the donees to keep the same life style even after the unfortunate death of their loved 1s.
Any basic life insurance policy works as under:
To cover the hazard of ill-timed death of the insured, little amounts ( monthly/ quarterly/ annually ) are paid to the insurance company by the policyholder, called premiums, during the term of office of the policy. In instance of decease of the insured, the household ( or the donees, as named in the policy ) will have a ball amount sum. In instance of adulthood of the policy, depending on the type of the policy opted for ; returns will be received, which it may hold earned over the old ages. Today, there are many fluctuations to this basic subject and insurance policies cater to a broad assortment of demands.
Primary benefits of life insurance
Coverage of decease or any critical unwellness ( as mentioned in the ‘insuring understanding ‘ ) .
Coverage of fiscal interests/ demands of the family/ donees on the decease of the policyholder.
Specific seamster made merchandises for providing to different life phase demands ( refer chapter 8 for different types of demands and their computations ) .
Inbuilt wealth creative activity propositions under several merchandises, supplying double benefit to the client.
Handiness of different types of retirement programs.
Loan installations against assorted programs.
Life insurance premiums offer revenue enhancement salvaging benefits.
Hence, life insurance occupies a alone infinite in the landscape of investing options to a client and different life phase benefits to the donees.
Type OF LIFE INSURANCE POLICIES
As we have seen, life insurance plays a really of import portion in anybody ‘s life as it covers the hazard of deceasing early and protects the household in instance of death. The insured money will salvage the household in different phases of life, either it is for educating the kids or girl ‘s matrimony etc. Non-earning old ages of life which is called retirement is besides covered by the insurance. Insurance policies fall into many classs ( see exhibit 1 & A ; 2 ) , therefore, taking the right policy type with the right sum of coverage becomes really critical. Some of the parametric quantities for sorting them include premium sum, benefits covered, figure of old ages and other ordinances which govern the policy.
Life insurance policies vary from company to company but, none of them will be beliing the rules of life insurance contract, nevertheless, the grade of discrepancy is minimum. Given below are the basic types of life insurance policies, whereby, all other policies are built up by combination of assorted characteristics sing major causes of deceases in India ( see exhibit 3 ) :
Term Life Insurance Policy
Group Term Life Insurance
Level Term Life Insurance
Permanent Life Insurance
Variable Universal Life
Money Back Policy
Annuities and Pension
Group Insurance Policies
Exhibit 3: Major causes of deceases in India
Coronary Heart Disease
Road Traffic Accidents
Influenza & A ; Pneumonia
Peptic Ulcer Disease
High blood pressure
Term Life Insurance Policy
“ A term insurance policy is a pure hazard screen policy that protects the individual insured for a specific period of clip ” .
A type of insurance policy, in which, the insured pays a fixed amount for a specified term. This amount remains changeless and the policy does non roll up any hard currency value. ‘Term ‘ is by and large considered ‘pure insurance ‘ , where the premium buys merely protection in the event of decease and nil is received on the adulthood, hence, the premium charged is really nominal. While buying this policy, the insured has to undergo assorted medical medical examinations and in instance of any jeopardies like ; wellness jeopardy ( increased BP, bosom jobs etc. ) , the premium will be charged excess by the name ‘health supernumerary ‘ . In instance of business jeopardy ( hazardous occupations ) , once more the premium is charged excess by the name ‘occupation extra ‘ . It is to be noted that the excess charged premiums will be strictly at the discretion of the investment banker. The policy can be renewed when expired but at revised rates of premium which can be excessively high. The policy is extremely recommended for the salaried young person and in-between work forces. Another categorization in term life insurance is ‘whole term insurance policy ‘ where the insured pays the fixed sum throughout his life. There are three cardinal factors to be considered in term insurance:
Face sum ( protection or decease benefit ) ,
Premium to be paid ( cost to the insured ) and
Length of coverage ( term )
The aim of this policy is to protect the policy holder ‘s household in instance of decease. Here, the fixed amount of money called the ‘sum assured ‘ and is paid to the designated donee. For illustration ; if a individual buys a policy of Rs. 2 lacs for 15 old ages, his household is entitled to the amount of Rs 2 lacs if he dies within that 15 twelvemonth period. If he survives beyond 15 old ages, he will non acquire any sum from the insurance company and the premiums paid are non returned back.
which will be relatively lower, as now it covers merely risk constituent and non savings/ investing )
Some term insurance policies besides carry exchangeable option, known as ‘convertible Term Insurance Policies ‘ . Here, the insurance company has the option of change overing the term policy to normal gift policy ( explained under the caput ‘endowment policies ‘ subsequently in this chapter ) after a certain period of clip say 5 or 6 old ages ( the clause depends on company to company ) . As the policyholder is acquiring the policy converted to normal gift policy, now the fresh premium will be calculated as per gift policy. The benefit of this policy is that when the policy gets converted, the insured does non undergoes any medical medical examination even if the his present wellness status is non good.
