Insure Today For A Better Tomorrow!!!
I'm acting as an Insurance Consultant for the 'Life Insurance Corporation of India' from 1998 onwards and I saw a lot of practical cases where Insurance stood a great place, after the accidental death of the Head of the Family. So, my best idea to save your family is take a Life Insurance Policy today!
Now I brief you about the types of Insurance policies available in India (and all through the world with some small modifications) and also some important terms in Insurance, which one have to know before taking/considering a Life Insurance Policy.
I'm giving these details as a conversation, which I had with lot of customers in my field visits. One day in an early morning!!
[The client is giving a warm welcome to me at his home by keeping a plan in his mind to multiply his money (and also by giving life cover to him) with my financial tips and here starts the conversation.]
Client: Good morning, what is an Insurance policy and why I need it?
My Answer: Very good morning sir, generally, Insurance is the promise of reimbursement in the case of any loss, which may be natural or accidental; The claim or compensation amount is paid to people or companies so concerned about hazards that they have made prepayments to an insurance company, which may be of Life or General or Motor, whichever the case maybe.
Now, I'll brief you about the Life Insurance, sir.
Client: OK I heard about Insurance and associated things but . . . can you tell me what is an Endowment type of policy?
My Answer: Good question sir, an endowment life insurance policy is designed primarily to provide a living benefit and only secondarily to provide life insurance protection. Due to this reason, it is more of an investment when compared to a whole life policy. Endowment type of life insurance pays the face value of the policy either at the insured's death or at a certain age or after a number of years of premium payment term.
Endowment policy is a method of accumulating capital for a specific purpose and protecting this savings program against the saver's premature death. Many investors use endowment life insurance to fund anticipated financial needs, such as their children's college education, marriage and/or retirement.
Premium for an endowment life policy is will be little higher than the whole life policy.
Client: I think Endowment policy will suit me! Then, what is a Money Back policy?
My Answer: Yes sir, the Money Back Plan is basically an endowment type of policy for which a part of the sum assured is paid to the policyholder (you...after taking a policy) in the form of survival benefits, at fixed intervals, before the maturity date. The risk cover on the life/policyholder continues for the full sum assured even after payment of survival benefits and bonus is also calculated on the full sum assured. If the policyholder survives till the end of the policy term, the survival benefits are deducted from the maturity amounts sir.
Client: OK, apart from these two plans, what is An Annuity Scheme of Insurance?
My Answer: Annuity schemes are nothing but wherein your regular contributions over a period of time (or a one-time contribution, [the paying selection is by you!]) accumulate to form a corpus with the insurer. This corpus is used to yield you a regular income that is paid to you until death starting from your desired retirement age. however there are some annuity schemes which have the option to pay your survivors a lump sum amount upon your death in addition to the regular income you receive while you are alive sir.
Client: And I heard of Bonus for the amount I paid as premium. What is it?
My Answer: OK, Bonus is the amount which an insurer distributes its profits among it policyholders every year. Bonuses are credited to the account of the policyholder and paid at the time of maturity. (however one can ask back the bonus in the name of loans before the maturity date of the policy). Bonus is declared as a certain amount per thousand of sum assured. Also note sir, the term "bonus" is used interchangeably with "with profit".
Client: Will I get all the Profit from your Insurance Company? How I know it?
My Answer: Its nice sir! The insurer distributes its profits among it policyholders every year in the form of a bonus or profit share. An insurance policy can/may be "with" or "without" profit. In the 'with profit' type, any bonus declared is allotted to the policy and is paid at the time of maturity or death (with the contracted amount). In a "without" profit plan, the contracted amount is paid at the time of maturity or death, without any profit share. The premium rate is charged for a "with" profit policy is therefore heavy than for a "without" profit policy.
Client: Looking good, who can buy a life insurance policy? Am I eligible?
My Answer: Yes sir, you're eligible to take a policy! Any person above 18 years of age, who is eligible to enter into a valid contract, can take a policy. With certain conditions, a policy can be taken on the life of a spouse or children with parents or legal guardians as proposer.
Client: People are talking about Guaranteed Additions? What are they?
