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Insurance and Life Insurance
Insurance and Life Insurance
Insurance and Life Insurance
INTRODUCTION TO
INSURANCELIFE INSURANCE
1.1
Insurance is a form of risk management in which the insured transfers the cost of
potential loss to another entity in exchange for monetary compensation known as
the premium.
Insurance allows individuals, businesses and other entities to protect themselves
against significant potential losses and financial hardship at a reasonably affordable
rate. It is "significant" because if the potential loss is small, then it doesn't make
sense to pay a premium to protect against the loss..
Insurance is appropriate when one wants to protect against a significant monetary
loss. Take life insurance as an example. If a person is the primary breadwinner in his
home, the loss of income that the family would experience as a result of his
premature death is considered a significant loss and hardship that he should protect
them against. It would be very difficult for his family to replace his income, so the
monthly premiums ensure that if he dies, his income will be replaced by the insured
amount. The same principle applies to many other forms of insurance. If the potential
loss will have a detrimental effect on the person or entity, insurance makes sense.
Everyone that wants to protect themselves or someone else against financial hardship
should consider insurance. This may include:
Protecting family after one's death from loss of income
Ensuring debt repayment after death
more
However, while insurance coverage is essential, how much and what type of
insurance people need differ with each individual. You must decide how much risk
you're willing to tolerate without insurance. For example, benefits for disability
policies typically begin after a waiting period of one to six months. Therefore, you
should ensure that you have some form of coverage or financial resources before the
policy period begins.
1.3
Life insurance in India made its debut well over 100 years ago.
In our country, which is one of the most populated in the world, the prominence of
insurance is not as widely understood, as it ought to be. What follows is an attempt to
acquaint readers with some of the concepts of life insurance, with special reference to
LIC.
It should, however, be clearly understood that the following content is by no means
an exhaustive description of the terms and conditions of an LIC policy or its benefits
or privileges.
Life insurance is a contract that pledges payment of an amount to the person assured
(or his nominee) on the happening of the event insured against.
The contract is valid for payment of the insured amount during:
The date of maturity, or
of
the
breadwinner.
By and large, life insurance is civilisation's partial solution to the problems caused by
death. Life insurance, in short, is concerned with two hazards that stand across the
life-path of every person:
1. That of dying prematurely leaving a dependent family to fend for itself.
2. That of living till old age without visible means of support.
Life is too precious, so much that it is difficult to put a price on it. Money surely can't
bring our late loved ones back or buy us happiness and affection. But it can very well
help us realize its significance for survival. A family's survival is risked if its sole
earner dies unexpectedly. The demise of a loved one creates a void that is hard to fill
but his/her absence must not disrupt the financial future of the family. As it is, the
grief of losing a member is a lot to deal with; at least money woes should not be
reason behind worries and miseries. It is therefore, essential to realize the value of
your life and sign up for life insurance, which is a protection against financial loss
resulting from insured's death. In legal terms, life insurance is a contract between a
policy owner and insurer, wherein the latter agrees to reimburse the occurrence of the
insured individual's death or other event such as terminal illness or critical illness.
The insured agrees to pay the cost in terms of insurance premium for the service.
Life insurance offers you risk coverage and takes care of monetary needs of your
family after your death. Besides providing coverage against all sorts of risks, it gives
you an opportunity to grow your investments. It could also be viewed as a long-term
investment tool that helps you to save for your child's future expenses or your post
retirement expenses.
1.4
Depending on the diversified needs of every individual, various insurance plans are
available in the market. Such customized plans are made in such a way that they suit
the likes of majority of customers.
Following are the different forms of life insurance plans:
for
endowment
assurance
policy
or
whole
life
policy.
2. Whole life insurance: This policy covers you for as long as you live. You stay
protected for your entire life, thus this plan is named as whole life policy.
3. Endowment policy: Risk is covered for a specific period and at the end of the
period sum assured along with the accumulated bonus, is paid back to the
policyholder. Endowment policy pays back the face value of the amount on the
insured person's death or after a stipulated number of years. Some policies also make
payment in case of critical illness.
4. Money back policy: This policy repays survival benefits periodically during the
term of the plan.
5. Savings & investment plans: Help you save and invest to make your money
grow.
6. Retirement plans: This plan is a retirement solution plan and does not cover life
insurance. You can build your retirement corpus as per your risk appetite and on
completion of the specified period, a certain amount of money is paid to the
insured/beneficiary in the form of pension, monthly, half-yearly, or annually.
7. Unit Linked Insurance Plans (ULIPs): A part of investment goes towards
providing life cover, while the residual portion is invested in stocks or bonds. It is a
goal-based financial product, which is designed to impart safety and wealth creation
opportunities.
8. Child insurance policy: These plans are designed to meet rising education and
other needs of children. A child plan offers a lump sum amount on the death of the
policyholder, but the policy doesnt end. All future premiums are waived and
term.
The
main
advantages
of term
life
insurance protection plans are that they are easy on your pocket,
give you the highest amount of coverage, safeguard your family
against financial liabilities and offer you tax benefits.
Term life insurance protection plans have no face value and hence the premium for
such policies is comparatively lower when compared with other policies. In case of
survival of policy term, the insured does not get any return. The premiums in such
policies increase with rising age as the chances of death are high in old age. Once
you cross 60 years, these policies become difficult to afford.
Life Insurance Investment Plan
These life insurance investment plans offer you dual advantages of Investment and
protection. The life insurance investment plans range from low risk to high risk
investment propositions, depending on the risk profile of a customer.
Life Insurance Coverage
The life insurance coverage is defined as the sum assured that you buy under the
policy. You have the discretion to decide your sum assured but certain factors that
affect the coverage are your annual income, your life stage and your risk group.
Life Insurance Contract Terms
The
most
common
terms
used
in
life
insurance
contract
are:
Indisputable Clause: Your insurance company is entitled, usually during the first two
years of the policy, to challenge the validity of your policy in case you hide any
information from the insurer. If you are found guilty of concealment, your insurer
could void the policy and return the premiums.
Suicide Provision: The suicide clause in your policy specifies that the insurance
company will not pay you sum assured if the insured attempts or commits suicide
within a specified period from the beginning of the coverage.
Reinstatement Clause: If your policy has lapsed due to non-payment of premium,
you can revive it by paying all the past outstanding premiums along with interest.
However, you need to prove to your insurer that you still continue to enjoy good
health to qualify for this provision.
Settlement options: You have the provision to collect the settlement proceeds as per
the options offered by your company.
Excluded Risks: Depending on the policy, death under circumstances like war or an
aviation accident may or may not be covered.
Grace Period: There are times when you are unable to pay premiums due to financial
crunch. Your insurance company provides a grace period within which you can make
the necessary monetary arrangements and pay your premiums.