Life insurance Life insurance may be defined as the contract in writing whereby the insurer, inconsideration for a small

amount of premium, undertakes to pay a certain amount of money or annuity, either on the death of the person or on the expiry of the specified time period. The premium may be paid annually, quarterly or monthly but it must be paid on a regular basis. Life insurance is not a contract of indemnity because sum assured is always payable and only the time period of payment is uncertain. Importance of life insurance policy Protection against risks: Life insurance provides protection to the family after the death of the insured. In case of premature death, the amount is paid to the dependents of the insured. Provision for old age: A person can make provisions for old age by taking a life policy. The holder feels financially secured and can enjoy economic independence after retirement. You must have seen the movie, "Race" where two brothers want to kill each other just for getting the insurance amount. Thrift and savings: Premium is generally paid in installments and thus, it encourages the people to save their money. Investment: Life insurance is a good method of investment. He can build funds for higher education of his children, for building a residential house. Tax savings: As per the Income Tax act, the amount invested in the life insurance policy is exempted form tax. Thus, it reduces the financial burden on the person. Employment generation: Life insurance companies provide employment to millions of people as agents and various other posts. Thus, it is good opportunity for self-employment. Types of life insurance policies Whole life policy: This policy continues throughout the life time of the insured. The premium is payable as long as the insured is alive. The amount of the policy is payable to his nominees who are then called beneficiaries". We have has many cases of the son killing his father or his mother just to get the amount. The amount of premium is generally less in this policy. It is mainly taken to support the family members after one's death. Endowment policy: This policy is taken for a specified time period. The sum insured is payable on the expiry of the time period. This is the most famous from of life insurance which is mainly taken to manage one's old age so that he does not have to depend on his family members. Joint life policy: It is a policy taken up jointly on the lives of two or more persons. On the death of any one, the sum insured is payable to the surviving holders of the policy. This type of policy may be obtained by husband and wife, partners of a firm etc. Group insurance policy: An employer may take up one policy on the lives of all his employees instead of taking separately. The policy specifies the amount for each employee. The sum assured is payable to the family members of the employee. If the employee survives, he gets the money for his retired life. Procedure for taking life insurance policy Proposal: The person who wants to get an life insurance policy has to first of all obtain the prescribed form from the agent or directly through the company. The proposal form should contain the information concerning name, address, professions, date of birth, family history, health status etc.

Medical examination: On receipt of duly filled form, the proposal has to appear before the doctor approved by the insurance company for medical examination. After medical examination, the doctor prepares a full report on the health of the proposer and sends it to the insurance company. The insurance company evaluates the extent of risk from such report. Proof of age: The proposer is required to mention his date of birth in the proposal form. He has to submit a satisfactory proof of his age to the company. Birth certificates and high school certificate are generally accepted. Acceptance of proposal: If the proposal is good and the medical report is satisfactory, the insurance company will accept the proposal. It will also determine the amount of the premium on the basis of the age and the policy taken. The insurance company will ask the proposer to make the first payment of the premium. Payment of premium: The proposer will pay the first premium as per the notice. He receives the First premium receipt. The risk cover begins on the payment of the premium. Issue of policy: Now the insurance company issues the policy which is stamped and signed by the authorized authorities. It is then sent to the insured through registered post. Clauses of life insurance policy Assignment: Assignment of a policy means the transfer of rights and liabilities to a third person. A policy may be assigned at any time before its maturity. Nomination: Nomination means stating the name of the person in the policy who shall receive the amount after the death of the policy holder. The person is called the nominee. In case the policy matures in the life time of the insured; the amount of the policy is paid to the insured and not the nominee. Surrender value: If the policy holder wants to discontinue the policy, he may surrender the policy to the insurance company. Surrender value is calculated on the basis of the total amount of premium paid the period for which the policy has been in operation. Days of grace: A policy holder is allowed to pay premium within certain days after the due date. In case of monthly premium, 15 days of grace are assured, and in quarterly and yearly payment, 30 days of grace are allowed. If the policy holder dies within the days of grace without the payment of premium, the amount of the premium is deducted from the policy. Procedure for settlement of claim Death Claim: I. INTIMATION OF DEATH The death of the life assured has to be intimated in writing to the insurer. It can be done by the Assignee or nominee under the policy or from a person representing such Assignee or Nominee or when there is no nomination or assignment by a relative of the life assured, the employer, the agent or the development officer. Where policy is assigned to a creditor or a bank for valuable consideration, intimation of death may be received from such assignee. Sometimes, the office need not wait till the intimation of claim is received. The concerned agent, newspaper reports in case of accidents or air crashes, obituary columns may give information and claim action can be started. However, the identity of the deceased should be established carefully. The intimation of the death of the life assured by the claimant should contain the following particulars: (1) his or her relationship with the deceased, (2) the name of the policyholder, (3) the number/s of the policy/policies, (4) the date of death (5) the cause of death and (6) sum assured etc. If any of these particulars are missing the claimant can be asked to furnish the same to the insurer.

