What is Life Insurance

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Basics of life insurance

FAQ's on life insurance
1) What is life insurance? Life insurance is a contract for payment of money to the person assured (or to the person entitled to receive the same) on the occurrence of the event insured against. Usually the contract provides for  Payment of an amount on the date of maturity or at specified periodic intervals or at death, if it occurs earlier.  Periodical payment of insurance premium by the assured, to the corporation who provides the insurance. 2) Who can buy a life insurance policy? Generally, any person above a certain age, who is eligible to enter into a valid contract. Subject to certain conditions, a policy can be taken on the life of a spouse or children. 3) What is a Whole Life policy? When most people think of life insurance, they think of a traditional whole life policy. These are the simplest policies to understand: You pay a fixed premium every year based on your age and other factors, you earn interest on the policy's cash value as the years roll by, and your beneficiaries get a fixed benefit after you die. The policy takes you into old age for the same premium you started out with. Whole life insurance policies are valuable because they provide permanent protection and accumulate cash values that can be used for emergencies or to meet specific objectives. The surrender value gives you an extra source of retirement money if you need it. 4) What is an Endowment policy? Unlike whole life, an endowment life insurance policy is designed primarily to provide a living benefit and only secondarily to provide life insurance protection. Therefore, it is more of an investment than a whole life policy. Endowment 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. Endowment life insurance 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 college education or retirement. Premium for an endowment life policy is much higher than those for a whole life policy. 5) What is a Money Back policy? This is basically an endowment policy for which 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 on the life 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 value. Prepared by Ibexi Solutions Pvt. Ltd. Page 1

Basics of life insurance

6) What is an Annuity scheme? Annuity schemes are those wherein your regular contributions over a period of time (or a onetime contribution) accumulate to form a corpus with the life insurer. This corpus is used to yield you a regular income that is paid to you until death starting from your desired retirement age. Some annuity schemes 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. 7) What are 'with Profit' and 'Without Profit' plans? Life insurer distributes its profits among it policyholders every year in the form of a bonus/ profit share. An insurance policy can be "with" or “without” profit. In the former, any bonus declared is allotted to the policy and is paid at the time of maturity/ death (with the contracted amount). In a “without” profit plan, the contracted amount is paid without any profit share. The premium rate charged for a “with” profit policy is therefore higher than for a "without" profit policy. 8) What is Bonus? Life insurer distributes its profits among it policyholders every year in the form of a bonus. Bonuses are credited to the account of the policyholder and paid at the time of maturity. Bonus is declared as a certain amount per thousand of sum assured. The term "bonus" is used interchangeably with "with profit". 9) What are Guaranteed Additions? In some policies, Life insurer guarantees the bonus/ profit declared as a certain amount per thousand of sum assured. This assured bonus will be credited to the policyholder irrespective of the performance of Life insurer 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. 10) What are Loyalty Additions? In some policies, over and above Guaranteed Additions, Life insurer will declare and credit to the policyholder, an additional amount per thousand of sum assured every 5 years, depending on its performance. This additional amount is known as Loyalty Addition. 11) What are Survival Benefits? In some 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. If the policyholder survives till the end of the term, the survival benefits will be deducted from maturity value. 12) What is a rider A rider is an additional benefit. Most life insurance policies provide basic protection and offers additional benefits to the policyholder, at additional premium. One may choose one or more rider to expand the coverage/ benefits under the policy. Sometimes, insurers package basic and one or more rider as a composite product from marketing perspective.

Prepared by Ibexi Solutions Pvt. Ltd.

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Basics of life insurance
The most common riders are       Accidental death rider Waiver of premium rider Disability benefit rider Guaranteed purchase option Dreaded disease rider Cost of living rider

13) What are Accident Benefits? On payment of certain additional premium, accident benefit rider may be bought, which gives, usually, following additional benefits: In case of accidental death, the nominee shall receive double the sum assured,  In case of total and permanent disability due to accident, risk coverage continues without further payment of premium. In addition, 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. 14) What are Disability Benefits? Another rider under which, if the assured becomes totally and permanently disabled due to any accident, he/ she need not pay future premiums and the policy shall remain in force for the full sum assured. 15) What are the various modes of payment for premium? Premiums, other than single premiums, can be paid by the policyholders to Life 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, Life insurer may give a rebate on the premium. If the mode of payment is monthly, Life insurer may charges an additional charge to compensate for higher administrative expenses. 16) What is Salary Savings Scheme? Salary Savings Scheme provides for payment of premiums through monthly deductions by the employer from the salary of employees. Generally, this is used when the employer takes a group insurance for its employees, thereby getting some group discount in premium. 17) What loans are available against life insurance policies? Usually, loans are granted on unencumbered polices up to a specified percent of the surrender value of policies, where the premium due is fully paid-up. If the premium due is not fully paid up, this percent may be lower. Life insurer may specify the minimum loan amount, rate of interest, policies eligible for loan etc.

Prepared by Ibexi Solutions Pvt. Ltd.

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Basics of life insurance

18) What is Surrender Value? The cash value payable by Life insurer on premature termination of the policy contract ( at policyholder's discretion) is known as the surrender value of the policy. A policy can be surrendered provided the policy is kept in force for at least a certain number of years. The bonus is also added to the surrender value if the policy has been in force for specified period. 19) What is a Death Claim? The death claim is usually payable to the nominee/assignee or the legal successor, as the case may be. However, if the deceased policyholder has not nominated/assigned the policy or not made a will, the claim is payable to the holder of a succession certificate or such evidence of title from a court of law. 20) What is Nomination/Assignment of a policy? 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. If the policy bears nomination, the claim is settled in favour of the nominee. Similarly, if the policy is assigned, the assignee receives the claim amount. It should be noted that an assignment of a policy automatically cancels the existing nomination. Hence, when such a policy is reassigned in favour of the policyholder, it is necessary to make fresh nomination. 21) What are Medical and Non-Medical schemes? Life insurance is normally offered after a medical examination of the life to be assured. However, to facilitate greater spread of insurance and also as a measure of relaxation, Life insurer could extend insurance cover without any medical examination, subject to certain conditions. 22) When does a policy lapse? When the premium is not paid within the days of grace provided after the due date, the policy lapses. The grace period may vary depending upon the mode of payment of premium, usually from 15 days for monthly premium payment plan to a month for yearly premium payment plan . 23) How can a lapsed policy be revived? A lapsed policy may be revived during the lifetime of the assured, but within a specified period of 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 a specified period (usually in days) from the expiry of the grace period, only the late fee has to be paid. 24) Can a policy be altered? 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. Keeping in view the basic principles of insurance and administrative convenience and the fact that life contracts are long term contracts, Life insurer permits some alterations. Prepared by Ibexi Solutions Pvt. Ltd. Page 4

Basics of life insurance

25) What happens if the policy document is lost? The loss or destruction of a policy document does not in any way absolve the Life insurer of the liability of payment of policy monies when the claim arises. If the policy is lost or destroyed, claim or sum assured will be paid to the claimant or policyholder after he/she furnishes an indemnity bond jointly with one surety. Similarly, a policy can be surrendered even if the original policy document is lost. However, for the purpose of loan or survival benefit one has to obtain a duplicate policy. The policy being a legal document, the issue of duplicate policy involves the normal procedures like issuing a newspaper advertisement, surety, etc.

Prepared by Ibexi Solutions Pvt. Ltd.

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