My Answer: In some of our policies, the insurer guarantees the bonus or profit declared as a certain amount per thousand of sum assured (SA). This assured bonus will be credited to the policyholder irrespective of the performance of insurance company (even though an insurer undergoes a loss in a particular financial year) and is known as Guaranteed Additions. Guaranteed Additions will be payable at the end of the term of the policy or early death of the policyholders.
Client: One more thing I heard 'Loyalty Additions'?
My Answer: Yes sir, in some of our policies, over and above Guaranteed Additions, the insurer will declare and credit to the policyholder or life assured, an additional amount per thousand of sum assured every 5 years (not every financial year closing!), depending on its performance. This additional amount is known as Loyalty Addition.
Client: Ok what all the more benefits I can have?
My Answer: In some of the policies, a part of the sum assured is paid to the policyholder in the form of Survival Benefits, at fixed intervals before the maturity date. The risk cover for life continues for the full sum assured even after payment of survival benefits and bonus is also calculated on the full sum assured (not for the SA amount minus the paid survival sum). If the policyholder survives till the end of the term, the survival benefits will be deducted from maturity value.
Client: Will I get the Accident Benefits, If I deal with you sir?
My Answer: Sure, sure, by paying an additional premium of Re. 1/- per Rs. 1000/- of Sum Assured per year, the assured is entitled to the following benefits:-
In case an accidental death happens, the nominee shall receive double the sum assured,
Alternatively in case of total and permanent disability due to accident, risk coverage continues without further payment of any premium amount. In addition to these, an amount equal to the sum assured is paid to the assured in monthly installments spread over 10 years. However, subsequent accidental death will not entitle the nominee for double the sum assured.
Client: Will there be Disability Benefits?
My Answer: Yes sir, if you become totally and permanently disabled due to any accident, you need not pay future premiums and your policy shall remain in force for the full Sum Assured.
Client: What are the options which you give to pay premium?
My Answer: When talking about premiums, other than single premiums, can be paid by the policyholders to the insurer in yearly, half-yearly, quarterly or monthly installments or through a Salary Savings Scheme. If the mode of payment is yearly or half-yearly, some insurers give a rebate (3% yearly and 1.5% half-yearly for our company) on the premium. If the mode of payment is monthly, some insurers charge an additional of 5% (this additional charge is waived for the Salary Saving Scheme).
Client: Oh can I pay monthly, then tell me about the Salary Savings Scheme?
My Answer: A Salary Savings Scheme, simply SSS, will make you pay the premiums through monthly deductions by the employer from the salary of employees. For this scheme, the additional charge of 5% of the premium usually added for the monthly mode of payments will be waived.
Client: Ok being an Employer it will not be useful to me! What loans are available to me?
My Answer: At present in our company loans are granted on unencumbered polices as follows:
- up to 90% of the Surrender Value for policies, where the premium due is fully paid-up, and
- up to 85% of the Surrender Value for policies where the premium due is partly paid-up.
The minimum amount for which a loan can be granted under a policy is Rs. 150/-. The rate of interest charged is 10.5% p.a., payable half-yearly. Loans are not granted for a period shorter than six months, or on the security of lost policies (the assured must have the duplicate policies) or on policies issued under certain plans.
Certain types of policies are, however, without loan facility.
(readers please note that the above quoted interest and loan rates are applicable to LIC of India and it is as on financial year ending March 31, 2005)
Client: What about the Surrender Value sir?
My Answer: I'll tell you brief sir. The surrender value of the policy is the cash value payable by the insurer on termination of the policy contract at the desire of the policyholder before the expiry of policy term. Generally, a policy can be surrendered provided the policy is kept in force for at least 3 years minimum. The bonus is also added to the surrender value if the policy has been in force, in most cases, for at least 5 years minimum.
Client: In case death happens to me what'll be the claim?
My Answer: Incase this misfortune happens, the claim is usually payable to the nominee/assignee or the legal successor, as the case may be or previously appointed by you. In case if the deceased policyholder has not nominated/assigned the policy or not made a will, the claim will be payable to the holder of a Succession Certificate or such evidence of title from a Court of Law.
