LIFE INSURANCE IS MEANT TO MITIGATE THE ADVERSE FINANCIAL CONSEQUENCES THAT MAY FOLLOW BECAUSE A PERSON DOES NOT LIVE LONG ENOUGH OR BECAUSE HE LIVES TOO LONG EVERY ADVERSE CONSEQUENCE THAT NEEDS TO BE TAKEN CARE OF, CONSTITUTES A NEED FOR LIFE INSURANCE.
The needs of people for Life Insurance are as under:
Level 1.Family: Protection of the interest of the family against loss of income due to death of the bread-earner.
Level 2. Children: Provision for higher education, marriages, start of career.
Level 3. Old age: Post-retirement or after working life income for self and family/dependants.
Level 4. Special Needs: Disability, accidents, expenses for treatment of diseases, loss/depletion of income due to sickness etc.
Level 5 Avoiding the loss of wealth (assets) due to unforeseen events or inflation.
Various plans as under are available to take care of these needs. Some of the popular plans are as under:
The cheapest form of assurance is the Term Assurance Plan. Under this, the Sum Assured is payable on the death of the insured during the specific period. If death does not occur, there is no payment from the insured. Since only death is covered, the premium is low and the contract is simple. This is a very useful plan for young people starting their professional career.
Endowment plan is a combination of insurance and investment in contrast to a Term Plan which offers no maturity benefit. In Endowment plan, if the life assured dies within the policy period, his nominee will get the policy money. In case of survival of the life assured throughout the term of the policy, he gets the sum assured plus other benefits in form of interim bonus or vested bonus. This is a very useful policy where a lump sum money is required at a specific point for some purpose.
A Unit Linked Insurance Plan (ULIP) is a product offered by the Life Insurance Companies, which unlike a pure life insurance, gives the policyholders the benefits of both Insurance and investment under a single plan. Under ULIP, a portion of the premium paid is utilized to provide Insurance cover to the policyholder while the remaining portion is invested in various equality and debt schemes. The policyholder has the option of selecting the type of funds and the returns are subject to the performance of the funds. In other words, ULIPs always remain subject to market risks/conditions. Such plans come with various features like top-up facilities, switching between funds, etc.
Annuity is often called the reverse application of the Life Insurance principle. Annuity, in its simplest form, provides for a single payment of premium by the annuitant and a promise that the insurer will pay a given amount periodically, to the annuitant, during his lifetime, starting immediately or from a future date.
Insurance can be taken on the lives of children, who are not majors. The proposal will have to be made by a parent or a guardian, in these plans, risks on the life of the insured child will begin only when the child attains a specified age. Practices vary widely. The time gap between the date of commencement of the policy and the commencement of risk is called the "Deferment Period"
There is no insurance cover during the deferment period. If the child dies during the deferment period, the premiums will be returned Risk will commence automatically on the deferred date, without any medical examination. The main advantage of these plans is that the premium would be relatively low and cover will be obtained irrespective of the state of health of the child on the deferred date.
PREMIUM RATING FACTORS
AGE. SUM INSURED CHOSEN, GENERAL HEALTH, HABITS TENURE OF POLICY CHOSEN ADDITIONAL BENEFITS CHOSEN PARENTAL MEDICAL HISTORY, MORAL HAZARD ETC.
