Under life insurance, the life of the individual is assured. This means that at the time of his/ her death, the family members receive an assured amount. Life insurance not only helps the survivors for their financial requirement after death of the earning member, but also helps in achieving financial goals during the lifetime. It also provides a tool of savings and tax planning.
With growing complexities in life and deteriorating lifestyle, the increased risk of falling prey to Medical problems have increased. In case a primary breadwinner suffers any ailment that makes him unfit for work, the rest of the family will face a severe cash crunch. It would not be possible for them to sustain their lifestyle, repay debts or even afford the high costs of treatment. Here comes 'Health Insurance'..
Every asset has a value and it provides a benefit to the owner. The benefit can be in the form of earnings or any other. If the asset is destroyed, there will be a financial loss i.e. value of asset as required to replace and earnings. Insurance policies indemnify such financial losses to the owner of the asset. General Insurance also indemnifies the owner of the asset against liability that arises due to operation of the asset.
Human being can be considered as an income-generating asset whose value depends on his or her skill and lifespan. While premature death or disability can be a huge mental setback for the dependents of the deceased, it is also a significant financial loss. Whereas living too long is a great financial burden because meeting the expenses of old age can be a challenging task. Life Insurance is the process of making alternate arrangements whereby such financial loss can be mitigated.
Life Insurance also supports the insured in the event of
Acts as collateral while applying for loans
Understanding an insurance policy
There are a few terms involved in
the process of acquiring and maintaining a life
insurance policy. Here is a Snapshot of the same:
This is the payment made to participate in an insurance scheme and to keep the insurance coverage going. Premium depends on the following points:
Type of Insurance Policy Chosen
Premium Payment Term
It is the value of the insurance cover. In the event of the death of the life assured, the sum assured is the amount that the dependent (nominee) receives. In Participating (with bonus) policies, it generally also refers to the Guaranteed Sum Receivable on Maturity.
Premium Payment Term
Is defined as the interval of period that requires one to pay the premium. The tenure of the policy and the premium paying terms can be different. Premiums can be paid monthly, quarterly, half-yearly or yearly. There are single premium policies also wherein premium is to be paid only once.
This is the duration or the number of years to be insured, the longer the term the lower the premium.
Term Insurance Plan
Term insurance in the most basic form of Life Insurance where the only direct benefit is the sum assured in the event of death. As the name implies these policies are issued for a fixed term so if the death occurs during this time the sum insured is payable. If the person lives beyond the term of the policy, no compensation is paid. This type of policy offers only pure death protection and does not have any savings or money back facility.
Whole Life Plans are insurance policies that cover the insured throughout his or her life. This means that there is no fixed premium paying term. The payment is continuous throughout the life and in the event of death of the life assured; the sum assured is paid to the family (nominee). The payment under this policy is guaranteed. Some whole life policies also fixed payout windows during, which the investors can opt to withdraw a certain amount.
A person always dreams to provide the best facilities for his family members. Once he starts earning he sets a goal to buy a house, a car, to get married and later he plans to provide the best education for his children. He always wants these facilities to be there after he retires, and even after his death.For such requirements, Endowment Plans are the most preferred. In case of survival, in addition to the sum assured, additional bonuses accumulated during the term are also paid. In case of death of the policy holder during the term, the death benefits are payable to the nominees, which includes payment of full sum assured in addition to the vested bonus.
A Unit Link Insurance Plan is basically a combination of insurance as well as investment. A part of the premium paid is utilized to provide insurance cover to the policy holder while the remaining portion is invested in various equity and debt schemes. Policy holders have the option of selecting the type of funds (debt or equity) or a mix of both based on their investment need and appetite. Just the way it is for mutual funds, ULIP policy holders are also allotted units and each unit has a net asset value (NAV) that is declared on a daily basis. The NAV is the value based on which the net rate of returns on ULIPs are determined.
ULIP is a product that unlike a Term insurance policy gives investors the benefits of both insurance and investment under a single integrated plan. A part of the premium paid is utilized to provide insurance cover while the remaining portion is invested in various equity and debt schemes. Just the way it is for mutual funds, ULIP's also allot units & each unit has a Net Asset Value (NAV) that is declared on a daily basis
Generally Nothing is Guaranteed Except the Death Cover. They are Subject to Market Risks and bear various charges.
Section 80C entitles the assesse to claim Deduction for certain Investments and Expenditure up-to Rs 1.5lacs per year. Life Insurance acquires a major space of 80C in India. For 80C deduction, the Insured Sum should at-least be 10 times of the annual premium paid.
Section 10(10D) exempts income received from a Life Insurance Policy from Tax. Exceptions are: Pension/Annuity plans, Employer Sponsored group life insurance, policy which violates the conditions of section 80C.
Life Insurance is a Contract between the Insurer and Insured. The basis of each contract is Utmost Good Faith. Thus both, insurer & insured shouldn't hide anything material for the insurance contract.
The Insured should not hide any medical ailment, lifestyle habits, heredity issues and Financial eligibility to ensure Claim Settlement. A declaration may invite extra premiums or proposal rejection, but will ensure 100% honor of contract.
