Insights

Reach a Relationship Manager for Advice

Introducer Details

Life FAQs

Basics

People invest in life insurance owing to a few key reasons, mainly

  1. Insurance creates financial provisions for the deceased's dependants.
  2. Insurance provides for the policyholder's old age after his earning power diminishes. After all, interest rates may fall and invested holdings may lose value and stop gaining dividends, but the value of an insurance policy once set, never reduces.
  3. Insurance also provide a legally authorized way to reduce the incidence of Income Tax.

Life Insurance is an agreement that guarantees payment of a stated amount of monetary benefits at the end of a specified term or on the death of the life insured.

It is very difficult to place a monetary value on human life. Theoretically therefore an individual can have life policies for any amount. However, in practice, it is determined based on the needs for insurance and the capacity to pay premiums regularly. Though there is no thumb rule to arrive at the exact amount of insurance, it is determined by taking 6 times of the annual income of the person, if such income is not fluctuating. If the income is fluctuating it is desirable to work his average annual income and then determine the amount of insurance. From an individual’s stand point one should be able to save at least 10% of his annual income.

Anybody who has attained majority and is eligible to enter into a valid contract can take an Insurance policy. Few policies can also be taken on the life of spouse or children, subject to certain conditions. While endorsing an insurance proposal, most companies take into account your state of health and income among other factors.

Subject to certain limits and conditions prescribed by the Income Tax Act, premiums paid to effect or to keep in force an insurance policy on the life of the assesses or on the life of the wife or husband or any child (whether minor or major) of the assessed irrespective of the status of the child, enjoys tax rebate under section 88 of the income tax act. In the case of contribution to pension funds, deduction is available under Section 80CCC of the Income Tax Act.

Plan Benefits

A policy issued under a 'with profit scheme' is eligible to participate for bonus addition arising out of surplus revealed on conducting an actuarial valuation. Premium under with profit plan is always greater than the rate for without profit plan. While computing the structure of a premium table a bonus loading is made to the rate determined by the other three factors viz., Mortality, Interest and expenses.

The cash value payable by the insurance company on termination of the policy contract at the desire of Policyholder but before the expiry term is known as Surrender Value. A policy can be surrendered, provided the policy is kept in force at least three years. The bonus will be added, provided the policy was in force for at least 5 years, i.e., premiums should have been paid for 5 years and five years should have been completed from the date of commencement of the Policy (this condition is not applicable in respect to claims by death.)

Survival Benefit is the benefit the policyholder is eligible to avail upon the life assured surviving certain number of years during the term of the Policy. The survival benefit is required to be availed within five years of its falling due. Availing of survival benefits will not reduce the life insurance cover under the policy. In the Money-Back Policy, the life assured is paid a certain percentage of the sum assured every few years. This survival benefit is payable only when the life assured is alive. It does not matter if the life assured is suffering from any illness or not. However, if the life assured dies, the benefit payable is Death Benefit and not survival benefit.

In the event of death of the insured during the plan term, the full sum assured will be received by the claimant. This is Death Benefit.

Claims

A claim is the payment made by the insurer to the insured or claimant on the occurrence of the event specified in the contract, in return for the premiums paid for the insured.

In case of a death claim, the 'claimant' (nominee/ legal heirs) must submit

  1. An intimation of the death of the life assured
  2. Death certificate issued by the local health and medical authority
  3. Completed claim forms
  4. Policy of Life assurance
  5. Medical evidence in case of health and disability rider claims
  6. Other forms as required by the company

The death claim is paid to-

  1. The nominee, as declared in the proposal form
  2. The legal heirs, in case the nominee is not specified
  3. The appointee, in case where the nominee is a minor at the time of claim
  4. The proposer in case the policy is not on own life
  5. If the policy has been assigned, the death claim is payable to the assignee.

The Company settles the Claim within 8 working days after all the records, documents and necessary forms are submitted and documentation is completed. In case, the Claim warrants further verification, the Company keeps the Claimant informed of the same. Subsequently, when the decision is taken, it is communicated to the Claimant by a letter.

The nominee or appointee (in case of minor nominee) last recorded under the Policy in case of Policy on own life. The proposer in case the Policy is not on own life. Assignee in case the Policy was assigned. Life Assured himself in case of policy on own life for living benefit claims (Eg Critical Illness rider)

Add Ons

People invest in life insurance owing to a few key reasons, mainly

  1. Insurance creates financial provisions for the deceased's dependants.
  2. Insurance provides for the policyholder's old age after his earning power diminishes. After all, interest rates may fall and invested holdings may lose value and stop gaining dividends, but the value of an insurance policy once set, never reduces.
  3. Insurance also provide a legally authorized way to reduce the incidence of Income Tax.

Riders/Add Ons are the additional benefits which can be added to the basic policy by paying marginal additional premium. Each company has got their own set of rider and most common riders offered by insurers are: Term rider, Critical illness rider, Accidental deathdismemberment rider and Waiver of premium rider.

Types of Plans

Term assurances are the purest and cheapest form of insurance. Term assurances are plans where benefits are payable only on the death of the policy holder within the particular term.

Endowment plans are among the most popular forms of insurance as they provide both insurance coverage and also act as a savings instrument. These are the plans wherein benefits are payable on death within the term or survival to maturity whichever is earlier.

