TRADITIONAL LIFE INSURANCE POLICIES

In market there are different types of Life insurance policies are available for the different requirements of the peoples. A few popular are described below for all just to have an idea and choose whichever suits your requirement.

TERM POLICY

Term Life Insurance Policy is as its name suggests is taken for a specific term or a period of time and if the insurer dies during this period the nominee will get the sum assured.  This policy is although a low premium policy and does not pay any amount on survival of insurer. This policy is beneficial for the people who cannot afford a heavy amount on premiums. It is purely an insurance scheme and does not have investment features like others policies.

Types of Term Life Insurance Policies:

Yearly Renewable Term Insurance:

 This policy is issued for a period of one year and the insurer settles the claim if insured dies during this period. This policy can be taken for up to a certain age such as 65 years etc.

Level Term Life Insurance: The premium paid under this type of policy remains constant for the whole period. The longer the period, the higher is the premium. Because it cover the insured till older age where chances of deaths are higher. This policy can be renewed only on the discretion of insurer, subject to good health of insured.

Decreasing Term Life Insurance: Under this type of policy the benefits starts decreasing every year whereas, the annual premium is constant.  For eg. the benefits to the insured will be lesser if death took place in proceeding years, in comparing to starting period.

Increasing Term Life Insurance: The benefit also goes up along with the premium every year. Term insurance is helpful to those who do not have more money in initial years.

WHOLE LIFE INSURANCE

The purest form of Life Insurance is Whole Life Insurance also known as Ordinary Life Policy and the oldest in insurance history.  Under this policy premiums are paid throughout life and the sum insured becomes payable only at the death of the insured. The policy remains in force throughout the life of the assured and he/she continues to pay the premium till death. This is the cheapest policy as the premium charged is the lowest under this policy. This policy satisfies the original intention of life insurance which is to provide security to dependents on the death of the assured.  

The payment under the policy is assured and this policy does not have an end date. The assured can insure himself or herself for higher amounts (at comparatively low premiums) so that his dependents are well provided for in the event of his or her death. This type of policy requires premium payment to be made indefinitely and the policy holder may find it difficult to continue the premium payment during his old age. This type of policy is ideally suited to take care of estate duty liability. Duties or property tax is payable on the death of the assured by the legal heirs for transfer of property in their name. This duty at times can be very steep. The proceeds of the policy is useful for paying up these taxes.

Types of Whole Life Insurance                                     

Single Premium: The premium under this policy is paid only once at the time of inception of policy calculated as per the sum assured.

 Continuous Premium: The insured continues to pay the same premium as long as he or she lives at the same duration as decided upon at the time of inception of policy. The premium is calculated taking into account the probability of insured’s death and compound interest.

 Modified Whole Life Insurance: The premium paying option under this type of policy is flexible for the ease of insured. Generally, insured asked to pay low level of premium in the initial years and much higher amount in the later years as the earning capacity of the insured goes up.

ENDOWMENT LIFE POLICY

In this policy the insurer agrees to pay the assured or his nominees a specified sum of money on his death or on the maturity of the policy whichever is earlier. Premium is naturally a little higher in the case of this policy than the whole life policy. This is a very popular policy these days as it serves the dual purpose of family and ole age pension.  The premium is payable till the maturity of the policy or until the death of the assured whichever is earlier.

Double endowment policy

The insurer agrees to pay to the assured double the amount of the insured sum if he lives on beyond the date of maturity of the policy. This policy is suitable for persons with physical disability who are otherwise not acceptable for other classes of assurance at the normal tabular rates. Premiums are to be paid for a selected term of years or until death, if earlier.

JOINT LIFE POLICY

This policy is taken on the lives of two or more persons simultaneously. It covers the risk on two lives and is generally available to partners in business. Policies are however, issued on the lives of husband and wife under specified circumstances. Sum assured becomes payable at the end of the selected term or on the death of either of the two lives assured, if earlier.

CHILDREN’S POLICIES

Fixed Term endowment (Marriage):  This policy is purchased by the parent and guardian for the purpose of marriage of their ward, they are regarded as the assured. A particular time is selected and the sum is paid to assured on expiry of term.  Premium is paid till the maturity of term or on the death of the assured. The sum assured is paid in lump sum at the end of term or on the death of assured whichever occur first. The logic behind this policy is to generate a lump sum for a major occasion like marriage.

Educational Annuity Assurance: This policy is similar to fixed term endowment (marriage) the difference is that the sum assured is paid in half yearly installments for 5 years, which is ideal to pay semester fees for higher education. These policies are taken forecasting the futuristic expenditure.  

MONEY BACK POLICY

Money back policy is working on the same platform like endowment plans work. The unique feature of this type of policy is certain share of sum assured is paid to the insured at a certain interval. At the end of policy term the remaining amount plus bonus occurred thereon is paid to the insured. If insured is died in between the term period the sum assured is paid fully and no premium is required to pay thereafter.  

