Basics of Life Insurance
Claim settlement ratios
What is Life Insurance?
Life insurance is an agreement between three parties (Insurance provider, Policyholder, Nominee). Insurer assures that during the demise of the policyholder a sum assured up 10 times of his income.
Life Insurance is a plan that offers financial coverage for life. For payment of a fixed amount over a period of time. The premium is the amount paid to the company. On the death of the insured or due to maturity of the period the amount paid to the nominee.
The Insurance provider collects the money regularly called a premium. After the unforeseen demise of the policyholder, the insurance provider pays the sum assured to the nominee. In most cases, nominees would be the immediate family members of the policy holder.
Let’s start having advanced knowledge about Life Insurance…
Who provides Life insurance?
A financial institution like Bharathi Axa provides life insurance. A life insurance policy is an agreement between a bank and a person. The person is generally known as the life assured. The bank requires a detailed health report of the person. The report plays an important role in calculating the persons’ sum assured.
The sum assured is determined based on the person’s current health condition. The insured person pays a regular amount every year, half a year, or a big amount before the plan starts. If the insured persons’ life becomes critical the bank pays the promised amount to the nominee.
It’s the financial institutions’ responsibility to follow the rules and regulations of IRDAI.
Why Life insurance?
- Nowadays people life has become very uncertain. We are prone to outside travel and other health conditions. Everyone might know at least one person whose family suffered financially because of their demise. What could the friend’s family do if he is the only breadwinner of the family? How will the family survive?
- That is when life insurance comes into help. It is a fact that the person’s life is irreplaceable. But the financial compensation could reduce the pain the family members feel. After the policyholder’s demise, the nominee receives the sum assured. That money will help in supporting the family’s financial situation.
- The life insurance fee starts from 480 per month. Even a less-income person can avail of life insurance and become a policyholder. That small amount can help his or her family to feel financially relieved in spite of the policyholder’s demise. Thus, any person who cares for his family’s financial situation can buy life insurance.
As days go by the insurance companies started to concentrate into other needs of the investors. More than providing insurance they started to provide investment cum returns.
How life insurance works?
Let’s assume in a city, there are 100 people and Ravi is one among them. He wants to ensure the financial situation of his family. He takes insurance of 1Cr till the age of 54 years, after which his son starts earning. Out of 100 the average demise ratio of people under 55 is 15% (15 policyholders).
Thus, the claim is settled from the premium collected from other 85 policyholders. These 85 policyholders would have outlived the policy duration. And thus their money will be shared with the person with loss. In simple words, A insurance policy shares the risk of one individual with a large group of people. The law of big numbers and the law of probability support the whole insurance industry.
Important terms of Life insurance
There are a few other terms of life insurance. Below are the list of such terms that help to understand life insurance even better.
When the policy and the benefits of the policy are terminated by the insurance company as the policyholder fails to pay the premium amount of his policy on the due date is called a lapsed policy.
When the insurer fails to pay his premium amount on the due date for his policy with the insurance company, the company offers the insurer a specified period of time to make his payment.
When the insurance holder fails to pay his premium amount even after the company giving the grace period, the company gives an option to revive the policy over a period and that period is called the revival period.
This period is the time where the insurer can cancel his policy with an insurance company without any penalty. The days of the period can extend depending upon the company and the state one resides in.
This is the process where the insurer or the nominee of the insurer claims the sum assured after the death of the insurer or if the policy reached a period of maturity.
For a person who gets an add-on coverage to the base policy, the insurance company offers an option rider at an additional premium according to the need.
It is a case where the insurance company would not pay the coverage for the event. These are conditions that do not come under the insured event to avoid an unnecessary loss to the company.
Benefits of Life Insurance
More than owning a life insurance policy, It is vital for a policyholder to understand its benefits. The policyholder pays for the benefits of the life insurance policy. Understanding the benefits will help the policyholder choose the right life insurance policy.
Life is filled with uncertain events that can never be foreseen by us. In every aspect of life, finance is a major problem that requires a lot of effort to tackle. Life insurance acts as a protection for your life and covers all the losses that are caused by these uncertain events.
One of the biggest benefits of getting a life insurance policy is a tax benefit. One of the notable benefits is the exemption that is available from the insurer when he gets life insurance. For instance, section 80 c allows a salaried employee a deduction in the tax that he pays if he gets life insurance. An insurer can get a tax exemption of up to 150,000 rupees.
Dying is inevitable and everyone faces death at some point in their life, but everyone in this world has people dependent on them. A Loss of life can affect a family financially, so when a person insures his life he or she can overcome this event. Moreover, the increasing rate of health issues among mid-aged people has caused great pressure in their minds of every parent. For such people, life insurance is the right way to invest their money.
