Life Insurance

Insurance is a contractor between the insurer and the policyholder. A life insurance policy promises that the insurer will pay the policyholder a certain sum of money if the person insured dies or any other specified contingency happens.

 

The business of insurance is related to the protection of the economic value of assets. Every asset has a value. Every asset is expected to last for a certain period of time and it may get lost earlier. An accident or some other unfortunate event may destroy it or make it incapable of giving the benefits. A human is an income generating asset. These are also can be lost through unexpectedly early death or through sickness and disabilities caused by accidents. Accidents may or may not happen. Death will happen but the timing is uncertain, It happens around the time of one’s retirement, when it could be expected that the income will normally cease, the person concerned could have made some other arrangements are not in place, there can be losses to the person and dependents. Those dependents on the income are helped to overcome their difficulties, by insurance.

Principle of utmost good faith:

It is the duty of the person to make a full disclosure to the insurer. The implication is that, in the event of failure to disclose material facts, the contract can be held to be void. The facts regarding age, height, weight, build nature of occupation, personal habits like smoking/drinking, medical history, surgeries, earlier insurances etc., are material facts and must be disclosed. The proposer cannot defend non-disclosure by contending that he/she did not think that the fact was material.

Principle of Insurable interest:

All risks are not insurable. Only non-speculative risks are insurable. The insured must be in a relationship with the subject matter of insurance, whereby he/she benefits from its safety and well being and would be prejudiced by its loss or damage.

Eg:

  • A husband has insurable interest in the life of his wife and vice-versa.
  • Parents have insurable interests in the lives of their children.
  • A brother doesn’t have insurable interests in the life of his own brother.

Products:-

  • Term Assurance plan: If the insured does not die within the specified period, no payment is made under this plan.
  • Pure Endowment plan: If the insured dies within the specified period, no payment is made under this plan.
  • Endowment plan: It is a combination of term assurance and pure endowment plan along with whole life plan.
  • Double endowment assurance plan: A term assurance plan plus pure endowment plan of double the value, under which the amount payable on survival is, double the amount payable on death.
  • ULIP (Unit Linked Insurance Policy): It is a life insurance policy which provides a combination of life insurance protection and investment.
  • Money back or anticipated endowment Policy: At frequent intervals, certain said amount of sum assured is payable part by part and at the end balance amount is paid.

Eg:  Assume Mr. Anush has taken a money back policy for 20 years wherein he would get sum assured of 20% at the survival year of 5th, 10th & 15th year and at the end of 20th year he will get balance 40% of sum assured + guaranteed bonus + accrued bonus in case of survival. But in case of death, the entire sum assured is given to the nominee.

 

 

Death cover: It provides the benefit being paid on the death of the insured person within a specified period.

Survival Benefit: It provides the benefit being paid on the survival of the insured person within a specified period.

Whole life plan: A term assurance plan with an unspecified plan.

Lapse and non-forfeiture: The insurer is entitled to say that the policy comes to an end. Such termination is called a ‘Lapse’. No claims arise on the policy after a lapse, and all premiums are forfeited.

When there is a default in premium payment, it is called non-forfeiture.

Paid up value: The sum assured is reduced to a sum which bears the same ratio to the full sum assured as the number of premiums actually paid bears to the total no. originally stipulated in the policy.

Policy Inforce:   It means, the policyholder can pay the premium whenever he is in a position to do so and the policy will continue to be in force.

Extended term insurance: Here the policy may last for a longer time because the premium advanced is lower.

Revival: The insurers can bring the lapsed policies back into full force, this process is called revival.

Assignment: A life insurance policy is property. It represents rights. A life insurance policy forms part of the estate of the policyholder and can be sold mortgaged, charged, gifted or bequeathed. One of the methods of transfer is the assignment. An assignment transfers the rights, title and interest of the assigner to the assignee.

Nomination: It is a simple way to ensure easy payment of policy money in the case of a death claim to the person nominated by the insured.

Nomination V/s Assignment:

Policy retains full control & can deal with the policy without the consent of the nominee.

Policy holder loses control over the policy. Assignee is the owner of the policy and can deal with it.

Surrenders and Surrender value:

A policy holder can surrender the life insurance policy before it becomes a claim.

The surrender value is usually a percentage of the premiums paid or a percentage of the paid up value.

Loans: In most of the life insurance policies, insurers provide the facility of loans.  Loans are given up to 80% or 90% of the surrender value of the policy in question. Interest is charged on the loans.

Foreclosure: Foreclosure means closure or writing off the policy before its actual maturity.

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This entry was posted on Saturday, April 14th, 2012 at 6:06 am and is filed under Products. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.