Client: Oh know how I do Nominate my policy?
My Answer: Nomination or Assignment is that when the policy money becomes due for payment on the death of the policyholder, it can be paid only to that person who is legally entitled to give a valid and effective discharge to the corporation (our company). If the policy bears nomination, the claim is settled in favor of the nominee. Same case if the policy is assigned, the assignee receives the claim amount. You've to note that sir an assignment of a policy automatically cancels the existing nomination. Hence, when such a policy is reassigned in favor of the policyholder/life assured, it is necessary to make fresh nomination.
Client: Will my policy be a Medical and Non-Medical one?
My Answer: In normal cases, a life insurance policy is issued after a medical examination of the life to be assured. In order to facilitate greater spread of insurance and also as a measure of relaxation, some insurers do offer insurance cover without any medical examination, subject to certain conditions, at the time of underwriting.
Client: How do you effect a Change of Address to me and also Transfer of Policy Records sir?
My Answer: Good question sir, when a policyholder is in the need to change his/her address in the insurance records, notice of such change should be given to the Branch office servicing the policy. Policy records can be transferred from the Branch Office that services the policy to any other Branch Office nearest to the policyholder's home or place of work as wished by the policy holder. The correct address facilitates better services and quicker settlement of claims.
Client: Will my policy get lapse or closed by your company sir?
My Answer: Whenever the premium is not paid within the days of grace provided after the due date, the policy lapses automatically. The grace period in case of yearly, half-yearly and quarterly modes of payment is one month and in case of the monthly mode of payment, it is 15 days only.
Client: In case my policy got lapsed then how can I get revived?
My Answer: A lapsed policy of you may be revived during the lifetime of the assured, but within a period of 5 years from the due date of the first unpaid premium and before the date of maturity. Revival of a lapsed policy is considered either on non-medical or medical basis depending upon the age of the life assured at the time of revival and the sum to be revived. If the revival of the policy is completed by payment of over-due premium within 14 days from the expiry of the grace period, only the late fee for one month has to be paid sir.
Client: Can I get altered my policy as per my wish sir?
My Answer: Oh sir, strictly no alteration is permissible in the policy document - the evidence of contract, unless both the parties to the contract agree. After the policy is issued, a policyholder in a number of cases finds the terms not suitable to him/her and desires to change them to suit his/her convenience. As all insurers also realize that insurance is a long term contract, certain changes under given circumstances might necessitate an alteration of the contract. These basic principles of insurance and also the administrative convenience of Insurer's office permit some alterations. It is generally found that as a rule, insurers do not permit alterations resulting in lower rates of premia and within the first year from the commencement of the policy.
Client: How can I differentiate between Life and General Insurance?
My Answer: Sir, a Life Insurance deals with various plans connected with the life of a person, whereas all kinds of non life insurance policies are issued by the General Insurance companies, not by our office.
Client: Thanks sir a lot, I'll take a policy. What are the documents you need now?
My Answer: Initially a Proposal form will be given by me to you and it should be filled in by the person taking insurance without concealing any material facts. The values for which insurance is to be taken is also decided by the party taking insurance (you). No bills, documentary proofs are taken by the insurance companies at the time of taking insurance, as the insurance is a contract of utmost good faith. Premium is to be given along with the proposal form for completing the insurance transaction after which the insurance company issues the cover-note or policy document to you sir!.
Client: Finally, will you please give me more details about the term 'Insurance', apart from what we discussed earlier?
My Answer: OK sir, please listen; Its my pleasure to define you again! Insurance is a financial product where you pay a premium or series of premiums. In return, if a particular event happens you will be compensated financially.
Except for life assurance, most insurance is annually renewable. This means that the insurer can change both the premium and the benefits each time, or may even decide to no longer offer insurance to you.
I told my client a warm bye bye, after having a cup of coffee from his wife.
So, readers, take your immediate decision to start a Life Insurance Policy and walk towards a prosperous future!!!
Please come back soon to view my next post on issues and plus points of Life Insurance. Meantime, you can raise your doubts by adding comments below and I try to answer in a positive and clear way. (I'm not canvassing that you've to take policy under my agency, but take an Insurance policy under any agency or from any Insurance company to safeguard your beloved family.)
