Life Insurance
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Life Insurance
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.
Lapsed Policy
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.
Grace Period
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.
Revival Period
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.
Free-look 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.
Claim Process
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.
Rider
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.
Extension
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 protection
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.
Tax Benefits
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.
Death Benefit
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.
Loans
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.