Money back plans are a special type of endowment plans and are also called as anticipated endowment assurance plans. Under money back plans, survival benefits are spread over the term of the policy i.e., certain percentage of sum assured is paid at regular intervals. Apart from the above death benefit continues like an endowment plan i.e., full sum assured shall be payable on death within the term irrespective of earlier survival benefits.

Whole life plans are a special type of term assurance wherein the term of the policy is whole of the life. So the benefits under the policy are payable only on death of the policy holder.

In the case of traditional life insurance, the policyholder is usually offered a guaranteed sum assured. In addition, non-guaranteed bonuses in the form of a share in the profits of the Company may also be offered depending on whether the policy is a participating policy or not. The policyholder has no say in the choice of investments, which are decided by the company on his behalf. The premium amounts are usually fixed at the outset and the same quantum of premium needs to be paid throughout the term of the policy. The main difference is in the flexibility in the choice of investments. In the case of unit-linked life insurance, the insurance company would usually offer a choice of different funds (say, with a differential mix of bond and equity investments) in which the policyholder can opt to invest his contributions. These funds differ by virtue of their risk exposure and their appreciation potential. The policyholder can decide which funds his contributions need to be invested in and in what proportion. Therefore, the returns under the policy are dependent on the investment choice made by the policyholder. The policyholder can also opt to invest top-up contributions over and above the regular contributions at any time and to switch his investment pattern at any time during the term of the policy.

Policy Operations

The Company considers the Sum at risk, cause, circumstances of claim and duration of the policy while asking for certain requirements. E.g. For accidental death, specific proofs such as Post Mortem and Police Report are required whereas for death due to illness, the Company calls for records from hospital, test reports, etc.

Assignment of a life insurance policy means the act of transferring the rights of property in the policy from one person to another. The person who transfers his right is called the "assignor" and the person to whom the right is transferred is called the "assignee" There are two types of assignments: Conditional Assignment whereby on the happening of a specified event which does not depend on the will of the assignor, the assignment will be suspended or revoked wholly or in part. Absolute Assignment whereby all the rights, title and interest which the assignor has in the policy passes on to the assignee without reversion to the assignor or his estate in any event.

Nomination is a right conferred on the life insurance policyholder to appoint a person or persons to receive the policy monies in the event of the policy becoming a claim by death. Any policyholder, who is a major and whose life is insured under a policy, can make a nomination. A nominee is the person designated by the policyholder to receive the proceeds of an insurance policy, upon the death of the insured.

Under Nomination, the Nominee gets only the right to receive the policy money in the event of the death of the Policyholder. Nomination does not pass on the property in the Policy. If Nominee dies when the Policyholder is still surviving then the nomination would be ineffective. Nomination has no effect if the Policyholder is surviving. If Nominee dies after the death of the policyholder but before receiving policy money, then also Nomination becomes ineffective and money can be claimed only by the Legal Heirs of the Policyholder.

The following details are necessary when filling in the proposal form: full name of the nominee, address, age, and the relationship between the proposer and the nominee.

While nomination is an authorization to receive the policy money in the event of death of the life assured, it does not give the nominee an absolute right over the money received to the exclusion of other legal heirs. Further, the nomination can be revoked or cancelled at any time during the lifetime of the policyholder at his will and pleasure or by a subsequent assignment.

Nomination can be done at the inception of the Policy by providing details of nominee in the proposal form. However, if the nomination is not done at the inception of the policy, the policyholder can nominate at a later date. This nomination has to be effected by giving notice in a prescribed form to the insurer and getting it endorsed on Policy Bond.

Once the premium on a life insurance policy for a specified period is paid in full, the policy may not lapse even if no subsequent premiums are paid. Such policies are known as paid-up policies. In such cases, the sum originally assured is reduced to a sum bearing the same ratio to the sum originally assured as the number of premiums actually paid to total number of premiums originally stipulated as payable under the policy.
By way of example, if 6 out of the originally stipulated 30 premiums are paid, the sum assured under a paid-up policy could still be 20 percent of the original sum assured by the policy.

Partial withdrawal of a policy implies withdrawal of only a part of the funds of the policy. The applicable norms for partial withdrawal may differ for every product.

After payment of three years of premiums if subsequent premiums have not been paid under a policy, such a policy is said to have acquired a paid up value, though literally it is a lapsed policy. The paid up value is calculated by multiplying the sum assured by the ratio of number of premiums paid under the policy and the number of premiums payable under the policy. The value so arrived at, should not be less than Rs.250 excluding the accumulated bonus under such a policy. Such a reduced paid up policy will not be entitled to participate in future bonuses.

The grace period is generally 30 days after the due date for payment of premium for policy holders paying their premium every quarter, half-year or every year. For monthly premium payment the grace period is generally 15 days after the due date.

The policyholder would require to inform the company in writing and request for a duplicate policy bond, along with the following requirements: Indemnity bond on stamp paper of adequate value Stamp charges @ 20 paise per Rs.1000 sum assured (variable from company to company)

A policy lapses when the policy holder fails to pay the premium even within the grace period. In this case, the policy loses all its benefits.

Non Life FaQs