Some term definitions are referred by the help of www.licindia.com
Now I brief you about the types of Insurance policies available in India (and all through the world with some small modifications) and also some important terms in Insurance, which one have to know before taking/considering a Life Insurance Policy.
I'm giving these details as a conversation, which I had with lot of customers in my field visits. One day in an early morning!!
[The client is giving a warm welcome to me at his home by keeping a plan in his mind to multiply his money (and also by giving life cover to him) with my financial tips and here starts the conversation.]
Client: Good morning, what is an Insurance policy and why I need it?
My Answer: Very good morning sir, generally, Insurance is the promise of reimbursement in the case of any loss, which may be natural or accidental; The claim or compensation amount is paid to people or companies so concerned about hazards that they have made prepayments to an insurance company, which may be of Life or General or Motor, whichever the case maybe.
Now, I'll brief you about the Life Insurance, sir.
Client: OK I heard about Insurance and associated things but . . . can you tell me what is an Endowment type of policy?
My Answer: Good question sir, an endowment life insurance policy is designed primarily to provide a living benefit and only secondarily to provide life insurance protection. Due to this reason, it is more of an investment when compared to a whole life policy. Endowment type of life insurance pays the face value of the policy either at the insured's death or at a certain age or after a number of years of premium payment term.
Endowment policy is a method of accumulating capital for a specific purpose and protecting this savings program against the saver's premature death. Many investors use endowment life insurance to fund anticipated financial needs, such as their children's college education, marriage and/or retirement.
Premium for an endowment life policy is will be little higher than the whole life policy.
Client: I think Endowment policy will suit me! Then, what is a Money Back policy?
My Answer: Yes sir, the Money Back Plan is basically an endowment type of policy for which a part of the sum assured is paid to the policyholder (you...after taking a policy) in the form of survival benefits, at fixed intervals, before the maturity date. The risk cover on the life/policyholder continues for the full sum assured even after payment of survival benefits and bonus is also calculated on the full sum assured. If the policyholder survives till the end of the policy term, the survival benefits are deducted from the maturity amounts sir.
Client: OK, apart from these two plans, what is An Annuity Scheme of Insurance?
My Answer: Annuity schemes are nothing but wherein your regular contributions over a period of time (or a one-time contribution, [the paying selection is by you!]) accumulate to form a corpus with the insurer. This corpus is used to yield you a regular income that is paid to you until death starting from your desired retirement age. however there are some annuity schemes which have the option to pay your survivors a lump sum amount upon your death in addition to the regular income you receive while you are alive sir.
Client: And I heard of Bonus for the amount I paid as premium. What is it?
My Answer: OK, Bonus is the amount which an insurer distributes its profits among it policyholders every year. Bonuses are credited to the account of the policyholder and paid at the time of maturity. (however one can ask back the bonus in the name of loans before the maturity date of the policy). Bonus is declared as a certain amount per thousand of sum assured. Also note sir, the term "bonus" is used interchangeably with "with profit".
Client: Will I get all the Profit from your Insurance Company? How I know it?
My Answer: Its nice sir! The insurer distributes its profits among it policyholders every year in the form of a bonus or profit share. An insurance policy can/may be "with" or "without" profit. In the 'with profit' type, any bonus declared is allotted to the policy and is paid at the time of maturity or death (with the contracted amount). In a "without" profit plan, the contracted amount is paid at the time of maturity or death, without any profit share. The premium rate is charged for a "with" profit policy is therefore heavy than for a "without" profit policy.
Client: Looking good, who can buy a life insurance policy? Am I eligible?
My Answer: Yes sir, you're eligible to take a policy! Any person above 18 years of age, who is eligible to enter into a valid contract, can take a policy. With certain conditions, a policy can be taken on the life of a spouse or children with parents or legal guardians as proposer.
Client: People are talking about Guaranteed Additions? What are they?