Discount on the Payment Period
Every life insurer offers different payment intervals to its policyholders. They include annual, half-yearly, quarterly, or monthly intervals.
If a policyholder pays the policy premium annually, the company has more time to invest. This means more profits and benefits for the company. This discount is included in the premium amount charged by the insurer.
Return on Investment
Compared to a savings account life insurance policy has a better return on investments. Comparatively, insurances are trusted investments that have huge policy holdings. Thus making it a safe and profitable option for investment for the people. Furthermore, one gets profits as well as live coverage for an investment.
Policy for Businessmen
There are policies that provide an option for business people. The business partners can buy the policy by sharing the premium without any troubles. In this case, the business partner has to sign an agreement with the life insurer. After selling the policyholder’s share the payout will be given to their nominee. Yet, it’s important to understand that the nominee or the dependents won’t get a stake in the company.
Another advantage of taking life insurance is, one can use their policy documents to get a loan from banks. Banks accepts policy documents as collateral. In cases where people do not have property or assets, this could be used as an alternative to getting themselves a loan in uncertain times.
Type of Life Insurance
Insurers starting from a single product of life insurance have now catered to different requirements of the investors. Let’s have a detailed look at such different insurance plans below.
Term insurance is an insurance policy assured over a period of time. A person can opt for a policy for a specific period of years. The current health of the person determines the premium of the policy. Generally, the term plan has a very low premium compared to the traditional plans.
This plan is suitable for a person who wants to secure their family’s financial position. Later, the policyholder has to pay the premium. If some unexpected situation happens that the policyholder has demised. The insurer pays the sum insured to the nominee. Bharathi Axa term insurance policy is an example of a term insurance policy.
Whole Life Insurance Plan
Whole life plans are different from term life insurance. As the name suggests, the person is eligible to take insurance for his whole life. The whole life insurance plan acts as saving and also as insurance. The policyholder has to pay monthly or annual installments.
Any unexpected demise that happens to the policyholder, the nominee receives the sum assured. The difference here is that, In Term insurance, the no of years to avail the sum assured is constant. But in whole life insurance, the nominee receives the sum assured anyways.
Another advantage is that the whole life insurance can act as collateral with the same insurer. As the sum assured is anyways paid to the nominee.
Endowment plans exist to advance to the earlier discussed insurance plans. The Endowment plans come with insurance and also a saving plan. From the premium amount, a part remains allocated for investments. Same as the other plans the person’s health report signifies a premium amount.
Once the policy is set the policyholder starts to pay the premium amount monthly/annually. With term insurance, the policyholder has no returns. But in the endowment plan even though the term period stays crossed the policyholder receives the returns from the plan. People who look for an investment, as well as a life cover, can opt for endowment plans.
A money-back policy is a policy where the money reaches the insurer itself. During the period of the policy, the returns reach the investor at regular intervals. The money reached by the investor is a small percentage of the sum assured. The money-back payout is the survival benefit. Unlike other plans, the policyholder doesn’t have to wait for a longer duration for the payout.
The policyholder can customize his returns that they receive at regular intervals. The policyholder received maturity benefit along with the sum assured when the plan matures. In case of death, the nominee receives the sum assured. This is irrespective of the amount that pertains to the money-back policy.
This plan consists of investment and insurance. A part of the amount goes to the insurance and the remaining goes for investments in the market.
In ULIP, the policyholder has to pay the premium at the beginning of the policy term. He has to pay monthly, quarterly, and annually depending on the term plan and its premium. In most cases, the number of premium-paying years and policy terms don’t change.
The child plan is a plan that includes investment and insurance for the future of the children. This plan offers various benefits for the future of the kids. It aims at supporting various financial expenses of the children’s life. The child plan offers a lump sum covering the education and marriage expenses.
This policy acts as a corpus and collateral for the child’s educational purpose. Supports the life of the child in case of the absence of parents and helps parents in case of any medical emergency with their children.
A retirement plan is a product of insurance that aims at providing a cover for your future by providing a steady income after retirement. There are different kinds of retirement plans suiting different needs of the investors.
A fixed income could help in the retirement planning of an individual. A Pension plans provide death benefits with financial coverage for the individual’s family. Tax benefits include exemption under section 80 CCC of the income tax act.
How to choose My Life Insurance
Choosing the right insurance is a very important person for an individual. As he commits to pay a specific amount for the decided period of time. Below, we have discussed few important aspects to consider for choosing the right Life Insurance.
Understand your Financial Position
Life insurance is for a person who wants to ensure the financial position of his or her family. The policyholder should also be able to pay regularly for the insurance plan. Life insurance is generally very beneficial for the only breadwinner of the family.