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History of Life Insurance in India

Life insurance business in India begins in 1818 with the establishment of Oriental Life Insurance Company in Calcutta, but failed in 1834. The Madras Equitable had started the life insurance business in 1829 in Madras Presidency. The British Insurance Act came into effect in 1870. The Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started their business in the Bombay Residency. The business was totally dominated by foreign companies like Albert Life Assurance, Royal Insurance, Liverpool and London Globe Insurance.

 The Government of India started publishing returns of Insurance Companies in India in 1914. The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life business. In 1928, the Indian Insurance Companies Act was enacted to enable the Government to collect statistical information about both life and non-life business transacted in India by Indian and foreign insurers including provident insurance societies. In 1938, with a view to protecting the interest of the Insurance public, the earlier legislation was consolidated and amended by the Insurance Act, 1938 with comprehensive provisions for effective control over the activities of insurers.

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   The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a large number of insurance companies and the level of competition was high. There were also allegations of unfair trade practices. The Government of India, therefore, decided to nationalise insurance business. An Ordinance was issued on 19^th January, 1956 nationalising the Life Insurance sector and Life Insurance Corporation (LIC) came into existence in the same year. The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector.

 The Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body on the recommendations of the Malhotra Committee report. The IRDA was incorporated as a statutory body in April, 2000 with the key objectives to promote the competition so as to enhance customer satisfaction through increased consumer choice and lower premiums, while ensuring the financial security of the insurance market.

Insurance now a day is every body’s need. We cannot compromise on it.  In market, complex and simple both insurance plans are available. But to choose the right insurance policy, the strategy should be to have a policy on low premium for long term. So that to have a chance to stay invested for longer time.  Always stay away from expensive and lucarative products.  The ideal formula for insurance is to have at low premium, cover maximum and stay connected for longer period. In the mean time we should not forget that the low premium policies are cheap policies, but it is important to note that what benefits it provide us. To have a good policy always study each plan minutely.

The insurance sector is a vast and is growing at a speedy rate of 15-20%. Together with banking services, insurance services add about 7% to the country’s GDP. A well-developed and evolved insurance sector is a boon for economic development as it provides long- term funds for infrastructure development at the same time strengthening the risk taking ability of the country.

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Life Insurance for You

Life Insurance for you is a way to protect your survivors and dependents against financial hardship. It’s a means of spreading financial risk among a large number of people who pay into a fund or pool. In this the cost is minimized for those who suffer an unexpected misfortune. A life insurance contract or policy is a legal agreement between you and an insurance company that guarantees payment of the face value of the policy, upon death or on survival whichever is earlier.  A valuable feature of life insurance is that the benefit paid to your beneficiary is almost always tax free.

How Much Cover is Enough?

How do you figure out how much life insurance you need?  If you want to know how much insurance cover you should have, the answer is 10 times of your annual income. If your annual income is ten lakhs rupees then the insurance cover should be of rupees one crore. The second way to know is you should ask to yourself that how valuable is your life. For that you should know the current value of future income.  For instance, you should know if some day you didn’t return to your home after work, how much money your dependents should need after your departure. It gives you a picture of the capital your survivors need when you die. It looks at assets that would be available to them, liabilities they would have to deal with, and continuing family needs for income.

1.     Annual Income                                            :           Rs 10 Lac

2.     Your expenditure with taxes                          :           Rs. 2 Lac

3.     Insurance premium                                      :           Rs. 50,000

4.     Total expenditure(Yours)                               :           Rs. 2.5 Lac       (2+3)

5.     How much your family need           

(in your absence)                                         :           Rs. 7.5 Lac       (1-4)

6.     For next 25 years your family

Needs                                                         :           Rs. 1.4 Crore

(This is an example for an ideal young fellow 35 years of age earning ten Lac rupees annually.)

IMPORTANCE OF LIFE INSURANCE.

Life Insurance is of great importance to individuals, groups, business community and general public.

1. Saving for old age. After retirement the earning capacity of a person reduces. Life insurance enables a person to enjoy peace of mind and a sense of security in his/her old age.

2. Under the Income Tax Act, premium paid is allowed as a deduction from the total income under section 80C.

3. Life insurance encourages people to save money compulsorily.

4. Life insurance policy can be used as a security to raise loans. It improves the credit worthiness of business.

5. Life insurance is important for the society as a whole also. Life insurance enables a person to provide for education and marriage of children and for construction of house. It helps a person to make financial base for future.

And the last but not least…

6. Protection against untimely death Life insurance provides protection to the dependents of the life insured and the family of the assured in case of his untimely death. The dependents or family members get a fixed sum of money in case of death of the assured.

Life insurance for you is a major financial commitment. Your good friend or relative may be suggesting a lucrative plan how to be a millionaire. But you should be smart enough to have the deliberation on each aspect of the plan so that you are not trapped into their ponzy plans. You must know your needs first. A qualified life insurance agent can help you work out a more comprehensive financial needs analysis.  It's important to review your insurance needs regularly. As your family or business situation changes, so may your insurance needs. Beware, too, of future inflation and the way it could erode your insurance.

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