The intimation must satisfy two conditions (1) It must establish properly the identity of the deceased person as the life assured under the policy, (2) It must be from a concerned person. II. PROOF OF DEATH AND OTHER DOCUMENTS In case of claim by death, after the receiving the intimation of death the insurance company ensures that the insurance policy has been in force for the sum assured on the date of death and the intimation has been received from assignee, nominee or other claimant. The following documents are required: (i) Certificate of death. (ii) Proof of age of the life assured (if not already given). (iii) Deeds of assignment / reassignments. (iv) Policy document. (v) Form of discharge. If the claim has accrued within three years from the beginning of the policy, the following additional requirements may be called for: (i) Statement from the hospital if the deceased had been admitted to hospital. (ii) Certificate of medical attendant of the deceased giving details of his/her last illness. (iii) Certificate of cremation or burial to be given by a person of known character and responsibility present at the cremation or burial of the body of the deceased. (iv) Certificate by employer if the deceased was an employee. Proof of death and other documents to be submitted will depend upon the cause of death and circumstances of each case. (1) In case of an air crash the certificate from the airline authorities would be necessary certifying that the assured was a passenger on the plane. In case of ship accident a certified extract from the logbook of the ship is required. (2) The insurance may waive strict evidence of title if the sum assured of the policy is small and there is no dispute among the survivors of the policy moneys. (3) If the life assured had a death due to accident, suicide or unknown cause the police inquest report, panchanama, post mortem report, etc. would be required. If by any chance policy contract is lost, advertisement of the loss of policy is to be given. Payment can be made on the basis of an indemnity given by the policyholder. If the deceased has taken out policies with more than one branch and the claimant has produced proof of death to any one of them and desires that maybe the other branch or branches, act on the same proof, his request ought to be complied with. The Branch requiring proof of death should directly call for the certified copies from the branch concerned.

III. NET PAYABLE AMOUNT OF CLAIM After receiving the required documents the company calculates the amount payable under the policy. For this purpose, a form is filled in which the particulars of the policy, assignment, nomination, bonus etc. should be entered by reference to the Policy Ledger Sheet. If a loan exists under the policy, then the section dealing with loan is contacted to give the details of outstanding loan and interest amount, which is deducted from the gross policy amount to calculate net payable claim amount. The net amount of claim payable is calculated and is called payment voucher. In the case of in force policy unpaid premiums if any due before the Assureds death with late fee where necessary and the premium falling due in the policy year current at the time of death should be deducted from the claim amount. MATURITY CLAIMS If the life insured survives to the full term, then basic sum assured is payable. This payment by the insurer to the insured on the date of maturity is called maturity payment. The amount payable at the time of the maturity includes a sum assured and bonus/incentives. The insurer sends in advance the intimation to the insured with a blank discharge form for filling various details in it. It is to be returned to the office along with:

Original Policy document Age proof if age is not already submitted Assignment /reassignment, if any. =========================================================================== FACTORS AFFECTIG RISK IN LIFE INSURANCE In life insurance, the factors which may affect the risk are usually those factors which are affecting the mortality; they are also called factors affecting longevity of a person. The mortality is not the only risk but the capacity and willingness of a person also influence the insurance decision. These factors are discussed in following paragraphs: 1. Age: The age of the life to be assured is the most important factor to affect mortality. Except for a few years of the childhood, the premium is determined at every year of the completion of age. The corporation asks for the age nearer to birthdays. The person below six months and the person above six months older of the age will be treated of the same age. For instance, a person of 22 years 7 months and another person of 23 years 5 months will be treated the age of 23 years. The age proof is very essential for calculating premium rate. So, unless age is proved payment of claim is not made if the age was not admitted at the time of proposal. Now it has been the common practice that the age should be admitted at the time of proposal to avoid dispute. On the basis of age, in future, if a misstatement is discovered after the policy has become a claim; the amount of the claim is adjusted in accordance with the rectification of age. Age proof is essential at the proposal if the policy is term insurance, non-medical policies and immediate annuity or the insurance is taken at advance age or for a child because they are maximum and minimum limits of age. Minimum and Maximum limit of age: The maximum age limit is fixed to avoid adverse selection. At advance age, the need for insurance is a doubtful proposition, i.e., the chances of moral hazard are higher.The third reason for fixing maximum limit is the medical

examination will disapprove most of the proposal at that stage. Mortality is certainly increased at that age. The minimum age limit is meant to avoid risk of infant mortality. 2. Build: Build refers to physique of the proposed life and includes height, weight, the distribution of weight and chest expansion. There are standards of weight according to maximum weight reveal the indication of certain hidden diseases. Therefore this sign is not favorable. The relationship between height, weight, girth and expansion of chest are the basic determinants of mortality expectations. Overweight is dangerous in advanced age and underweight is similarly not desirable at younger age, say, below 35 years. The corporation, for example, has fixed the minimum weight and maximum weight at a specified height. If the assured life is not within the standard the proposal may not be accepted at the time of proposal and it may be postponed or may be accepted at extra-premium or may be rejected at all. 3. Physical Condition: The physical condition of the age life proposed has a direct bearing on the mortality of the life. Insurers are, therefore, very particular about the conditions of an applicants' sight, hearing, heart, arteries, lungs, tonsils, teeth, kidneys, nervous system, etc. The experts in the field can assess the longevity or mortality of a person due to impairment of certain organs. 4. Personal History: The personal history of the life proposed would reveal the possibility of death to him. The history may be connected with the (i) health record, (ii) past habit, (iii) previous occupation (iv) insurance history. (i) Health Record: The past health record is the most important factor under personal history because it affects the longevity or mortality of a person to a greater extent. It includes any operations of the life proposed. The medical examination may reveal these facts. It has been the practice not to accept the proposal form of the applicants who are suffering from illness. If the applicant has suffered from certain serious disease or operation during the past 5 years, he may be under the possibility of getting it again. (ii) Past Habits: The insurers want to know the past habit the life proposed, for drugs or alcohol because the cure may be only temporary. The past history is usually expected to be repeated. Therefore, past history is very cautiously examined. (iii) History of Occupation: If the proponent was employed in hazardous or unhealthy occupation, there is a possibility that he may still retain illeffects there from or may revert to such occupation. An intimate association within a person suffering from a contagious disease may influence the health of the life proposed. The past hazardous occupations generally affects, health slowly occupational diseases are contacted. (iv) Insurance History: The previous amount of insurance may disclose the degree of risk of the applicant. If he was refused insurance, it might be a suspicious factor of his insurability. If it was found that the applicant was already insured for adequate amount this request for more insurance is regarded with suspicions. 5. Family History: Like the personal history, family history also requires information of habit, health, occupation and insurance of other family members, particularly of the parents, brother and sisters. The children's history of health is also required. The