In such a case, the family is totally dependent on one person. Due to any unexpected loss, the family could suffer a huge financial crunch. Even though money couldn’t replace a life, the sum insured can be financial support to the family.
Every family needs differ from one to another. The same sum assured cannot be enough for two different families. The reason is the financial status differs from each other. The policyholder has to decide the amount of money before choosing the policy. The sum assured should suffice the family’s financial needs. The cover should match the financial needs and the policyholder should choose the same carefully.
Affordability of Premium
The policyholder must be able to pay for the premium amount as per the planned period. A lapse of premium can lead to life insurance policy cancelation after the grace period. The policyholder has to pay the premium amount when the policy begins. The policyholders should make sure that he/she doesn’t default the premium. Choosing the sum assured and its relative premium is the policyholder’s responsibility.
Choosing the right options
There are 25+ companies in the insurance industry. The person who wishes to avail the life insurance has to choose the best suitable option. Each company differs in the claim settlement ratio. The policyholder has to make sure he analyses the plan before starting to invest in the same.
Switching the policy from one to another will be a tedious process for the policyholder. The individual has to be very careful before choosing life insurance. It’s the responsibility of the individual to choose the right plant that satisfies his/her needs.
Understanding the policy
The policyholder should understand the policy before choosing a company to buy life insurance. He/she has to choose a plan that suits his/her needs. Understanding the plan helps the policyholder to know more about the plan. Certain riders are linked to the plan can help the policyholder in certain situations. These riders can help to choose the desired extra benefits. Understanding the policy and few similar plans will help the individual gain knowledge. As well as the individual can choose the best suitable option.
What are insurance riders?
Insurance riders are add-on benefits to the availed insurance plan. Riders are available under the life insurance policy. The policyholder has to analyze the riders and choose the most suitable one. Every rider comes with an extra cost that the policyholder has to pay.
With the help of this rider, the policyholder can avail a part of the sum assured while being conscious during his policy period.
Critical illness rider
Permanent and partial disability rider
If the policyholder has any critical illness by hereditary he can opt for the critical illness rider. If the policyholder faces any critical illness, he can avail the sum assured. To own the critical illness rider an extra premium is to be paid. It comes with an extra cost in addition to the premium.
Critical illness differs from one policy to another. The number of diseases covered differs from one policy to another. The policyholder has to understand such information from the advisor. He/ she has to make the right decisions by only choosing the required riders.
A person who travels a lot can avail permanent and partial disability riders. As this Rider assures at least ten percent of the sum assured. If the insured suffers any permanent or partial disability. The insurer will settle the proposed amount with the policyholder
Waiver of premium rider
If the insurer could meet a situation where couldn’t pay the premium amount in the future. He can opt for a waiver of premium rider. The policyholder couldn’t pay the premium in the future due to some uncertain situation. This plan could waive the premium from the date of such instances.
Accidental death benefit rider
If the policyholder travels a lot and feels like he is more prone to the accident’s he can opt for an accidental death benefit rider. The policyholder has to pay an extra amount of the premium to opt for this rider. Through which he will be eligible for an accidental death benefit rider.
How to Claim and what is its Process?
Every insurance provider has a process that is to be followed by the policyholder to claim the benefits. Generally, every insurance provider follows a similar process which is discussed below.
Types of Claim
The insurance claim is made for two major reasons one would be
- Death claim
- Maturity claim
The death claim is made on the occurrence of death of the client and the sum assured goes to the nominee of the insurer but that requires prior request that needs to be sent to the insurance company.
Process of Death Claim
The process of a claim for death begins with the nominee informing the insurance company about the occurrence of death of the insurer. In return, the insurance company would require further details about the insurer.
The insurer’s data that is required for the process includes name of the insurer, policy number, place of death and other details about his plan. The nominee can file this information by sending the intimation form which is available both online and, in the company, if they wish to personally file it.
Required documents for death Claim
The next step involves the submission of documents. The insurance company will require a certain document for continuing their process. The documentation process requires documents, namely
- Death certificate
- Policy documents
- Identification proof
- Other documents depending on the cause of death.
In case of early death claims the company would proceed with further investigation to conform to the rules and policies of the company. After submission of the required documents, the nominee would receive the claim within 30 days of filing their claim.
Process of Maturity Claim
The other form of the claim process is maturity and survival claims. A maturity claim is a claim made by the client on reaching the maturity date of the insurance. The process for this claim is pretty similar to that of death claims and it requires documents which are discussed below.
Required document for Maturity Claims
Below is the list of documents that will be required by the insurance provider while claiming maturity benefit.
- Original policy document
- Identification proof
- Canceled check leaf
- Copy of passbook.