ELEMENTS OF GOOD LIFE INSURANCE POLICY

There are many different types of insurance. Life insurance, health insurance, auto insurance, homeowners insurance, long-term-care insurance and disability insurance are just some examples. Each of these policies is designed to serve a specific purpose and may have advantages and disadvantages, but every insurance policy has certain common elements. The most common element of a life insurance policy is to protect the finances of ones family or in case of a wage-earners death, but thats not its only element. Some of the basic components of a good life insurance policy are as under: 1. PROVISION FOR RISK COVER : Every policy must spell out the details of the type of coverage provided. A decent insurance policy will state what the company is willing to give you in exchange for the premiums you pay. For example, in a term-life insurance policy, you may have a 30-year term and Rs.500000 death benefit. This means your coverage protects you if you die within 30 years from the time you purchased the policy, and the insurer will pay Rs.500000 if you do die. 2. PREMIUM : Owner of a policy need to pay premiums for every type of insurance. Premiums are the amount you pay for the privilege of transferring the risk to the insurer. So, a premium should be accurate when compared to sum assured. A decent plan provides a premium which is neither less nor more when equated with the total amount of maturity. For example, in health insurance, premiums are the amount you pay to transfer the risk that you will incur large medical expenses, which the insurer will pay, so the premium 10 tyms of sum assured In a life insurance policy, you are transferring the financial risks associated with your death to an insurer. Insurance premiums are set based on the type of insurance, but generally the

insurer will calculate the statistical likelihood that it will have to pay a large claim and uses that likelihood to arrive at a monthly premium. 3. TERM OF A POLICY : How long insurer need to be covered by the life insurance policy is also important. It is very common for a person to choose a time period that's from 20 to 25 years. It should be kept under consideration that the age at the time an individual gets the policy should be considered as well. Most of the time firms won't offer such life insurance to anybody that is more than 70 years old. The ones that will charge a very costly monthly fee so a caution must be taken to have coverage in position before you reach that age grouping. Thus, an upright policy provides a flexibility of term of a policy. 4. FLEXIBILITY: Elasticity or flexibility is a feature that offers a selection of high, medium and low risk investment options within the same policy. Underwriter can choose an appropriate policy as per their risk taking appetite. A good policy provides the flexibility to choose the sum assured and investment ratio in the annual targeted premium. It also offers the flexibility of one time increase in investment portfolio, through top-ups to avail any investment opportunity offered by external environment or own income flows. 5. LOAN AGAINST POLICY : Many corporation provide loan against their policy . By and large loan is issued after the policy acquires surrender value i.e. policy has run and premiums have been paid at least for 3 years. A plan should be chosen such that it provides a loan against it. 6. TAX BENEFIT : One of the key factors to keep in mind when buying life insurance is tax. Although insurance should not be bought to save tax, the tax savings provided under various sections of the Indian Income Tax Act, make buying insurance cheaper as well as an efficient investment for long term savings. Reduce tax liability. Under this section, investments made in the specified instruments are

subject to rebate. Currently, the amount available for rebate under section 80C is Rs. 100,000 which can be invested in life insurance premiums, pension superannuation fund, employee provident fund, equity linked mutual fund schemes (ELSS), National Savings Certificates and public provident fund (maximum Rs 70,000). The amount invested in these instruments is eligible for rebate through deduction of the amount from gross taxable income.

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RIDERS AVAILABLE: Life insurance is for protecting your life cover.

Sometime the life insurance is not enough for you to protect from unexpected expenses like accident and illness. In that case you have to prepare for some other plans other than the normal life insurance policies. Riders are additional benefits that can be purchased with an insurance policy. Apart from the basic life insurance policy you have to option to add some extra benefits to protect from the unexpected happenings. In the event of total and permanent disability during the term of the policy due to an accident (within a specified period from the date of accident), an amount equal to or less than the rider sum assured is be paid to the insured. There are different types of riders in the life insurance policies 8. DEATH BENEFITS : The amount on a life insurance policy or pension that is payable to the beneficiary when the annuitant passes away. A death benefit may be a percentage of the annuitant's pension. For example, a beneficiary might be entitled to 65% of the annuitant's monthly pension. Alternatively, the benefit may be a large lump-sum payment from a life insurance policy. The size and structure of the payment is determined by the type of policy the annuitant held at the time of death. Whether youre a man or a woman, purchasing life insurance is a very difficult yet crucial step, in coming to terms with your mortality and considering the bigger picture: the welfare of your family after youve passed. However, before purchasing you should familiarize yourself with all aspects of a life insurance contract including the all-important death benefit.

9. MATURITY BENEFITS : Survival benefits, also called maturity benefits depend totally on the type of life insurance policy purchased. Term plan do not provide any maturity benefit, but it offers a huge risk cover with significantly low premium. 10. GROWTH THROUGH DIVIDENDS - Traditional policies offer an opportunity to participate in the economic growth without taking the investment risk. The investment income is distributed among the policyholders through annual announcement of dividends/bonus