certain diseases, like tuberculosis and insanity, etc., and longevity of the parents will be relevant factors for determining the degree of risk of the proponents. The favorable family history, however, is not considered for offsetting the adverse effect of the personal history. The family history is considered significant to know the transmission of certain, characteristics by heredity. Hearts, lungs, build, etc., follow family. 6. Occupation: Occupation is an important factor to affect the risk. It affects the occupation in various ways. Firstly, the nature of work may be hazardous because he may suffer an accident at any time while at work. Secondly, the morale of the workers may go down. They may be tempted to indulge in intoxicating or liquor or other forms of immoral living. Thirdly, the chemical effect may be poisonous. For instance, the workers may contact poison while engaged in match or chemical factories. Fourthly, the dusty or unventilated house, unhealthy or insanitary environments may deteriorate the health of the workers. Fifthly, in certain occupation, the occupational diseases are common. Sixthly, excessive mental and nervous strain may cause financial worries, and lastly, the lesser income may affect the health of the worker. 7. Residence: The residence also affects the risk. The risk will be lesser in a good climate area and more in a bad climate although the difference is narrowed down because of better medical and sanitary facilities! Information about the previous residence is equally important. The geographical location, atmosphere, political stability, climate, construction of house, travel, etc., are important factor which may affect the risk. 8. Present Habits: The general mode of living of the proposer affects the risk. Drunkards and non-temperate persons cause increase in mortality. Similarly, temperate habits tend to increase longevity of a person. Excessive and careless smoking tends to shorten the life due to development of nicotine poisoning. The past habits are also considered important. The intoxication affects the health of a person and consequently his mortality. The general mode of living is also considered in habits. 9. Morals: It has been observed that the departure from the commonly accepted standards of ethical and moral conduct involve extra mortality. Infidelity and departure from the code of sex behavior are seriously regarded because these may affect the health. Unethical conduct is considered to be another form of moral hazard. Insurance is not generally given to bankrupt and reputed dishonest persons. Consideration, of morals is essential to determine the moral hazard. There are two types of hazards Moral and Physical hazards we have discussed factors affecting physical hazards in the other sections. Moral hazard will be discussed only under this heading. The moral hazard occurs due to intention of the insured whereas the physical hazard is beyond his approach. The former is present where the policy is taken not with a view to protect one-self against losses but to obtain gain through crooked means. The moral hazard is judged by the reputation and fairness in dealings. The moral hazard is expected to present where insurance is taken at advanced age, where person is suffering from serious disease, proposal is on other's life and the proponent is engaged in hazardous occupation. 10. Race and Nationality: The mortality rate differs from race to race and nation to nation. In India, persons of high, race or caste are expected to live longer than the scheduled castes or tribes. Similarly, countries near to equator have more mortality. The climate and way of life of a country affect the health conditions of the people.

11. Sex: Mortality among female sex is, generally, higher than that of male sex because the physical hazard of maternity is present in the former case. Moreover, the ladies are physically more handicapped. The lesser education, conservatism and nonemployment of the ladies also affect the mortality. The absences of proper examination of the ladies also count more hazard. The chances of moral hazard are also present in the female insurance. So, unless woman has good financial reasons for insurance, her proposal is not generally conceded. 12. Economic Status It is essential to examine that the family and business circumstances of the proponents are such as to justify the amount of insurance applied for. This investigation also reveals whether the income of the applicants bears a reasonable relationship to the amount of insurance which he proposes to carry. The higher economic status generally provides a better field for insurance due to various reasons. Educational, financial and professional consciousness makes the proponent insurance minded. The chance of death is also lower in higher strata of the society. 13. Defense Services: Though there has been much improvement in defense technology, yet flying or gliding, etc., is still considered hazardous one. Sometimes, certain restrictive clauses are imposed for insuring persons engaged in such services. In some other works, extra premiums are required. In commercial flying, no occupational extra is required. The war clause is added to avoid the occupation risk in defense, say, navy, air force and military.

Persons Entitled to payment Under Life Insurance A life insurance beneficiary is the person you name in your life insurance policy as the person who gets the proceeds of your insurance policy in the case of death or illness of the insured. Life insurance proceeds are usually paid immediately to the beneficiary upon the demise of the policy holder. But if you name say something like insureds estate as the beneficiary it would mean that insureds money would go into the process of probate which is usually a long and lengthy process that would mean unnecessary wastage of money too. While mentioning the beneficiary, it is important to define his or her designation the policy very well. If insured do not word his/her beneficiary's designation properly, it might have disastrous results on how the policy proceeds are distributed. ALTERATIONS AND ENDORSEMENTS Endorsement is an authenticated noting on the back of Policy Contract and forms a part of the contract. In the case of lack of space, the endorsements can be put on a separated sheet of papers and attached to the policy. Endorsements are required because life assurance is a long-term contract and the life assured may want certain changes in the terms of contract. There are different type of alterations or modifications that can be made during the tenure of the policy such as changes regarding increase or reduction in the sum assured, mode of payment of premium, modification related on account of mistakes in the preparation of the policy by the insurer, modifications related to reduction in term, conversion from Non-profit to With Profit and similar other like change of name, plan-term and so on.