An Insurance Company deploys many physical & human resources to manage it's clients. All those expenses are distributed proportionately amongst their clients.
They include Policy Administration Charge, Fund Management Charge, Policy Servicing Charges, Surrender Charges, Mortality Charges and Upfront Charges. Customer should study the charges before taking a policy
In India, a big chunk of life insurance is bought in obligation, lack of knowledge or for tax saving. However, it mostly leads to dis-satisfaction.
A customer should take time to hire a professional to Assemble, Analyze and Restructure their existing policies to suit their needs. Restructuring may require Pre-Close, Switch, Premium Holidays, Additional Purchase and lot. But it leaves you with a light head and clear understanding of where you are!!
A plan where the Entire Family is Covered in a Single Policy and people covered SHARE the total health insurance available to them is called a Family Floater. Thus, the overall claim limit of both, an Individual & the entire family is the same.
Family may contain Self, Spouse, Children and in Some Cases Parents and Other Relatives too. Here, the premiums are generally charged as per the age of the eldest insured.
When instead of an Individual or a Family, the entire Organization or a Formal Group forms a contract with an insurer, it is called a Group Insurance. It comprises of Group Health and Group Personal Accidental Insurance. It has many advantages over Individual insurance.
Benefits: Lower Premiums, High Customization, No pre-policy health checkups required, Higher age of Entry, Addition Deletion in between, Smoother Claims Settlement.
Before buying a Health Insurance Policy, one must closely notice these.
Waiting Periods: Many illnesses are out of scope of the policy for initial 30days, 1/ 2/ 4 years. These mostly comprises of treatments of pre-existing illnesses, cataract, piles, hernia, stone, joint replacement, cyst, sinus and few other surgeries.
Exclusions: There is a set of common & permanent exclusions like War, breach of law, substance abuse, dental treatment, HIV etc.
Cashless: All Insurance Co's have associations with many hospitals, a list of which is provided along with the Policy. If an insured is advised to take a treatment (within the scope of the policy) in these hospitals, they can be treated without paying cash to the hospital. The hospital raises the bill to insurance comp. which approves the allowable amount and pays directly to the hospital.
Reimbursement: Treatments taken in non-network hospitals have to be initially paid by the client. Thereafter, insured may raise all bills, prescriptions, receipts, investigations along with claim for the settlement directly to his bank account.
TPA is an organization that processes claims and performs other administrative services in accordance with a service contract with the Insurance Company. More specifically, a TPA is neither the insurer (provider) nor the insured (employees or plan participants), but handles the administration of the plan including processing, adjudication, and negotiation of claims, record-keeping, and maintenance of the plan. These are intermediaries between the Customer, Hospital and Insurer.
A Health Insurance policy mostly requires 24 hours continuous hospitalization for a claim. However their are certain conditions where a patient is eligible for a claim despite getting discharged within 24 hours of admission.
Those treatments taken in-patient in a hospital where due to technological advancement, the treatment can be done within 24 hours are day-care treatments like Cataract, chemotherapy, Cyst Surgeries, Sinus Surgeries and many more..
A mutual fund is a type of professionally managed investment fund that pools money from many investors to purchase securities. Managed by Professional Fund Managers, they aim to achieve common goals of investors by investing within the Regulations Specified.
They invest in Equities, Debt, Money Market Instruments, Bonds, Specified Commodities & many more.
Units: Just as shares represent the extent of equity ownership in a company, units represent your extent of ownership in a mutual fund. Higher the Units, Higher your shareholding in a Mutual Fund and vice-versa.
Net Assets Value (NAV): A fund's NAV equals the current market value of a fund's holdings minus the fund's liabilities (sometimes referred to as "net assets"). It is computed by dividing net assets by the number of fund shares outstanding. Thus, it's simply the monetary representation of the per unit valuation of the overall fund securities.
Open Ended Funds: Funds with Open Entry and Exit for New and Existing Investors. Close Ended Funds: These are offered for purchase only once, at the time of their launch. They can further be traded in Stock Exchanges. Exchange Traded Funds: ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. ETFs bear low costs, tax efficiency, and stock-like features.
SIP is an investment vehicle offered by mutual funds to investors, allowing them to invest using small periodically amounts instead of lump sums. The frequency of investment is usually weekly, monthly or quarterly. They are the most popular tools of Investment in Mutual Funds, and allows the investor to Average their purchase cost by periodic investments. They are the best source of Long Term Wealth Creation
STP is a variant of SIP. It is essentially transferring investment from one asset/ asset type into another asset/ asset type. The transfer happens gradually over a period. Thus, it is Investing ==> from the Invested Fund ==> to Another Fund ==> at periodic intervals.
Debt fund has core holdings are fixed income investments with investing objectives as preservation of capital and generation of income. A debt fund may invest in short-term or long-term bonds, securitized products, money market instruments or floating rate debt. They are sensitive to Interest rates of the inherited securities. Longer the Fund's Average Maturity, Higher the volatility. They are good investment options when the interest rates are prone to fall from their ever high.