Life Insurance

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In general it is a contract by which a company or an entity undertakes & agrees to provide a certain amount of compensation for specified loss or damage of life, health or asset in return for payment of a specified premium.

Life Insurance Meaning

A valid contract between an Insurer and an Insured for an assured sum against the loss of life of an individual between a defined period against agreed premium which may or may not be refunded with or without profits. It is a form of risk management for protecting one’s family by means of income replacement and debt repayment.

The insurer evaluates the proposal applied by the applicant by the process called underwriting. It evaluates the peril of the individual by assessing his medical financial & moral details.

Insurance in India

Manusmriti is the ancient name of Insurance in India which was derived from Sanskrit. It is a code of conduct followed by an individual or families or kingdoms by means of taking measures against uncertainties which was later on named as insurance.

In 1818 Oriental Life Insurance Company was stared as the first Life insurance company in India which was established on Calcutta to carter the needs of the European community.

In 1870 Bombay Mutual Life Assurance Society became the first Indian insurer

Until 1956, 154 Indian Insurers 15 Non- Indian Insurers & 75 Provident societies were doing life insurance business in India but the government of India passed an ordinance on 19-Jan-1956 stating that the Life Insurance business shall be taken over by government.

Thus Life Insurance Corporation of India was established & was incorporated on 1st September 1958

Similarly another ordinance was passed on 31 Dec 1972 & GIC- General Insurance Corporation of India was formed with 4 subsidiaries

  • National Insurance
  • Oriental Insurance
  • New India Assurance
  • United India Insurance

In the upcoming years by identifying the potential of insurance business in India Malhotra Committee was formed and to govern & invite foreign investments & IRDA – Insurance Regulatory Development Authority was formed in 19th April 2000


Term Plans

Term insurance products are the purest form of life insurance policies that provide high coverage for a specific term with defined premiums based on age. In this modern era every life insurance companies offer term plans in both offline & online at competitive rates with added features such as riders, flexible payments on premium with coverage till 100 years.

Features of Term Plans

  • Protects human life against a large sum assured
  • Sum Assured – The amount payable in the event of uncertainty
  • Available in both online & offline based on companies
  • Sum assured is charged based on mortality rate fixed by the insurer
  • Premium is the amount payable by the insured

Premium paid can be availed for IT exemptions u/s 80C based on prevailing tax laws

Types of Term Insurance Plans

Level Term: Under Level term plans the Tenure, Sum Assured, Paying Term & the Premium is fixed and there is no refund on the premium payable & the contract cease to exist at the end of the policy term.

TROP: This is a term plan with return on Premium where in at the end of the policy term the entire premiums paid by the insured is refunded at the end of policy term i.e. maturity.

Increasing Term Plan: Few companies offer this concept where in the sum assured will have a proportionate increase on regular intervals. As an Individual income & lifestyle increases so is his inflation & dependents cost of living & this products matches the same.

Decreasing Term Plans: Generally this type of policy is offered along with loan repayments to minimize the premium as the loan amount decreased so is the sum insured proportionately.

Traditional Products

A traditional life policy is a type of life insurance contract that provides life insurance coverage of along with investment. These policies consist of investment component, which accumulates a cash value that the policyholder can withdraw on maturity or at regular intervals or borrow against when they need funds.

Features of Traditional Products

  • It is a conservative conventional investment with assured returns
  • Investors are eligible to participate in the profits of the company based on products availed
  • Sum assured is Paid as a survival benefit at the end of the policy term
  • Premium Paid Are eligible of 80C Tax exemptions
  • Interest accumulated is completely tax free u/s 10(10)D

Types of Traditional Plans

Endowment Plans – An Endowment Policy is a savings linked insurance policy with a specific maturity date. Should an unfortunate event by way of death or disability occur to the insured during the policy period, the Sum Assured will is paid to the beneficiaries. On your surviving the term, the maturity proceeds on the policy become payable. Endowment Plans are a combination of insurance and investment. The insured will get a lump-sum along with bonuses on policy maturity or on death.

Whole Life: A life insurance policy that is guaranteed to remain in force for the insured’s entire lifetime. Whole life insurance pays out a death benefit so you can be assured that your family is protected against financial loss that can happen after your death. It is also an ideal way of creating an estate for your heirs as an inheritance.

Money-Back Policies Under this plan, certain percent of the sum assured is returned to the insured person periodically as survival benefit. On the expiry of the term, the balance amount is paid as maturity value. The life risk may be covered for the full sum assured during the term of the policy irrespective of the survival benefits paid.

Annuity (Pension) Plans: Pension is an ideal method of retirement provision because the benefit is in the form of regular income.

  • the First option is instant annuity plans wherein a lump sum amount is used to purchase an immediate annuity from which the proposer gets regular income & the purchase price may or may not be refunded based on the option chosen by the investor
  • Under deferred Annuity policy, the person pays regular contributions to the Insurance Company, till the vesting age/vesting date. He has the option to pay as a single premium also. The fund will accumulate with interest and funds will be available on the vesting date. The insurance company will take care of the investment of funds and the policyholder has the option to encash 1/3rd of this corpus fund on the vesting age/vesting date tax-free. The balance amount of 2/3rd of the fund will be utilized for purchase of Annuity (pension) to the Annuitant.

Non-Participating or Fixed Maturity Plans: A type where the maturity amount is fixed or based on predicted loyalty additions. A non-participating life insurance policy is not eligible for the bonus as they are not entitled to the profits of the company and are thus conservative in its own way.

Child Plans: These are basically endowment policies that may give added cover to the child and the policy term & payouts will match the children’s goals i.e. education & Marriage. In a few products in the absence of the parent the insurance company takes care of the pending premiums to secure the child’s future.

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