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Life Insurance in India
Life insurance is a contract between a person buying insurance policy and the insurer. Insurer promises to pay the beneficiary mentioned on the policy document the benefits upon the death of the insured person during the validity of the contract.
Generally the insured person buys the life insurance for peace of mind in knowing that his/her death will not cause financial hardship to his/her loved ones.
Risks and uncertainties are part of life’s great adventure – accident, illness, theft, natural disaster – they’re all built into the working of the Universe, waiting to happen. Insurance is man’s answer to all the vagaries of life which at least prepares us for the uncertainties and its aftermath.
In India, people generally buy life insurance to save taxes under section 80C. Also it is sold as investment tool.
Special exclusions may apply, such as suicide. The insurance policy may become null and void if the insured person commits suicide within a specified time. Also misrepresentations by the insured person at the time of application may also become grounds for nullification.
Difference between “Insurance” and “Assurance”
“Insurance” refers to providing insurance cover or protection for an event that may happen (fire, theft, accident, death etc) while “assurance” is the provision of coverage for an event that is certain to happen.
Term Life Insurance Policy
Term Insurance is a life insurance plan that covers you for a fixed term. It pays a death benefit to the nominee if death occurs during the term. This is the cheapest form of life insurance. A Term plan is a pure risk cover plan. If the insured survives the term, he/she does not get any money back from the insurance company. This plan gives you a very high cover and a very low premium.
Endowment Policy
In an Endowment Policy, the sum assured is payable even if the insured survives the policy term. If the insured dies during the tenure of the policy, the insurance firm has to pay the sum assured along with the accumulated bonus to the nominee. If the person covered remains alive beyond the tenure of the policy, he gets back the sum assured along with some investment benefits. In addition to the basic policy, insurers offer various benefits such as double endowment and marriage/ education endowment plan. This plan has a high premium but low insurance cover. This is suitable for people who are interested in long terms savings for their children for for their own retirement.
Whole Life Insurance Policy
As the name suggests, a Whole Life Policy is an insurance cover against death, irrespective of when it happens. Under this plan, the policyholder pays regular premiums until his death or the age specified in the respective policy, following which the money is handed over to his nominee. This plan charges moderate premium with high cover but low liquidity.
Money Back Policy
This policy is structured in such way that the insured person gets money at regular intervals from the insurance company. On survival the remainder of the sum assured is payable. In case of death, the full sum assured is payable to the family of the insured. This plan has higher premium with regular returns but low insurance cover. This plan is suitable for people who need money at regular intervals.
Unit Linked Insurance Policy
This is investment plan linked to the insurance cover. Insurance company charge you a premium out of which after deducing the insurance expenses (mortality charges), the money is invested in the equity/debt markets and also help you save tax. One has to pay premium for a minimum period of three years and can withdraw the amount invested alongwith the bonus earned after the end of five years without any charges being deducted for surrendering the policy. Minimum 5 times life cover is given to the insured. Some capital guaranteed policies are available which covers the risk of the insured. This plan does provide high cover with possibility of high returns but have high premium payments.
Annuities And Pensions Policy
In an annuity, the insurer agrees to pay the insured a stipulated sum 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 in future to protect oneself. There is no insurance cover provided in this policy. This is suitable for people who want a regular pension after retirement.
Children Policy
There are many plans specifically designed to take care of the educational needs of children. The plan can be taken by a parent on his or her own life. Benefits under the plan are payable at pre specified durations irrespective of whether the Life Assured survives to the end of the policy term or dies during the term of the policy depending on the specific policy. One could opt for either a unit linked product, term policy, endowment plan for a child’s secured future needs be it education, marriage etc The premium waiver benefit is available i.e if anything happens to the guardian the company bears the premium for the remainder of the policy term. This plan has a high premium rate with moderate cover for parents.
Keyman Life Insurance Policy
Keyman insurance policy is an Insurance taken on the Key Person of an organization to compensate the organization in case of his/her sudden death. The premium payer is the employer, the life to be insured is that of the employee and the benefit, in case of a claim, goes to the employer. The ‘keyman’ here would be any person employed by a company having a special skill set or substantial responsibilities and who contributes significantly to the profits of that organization and the loss because of whom can seriously affect the functioning of the company.
Features:
- Only Term Insurance can be taken under Keyman Policy
- In case of death of a keyman the firm gets money to cope up with the loss
- Any company buying keyman insurance for its employee can claim a deduction for the premium paid for the policy as a business expense under Section 37(1) of the Income Tax Act.
- Premiums paid by the company on the life of a keyman would not be treated as perquisites in the hands of such a keyman
- Keyman Insurance policy can be transferred to the employee after certain years and can be used as a positive measure to improve the retention of the keyman in the company.
Group Term Life Insurance Policy
Group (term) Insurance Scheme is meant to provide life insurance protection to groups of people. Administration of the scheme is on group basis with a lower cost. Under Group (Term) Insurance Scheme, life insurance cover is allowed to all the members of a group subject to some simple insurability conditions without insisting upon any medical evidence. Scheme offers covers only on death and there is no maturity value at the end of the term.
Gratuity Policy
As per the Payment of Gratuity Act 1972, an employer is obliged to pay gratuity to an employee after he/she has rendered a continuous service of atleast 5 years. Gratuity is payable to an employee on:
- Normal retirement
- Resignation/early retirement Death or
- Disablement due to accident or disease (completion of 5 years of service is not necessary in such cases)
Employer/Trustee of the Gratuity Scheme shall fund for gratuity liability by: Remitting the recommended contribution for the past service and an annual contribution for the future service as per the actuarial valuation provided by company. Transferring existing assets if any to company Gratuity Scheme based on mutually agreed asset valuation. This fund is then invested with the insurance company under their gratuity policy so as to increase the monetary value of the fund so that the employee can get more than what he invests.
Employer-Employee Policy
Policies under this scheme are normally provided as extra benefits to retain employees. Under this policy, the premium is paid by the Company and the tax benefits are also enjoyed by the company. A period is decided at the inception after which, the policy is transferred in employee’s name.
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