Insurance
is contract in which one party agrees to pay for another
party's financial loss resulting from a specified event
(for example, a collision, theft, or storm damage).
Life
insurance in India made its debut well over 100 years ago.
In
our country, which is one of the most populated in the world,
the prominence of insurance is not as widely understood,
as it ought to be.
Life
insurance is a contract that pledges payment of an amount
to the person assured (or his nominee) on the happening
of the event insured against.
The
contract is valid for payment of the insured amount during:
The date of maturity, or
Specified dates at periodic intervals, or
Unfortunate death, if it occurs earlier.
Among other things, the contract also provides for the payment
of premium periodically to the Corporation by the policyholder.
Life insurance is universally acknowledged to be an institution,
which eliminates 'risk', substituting certainty for uncertainty
and comes to the timely aid of the family in the unfortunate
event of death of the breadwinner.
By and large, life insurance is civilisation's partial solution
to the problems caused by death. Life insurance, in short,
is concerned with two hazards that stand across the life-path
of every person:
That
of dying prematurely leaving a dependent family to fend
for itself.
That of living till old age without visible means of support.
IMPORTANT
GLOSSARY
Annuity:
A
contract which provides an income for a specified period
of time, such as a certain number of years or for life.
An annuity is like a life insurance policy in reverse. The
purchaser gives the life insurance company a lump sum of
money and the life insurance company pays the purchaser
a regular income, usually monthly.
Assignment:
This
is the legal transfer on one person's interest in an insurance
policy to another person or entity, such as to a bank to
qualify for a loan
Cash
Surrender Value:
This
is the amount available to the owner of a life insurance
policy upon voluntary termination of the policy before it
becomes payable by the death of the life insured. This does
not apply to term insurance but only to those policies which
have reduced paid up values and cash surrender values. A
cash surrender in lieu of death benefit usually has tax
implications.
Disability
Insurance:
Insurance
that pays you an ongoing income if you become disabled and
are unable to pursue employment or business activities.
There are limits to how much you can receive based on your
pre-disability earnings. Rates will vary based on occupational
duties and length of time in a particular industry. This
kind of coverage has a waiting period before you can begin
collecting benefits, usually 30, 60 or 90 days. The benefit
paying period also varies from 2 years to age 65. A short
waiting period will cost more that a longer waiting period.
As well, a long benefit paying period will cost more than
a short benefit paying period.
Endowment:
Life
insurance payable to the policyholder, if living on the
maturity date stated in the policy, or to a beneficiary
if the insured dies before that date. For example, some
Term to age 100 policies offer the option of taking the
face amount of the policy as a cash payout at age 100 if
the policyholder is still alive and paying all required
income taxes on the amount received or leaving the policy
to pay out upon death whereupon the payout is tax free.
Insured:
This
is the person covered by the life insurance policy. Upon
this person's death, a tax free benefit will be paid to
that person's estate or a named beneficiary.
Lapse:
This
refers to the termination of an insurance policy due to
the owner of the policy failing to pay the premium within
the grace period [Usually within 30 days after the last
regular premium was required and not paid]. It is possible
to re-instate the coverage with the same premium and benefits
intact but the life insured will have to qualify for this
coverage all over again and bring up to date all unpaid
premiums.
Premium:
This
is your payment for the cost of insurance. You may pay annually,
semi-annually, quarterly or monthly. The least expensive
method is annually. Using any of the other payment modes
will cost you more money. For example, paying monthly will
cost about 17% more. If you pay annually and terminate your
coverage part way through the year, you may not receive
a refund for the remaining months to the annual renewal
date.
The
cost of life insurance varies by age, sex, health, lifestyle,
avocation and occupation. Generally speaking, the following
is true at the time of applying for coverage; the older
you are, the more will be the cost; of a male and female
of the same age, the female will be considered 4 years younger;
health problems will increase the cost of insurance and
may result in rejection altogether; dangerous hobbies such
as SCUBA diving, private flying, bungi jumping, parachuting,
etc. may increase the cost of insurance and may result in
rejection altogether; abuse of alcohol or drugs or a poor
driving record will make getting coverage difficult.
Reinstatement:
This
is the restoration of a lapsed life insurance policy. The
life insurance company will require evidence of continuing
good health and the payment of all past due premiums plus
interest.
Term
Life Insurance:
A
plan of insurance which covers the insured for only a certain
period of time and not necessarily for his or her entire
life. The policy pays a death benefit only if the insured
dies during the term.
Underwriter:
This
could be the person (broker or agent) who helps you choose
the proper type of life insurance or disability insurance
and the insurance company for your particular needs. This
could also be the person at the insurance company's head
office who reviews your application for coverage to determine
whether or not the insurance company will issue a policy
to you.