My Answer: In some of our policies, the insurer guarantees the bonus or profit declared as a certain amount per thousand of sum assured (SA). This assured bonus will be credited to the policyholder irrespective of the performance of insurance company (even though an insurer undergoes a loss in a particular financial year) and is known as Guaranteed Additions. Guaranteed Additions will be payable at the end of the term of the policy or early death of the policyholders.
Client: One more thing I heard 'Loyalty Additions'?
My Answer: Yes sir, in some of our policies, over and above Guaranteed Additions, the insurer will declare and credit to the policyholder or life assured, an additional amount per thousand of sum assured every 5 years (not every financial year closing!), depending on its performance. This additional amount is known as Loyalty Addition.
Client: Ok what all the more benefits I can have?
My Answer: In some of the policies, a part of the sum assured is paid to the policyholder in the form of Survival Benefits, at fixed intervals before the maturity date. The risk cover for life continues for the full sum assured even after payment of survival benefits and bonus is also calculated on the full sum assured (not for the SA amount minus the paid survival sum). If the policyholder survives till the end of the term, the survival benefits will be deducted from maturity value.
Client: Will I get the Accident Benefits, If I deal with you sir?
My Answer: Sure, sure, by paying an additional premium of Re. 1/- per Rs. 1000/- of Sum Assured per year, the assured is entitled to the following benefits:-
In case an accidental death happens, the nominee shall receive double the sum assured,
Alternatively in case of total and permanent disability due to accident, risk coverage continues without further payment of any premium amount. In addition to these, an amount equal to the sum assured is paid to the assured in monthly installments spread over 10 years. However, subsequent accidental death will not entitle the nominee for double the sum assured.
Client: Will there be Disability Benefits?
My Answer: Yes sir, if you become totally and permanently disabled due to any accident, you need not pay future premiums and your policy shall remain in force for the full Sum Assured.
Client: What are the options which you give to pay premium?
My Answer: When talking about premiums, other than single premiums, can be paid by the policyholders to the insurer in yearly, half-yearly, quarterly or monthly installments or through a Salary Savings Scheme. If the mode of payment is yearly or half-yearly, some insurers give a rebate (3% yearly and 1.5% half-yearly for our company) on the premium. If the mode of payment is monthly, some insurers charge an additional of 5% (this additional charge is waived for the Salary Saving Scheme).
Client: Oh can I pay monthly, then tell me about the Salary Savings Scheme?
My Answer: A Salary Savings Scheme, simply SSS, will make you pay the premiums through monthly deductions by the employer from the salary of employees. For this scheme, the additional charge of 5% of the premium usually added for the monthly mode of payments will be waived.
Client: Ok being an Employer it will not be useful to me! What loans are available to me?
My Answer: At present in our company loans are granted on unencumbered polices as follows:
- up to 90% of the Surrender Value for policies, where the premium due is fully paid-up, and
- up to 85% of the Surrender Value for policies where the premium due is partly paid-up.
The minimum amount for which a loan can be granted under a policy is Rs. 150/-. The rate of interest charged is 10.5% p.a., payable half-yearly. Loans are not granted for a period shorter than six months, or on the security of lost policies (the assured must have the duplicate policies) or on policies issued under certain plans.
Certain types of policies are, however, without loan facility.
(readers please note that the above quoted interest and loan rates are applicable to LIC of India and it is as on financial year ending March 31, 2005)
Client: What about the Surrender Value sir?
My Answer: I'll tell you brief sir. The surrender value of the policy is the cash value payable by the insurer on termination of the policy contract at the desire of the policyholder before the expiry of policy term. Generally, a policy can be surrendered provided the policy is kept in force for at least 3 years minimum. The bonus is also added to the surrender value if the policy has been in force, in most cases, for at least 5 years minimum.
Client: In case death happens to me what'll be the claim?
My Answer: Incase this misfortune happens, the claim is usually payable to the nominee/assignee or the legal successor, as the case may be or previously appointed by you. In case if the deceased policyholder has not nominated/assigned the policy or not made a will, the claim will be payable to the holder of a Succession Certificate or such evidence of title from a Court of Law.
Client: Oh know how I do Nominate my policy?