‘Suicide ‘ used to be excluded from all insurance policies. However, after a figure of tribunal opinions, many insurance companies began presenting payouts in the event of self-destruction ( except for instances where it can be demonstrated that the insured committed self-destruction entirely to entree the policy payout ) . By and large, if an insured individual commits suicide within the first two policy old ages, the insurance company will merely return the premiums paid as a via media, but, after this period, the full decease benefit may be paid.
Group Term Life Insurance – Sing a group of persons together. This may be done due to their working in specific group such as spouses, employees of the same organisation or being members of a peculiar organisation formed for a specific intent. In instance the insurance is taken for the employees by their employers, the employer is supposed to pays the premiums either from his pool or by subtracting the right sum from the wage of single employees. In group insurance you have the installation of change overing your policy to another which is non available with other insurance policies. So as an insurance company you are given the freedom to take the policy as per your pick. Group term life insurance provides batch of benefits but it can non be entirely relied to run into one ‘s insurance demands. Policy is deriving significance in the many developing states.
Level term Life Insurance – An insurance which asks to choose a peculiar period and so premiums are paid for that period. The policy, by design matures on the attainment of that period. Once the term is selected say 5, 10 or 15 old ages, it can non be revoked. The policy is ideal for those, who do non do long term fiscal programs.
Merits of the Term Life Insurance Policy
Fiscal security of a individual.
Payments ( premiums ) are fixed and do non increase during the term period.
A low salaried individual can besides travel for high value insurance policies as the premium is low-cost.
The policy is intended to supply hundred per centum hazard coverage ; no extra charges other than the basic 1s. Hence, the premiums are lowest in the life insurance class.
The policy can be customised with the add-on of different riders ( explained subsequently in this chapter ) , such as release of premium or inadvertent decease.
Can be kept as collateral/ mortgage with the Bankss in instance of loan.
The premiums paid are exempt from revenue enhancement.
Drawbacks of the Term Life Insurance Policy
Screens risk merely during the selected term period.
No survival benefit, merely decease benefit.
The premiums are straight relative to age of the individual. They get increased with the age and go unaffordable over 60 old ages.
If the premium is non paid within the grace period ( as per the specification of the insurance – explained subsequently in the chapter ) , the policy could sink without geting any paid-up value.
The revised rates ( in instance of reclamation of policy ) of premium are really high.
Policy is non suited for nest eggs or investing.
Points to Chew over
We are extremely educated with honours from honored universities but still bad directors of our money because most of the times we tend to trust on “ person else ” for our fiscal planning and investings. This “ person else ” in insurance industry can be straight related to an agent or alleged insurance contriver of XYZ company while taking Insurance. Most of the clip these agents exploit our fiscal illiteracy to their benefit, they tend to pin down us by reding policies which earn them higher committee and wholly disregard our demands. If we have to avoid being quarries for their trap, fiscal literacy is most of import for each and every one of us. On this note, reply to the 10 astonishing facts being presented below which 1 must cognize about the term insurance:
Which is the simplest signifier of life insurance?
Which is the best signifier of life Insurance?
Which is the most basic and purest signifier of life insurance?
Which is the cheapest signifier of life insurance screen?
Which life insurance program is easiest to compare?
Which is the most low-cost signifier of life insurance?
Which life insurance programs your agent or adviser garbages to discourse or deter you to purchase?
Which life insurance program is easiest to end?
Which insurance program is the least sold?
Which is the best gift you can of all time give to your household?
Interestingly, replies to all the above 10 inquiries is ‘Term Plan ‘ .
Is n’t it astonishing? So, despite being the best signifier of life insurance, why the term policies are least sold? Why merely a few people are cognizant of them? The lone drawback is, there is no survival benefit. This fact is hard to digest and accordingly taken advantage of by the insurance agents to mislead people about the true intent of life insurance.
The determination should be made sing whether the individual expects to have the money back on the comprehensive insurance screen bought for his/her auto or motorcycle? It is likewise with the pure signifier of life insurance. It is to be noted that life insurance is fundamentally for contingency and non for certainty. Now, the individual should thoughtfully make up one’s mind which life insurance program should he/ she choose for?