Human life is subject to risks of death and disability due to natural or accidental causes. When a person's life is lost or disabled permanently or temporarily, there may be a loss of income to the household. The family is put to hardship. Sometimes, survival itself is at stake for the dependants. Risks are unpredictable. Death/disability may occur when one least expects it. An individual can protect himself or herself against such contingencies through life insurance.
Life insurance is a contract between the insured or policy owner and the insurer where the insurer agrees to pay a sum of money upon the occurrence of the insured individual's or individuals' death or other event, such as terminal illness or critical illness. In return, the policy owner agrees to pay a stipulated amount called a premium at regular intervals or in lump sum amount.
Types of life insurance policies.
Most of the products offered by Indian life insurance companies are developed and structured around the fallowing basic policies and are usually an extension or a combination of these policies.
Term Insurance Policy
A term insurance policy is a pure risk cover for a specified period of time. What it means is that the sum assured is payable only if the policyholder dies within the policy term. For instance, if a person buys Rs 5 lakh policy for 20-years, his family is eligible to recieve the money if he dies within that 20 year period.
If he survives the 20 year period, then he will not get any payment; the insurance company keeps the entire premium amounts paid during the 20 year period.
So, there is no element of savings or investment in this type of policy. It is a 100 per cent risk cover policy. It simply means that a person pays a certain premium to protect his family against his sudden death. He will loose the entire amount he paid, if he outlives the period of the policy
A term insurance policy is a pure risk cover for a specified period of time. What it means is that the sum assured is payable only if the policyholder dies within the policy term. For instance, if a person buys Rs 5 lakh policy for 20-years, his family is eligible to recieve the money if he dies within that 20 year period.
If he survives the 20 year period, then he will not get any payment; the insurance company keeps the entire premium amounts paid during the 20 year period.
So, there is no element of savings or investment in this type of policy. It is a 100 per cent risk cover policy. It simply means that a person pays a certain premium to protect his family against his sudden death. He will loose the entire amount he paid, if he outlives the period of the policy
Whole Life Policy
A Whole Life insurance Policy is an insurance cover against death, irrespective of when it happens.
Under this plan, the policy holder pays regular premiums until his death, following which the money is handed over to his family.
This policy, however, fails to satisfy the additional needs of the insured during his post-retirement years. It doesn't take into account a person's increasing needs either. While the insured buys the policy at a young age, his requirements increase over time. By the time he dies, the value of the sum assured is too low to meet his family's needs. As a result of these drawbacks, insurance firms now offer either a modified Whole Life Policy or combine in with another type of policy
A Whole Life insurance Policy is an insurance cover against death, irrespective of when it happens.
Under this plan, the policy holder pays regular premiums until his death, following which the money is handed over to his family.
This policy, however, fails to satisfy the additional needs of the insured during his post-retirement years. It doesn't take into account a person's increasing needs either. While the insured buys the policy at a young age, his requirements increase over time. By the time he dies, the value of the sum assured is too low to meet his family's needs. As a result of these drawbacks, insurance firms now offer either a modified Whole Life Policy or combine in with another type of policy
Endowment Policy
Endowment policy is a combination of risk cover with financial savings, endowment policies are the most popular policies in the world of life insurance.
In an Endowment Policy, the sum assured is payable even if the insured survives the policy term.
If the insured dies during the period of the policy, the insurance firm has to pay the sum assured just as any other pure risk cover.
A pure endowment policy is also a form of financial saving, whereby if the person covered remains alive beyond the period of the policy; he gets back the sum assured with some other investment benefits.
In addition to the basic policy, insurers offer various benefits such as double endowment and marriage/ education endowment plans. The cost of such a policy is slightly higher but worth its value.
Endowment policy is a combination of risk cover with financial savings, endowment policies are the most popular policies in the world of life insurance.
In an Endowment Policy, the sum assured is payable even if the insured survives the policy term.
If the insured dies during the period of the policy, the insurance firm has to pay the sum assured just as any other pure risk cover.
A pure endowment policy is also a form of financial saving, whereby if the person covered remains alive beyond the period of the policy; he gets back the sum assured with some other investment benefits.
In addition to the basic policy, insurers offer various benefits such as double endowment and marriage/ education endowment plans. The cost of such a policy is slightly higher but worth its value.
Money Back Policy
These policies are designed to provide amounts required as anticipated expenses (marriage, education, etc) over a stipulated period of time. With inflation becoming a big issue, companies have realized that sometimes the money value of the policy is eroded. That is why with-profit policies are also being introduced to offset some of the losses incurred on account of inflation.
A portion of the sum assured is payable at regular intervals. On survival the remainder of the sum assured is payable.
In case of death, the full sum assured is payable to the nominees of insured.
The premium is payable for a particular period of time.
These policies are designed to provide amounts required as anticipated expenses (marriage, education, etc) over a stipulated period of time. With inflation becoming a big issue, companies have realized that sometimes the money value of the policy is eroded. That is why with-profit policies are also being introduced to offset some of the losses incurred on account of inflation.
A portion of the sum assured is payable at regular intervals. On survival the remainder of the sum assured is payable.
In case of death, the full sum assured is payable to the nominees of insured.
The premium is payable for a particular period of time.
Annuities and Pension plans
In an annuity, the insurer agrees to pay the insured a stipulated amount of money periodically. The purpose of an annuity is to protect against risk as well as provide money in the form of pension at regular intervals.
Over the years, insurers have added various features to basic insurance policies in order to address specific needs of a cross section of people.
In an annuity, the insurer agrees to pay the insured a stipulated amount of money periodically. The purpose of an annuity is to protect against risk as well as provide money in the form of pension at regular intervals.
Over the years, insurers have added various features to basic insurance policies in order to address specific needs of a cross section of people.
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