Life Insurance

Life Insurance is different from other insurance in the sense that the subject matter of insurance is life of human being. The insurer will pay the fixed amount of insurance at the death or at the expiry of certain period. At present, life insurance enjoys maximum scope because each and every person requires the insurance. This insurance provides protection to the family at the premature death or gives adequate amount at the old age when earning capacities are reduced. Types of insurance plans offered in our country:

Term Policy Whole Life Policy Endowment Life Policy ULIP Policy

• In case of Term assurance plans, insurance company promises the insured for a nominal premium to pay the face value mentioned in the policy in case he is no longer alive during the term of the policy. Term assurance policy has the following features:

  • It provides a risk cover only for a prescribed period. Usually these policies are short-term plans and the term ranges from one year onwards. If the policyholder survives till the end of this period, the risk cover lapses and no insurance benefit payment is made to him.
  • The amount of premium to be paid for these policies is lower than all other life insurance policies. As savings and reserves are not accumulated under this policy, it has no surrender value and loan or paid-up values are not allowed on these policies.
  • This plan is most suitable for those who are initially unable to pay high Premium
  • When income is low as required for Whole Life or Endowment policies, but requires life cover for a high amount.

• This policy runs for the whole life of the assured. The sum assured becomes payable to the legal heir only after the death of the assured. The whole life policy can be of three types.

  • Ordinary whole life policy – In this case premium is payable periodically throughout the life of the assured.
  • Limited payment whole life policy – In this case premium is payable for a specified period (Say 20 Years or 25 Years) Only.
  • Single Premium whole life policy – In this type of policy the entire premium is payable in one single payment.

• In this policy the insurer agrees to pay the assured or his nominees a specified sum of money on his death or on the maturity of the policy which ever is earlier. The premium for endowment policy is comparatively higher than that of the whole life policy. The premium is payable till the maturity of the policy or until the death of the assured which ever is earlier. It provides protection to the family against the untimely death of the assured.

• A Unit Linked Insurance Plan (ULIP) is a product offered by insurance companies that, unlike a pure insurance policy, gives investors both insurance and investment under a single integrated plan.

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Importance of life insurance.

Life Insurance is of great importance to individuals, groups, business community and general public. Some of the main benefits of life insurance are given below.

i. Protection against untimely death
Life insurance provides protection to the dependents of the life insured and the family of the assured in case of his untimely death. The dependents or family members get a fixed sum of money in case of death of the assured.

ii. Saving for old age
After retirement the earning capacity of a person reduces. Life insurance enables a person to enjoy peace of mind and a sense of security in his/her old age.

iii. Promotion of savings
Life insurance encourages people to save money compulsorily. When a life policy is taken, the assured is to pay premiums regularly to keep the policy in force and he cannot get back the premiums, only surrender value can be returned to him. In case of surrender of policy, the policyholder gets the surrendered value only after the expiry of duration of the policy.

iv. Initiates investments
Life Insurance Corporation encourages and mobilizes the public savings and channelises the same in various investments for the economic development of the country. Life insurance is an important tool for the mobilization and investment of small savings.

v. Credit worthiness
Life insurance policy can be used as a security to raise loans. It improves the credit worthiness of business.

vi. Social Security
Life insurance is important for the society as a whole also. Life insurance enables a person to provide for education and marriage of children and for construction of house. It helps a person to make financial base for future.

vii. Tax Benefit
Under the Income Tax Act, premium paid is allowed as a deduction from the total income under section 80C.