My Answer: Nomination or Assignment is that when the policy money becomes due for payment on the death of the policyholder, it can be paid only to that person who is legally entitled to give a valid and effective discharge to the corporation (our company). If the policy bears nomination, the claim is settled in favor of the nominee. Same case if the policy is assigned, the assignee receives the claim amount. You've to note that sir an assignment of a policy automatically cancels the existing nomination. Hence, when such a policy is reassigned in favor of the policyholder/life assured, it is necessary to make fresh nomination.
Client: Will my policy be a Medical and Non-Medical one?
My Answer: In normal cases, a life insurance policy is issued after a medical examination of the life to be assured. In order to facilitate greater spread of insurance and also as a measure of relaxation, some insurers do offer insurance cover without any medical examination, subject to certain conditions, at the time of underwriting.
Client: How do you effect a Change of Address to me and also Transfer of Policy Records sir?
My Answer: Good question sir, when a policyholder is in the need to change his/her address in the insurance records, notice of such change should be given to the Branch office servicing the policy. Policy records can be transferred from the Branch Office that services the policy to any other Branch Office nearest to the policyholder's home or place of work as wished by the policy holder. The correct address facilitates better services and quicker settlement of claims.
Client: Will my policy get lapse or closed by your company sir?
My Answer: Whenever the premium is not paid within the days of grace provided after the due date, the policy lapses automatically. The grace period in case of yearly, half-yearly and quarterly modes of payment is one month and in case of the monthly mode of payment, it is 15 days only.
Client: In case my policy got lapsed then how can I get revived?
My Answer: A lapsed policy of you may be revived during the lifetime of the assured, but within a period of 5 years from the due date of the first unpaid premium and before the date of maturity. Revival of a lapsed policy is considered either on non-medical or medical basis depending upon the age of the life assured at the time of revival and the sum to be revived. If the revival of the policy is completed by payment of over-due premium within 14 days from the expiry of the grace period, only the late fee for one month has to be paid sir.
Client: Can I get altered my policy as per my wish sir?
My Answer: Oh sir, strictly no alteration is permissible in the policy document - the evidence of contract, unless both the parties to the contract agree. After the policy is issued, a policyholder in a number of cases finds the terms not suitable to him/her and desires to change them to suit his/her convenience. As all insurers also realize that insurance is a long term contract, certain changes under given circumstances might necessitate an alteration of the contract. These basic principles of insurance and also the administrative convenience of Insurer's office permit some alterations. It is generally found that as a rule, insurers do not permit alterations resulting in lower rates of premia and within the first year from the commencement of the policy.
Client: How can I differentiate between Life and General Insurance?
My Answer: Sir, a Life Insurance deals with various plans connected with the life of a person, whereas all kinds of non life insurance policies are issued by the General Insurance companies, not by our office.
Client: Thanks sir a lot, I'll take a policy. What are the documents you need now?
My Answer: Initially a Proposal form will be given by me to you and it should be filled in by the person taking insurance without concealing any material facts. The values for which insurance is to be taken is also decided by the party taking insurance (you). No bills, documentary proofs are taken by the insurance companies at the time of taking insurance, as the insurance is a contract of utmost good faith. Premium is to be given along with the proposal form for completing the insurance transaction after which the insurance company issues the cover-note or policy document to you sir!.
Client: Finally, will you please give me more details about the term 'Insurance', apart from what we discussed earlier?
My Answer: OK sir, please listen; Its my pleasure to define you again! Insurance is a financial product where you pay a premium or series of premiums. In return, if a particular event happens you will be compensated financially.
Except for life assurance, most insurance is annually renewable. This means that the insurer can change both the premium and the benefits each time, or may even decide to no longer offer insurance to you.
I told my client a warm bye bye, after having a cup of coffee from his wife.
So, readers, take your immediate decision to start a Life Insurance Policy and walk towards a prosperous future!!!
Please come back soon to view my next post on issues and plus points of Life Insurance. Meantime, you can raise your doubts by adding comments below and I try to answer in a positive and clear way. (I'm not canvassing that you've to take policy under my agency, but take an Insurance policy under any agency or from any Insurance company to safeguard your beloved family.)
Some term definitions are referred by the help of www.licindia.com
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